It said that Section 43 of the code provides for the avoidance of preferences given by a corporate debtor and also invalidates any transfer of property or creation of an interest thereof by it during the look-back period to a person on account of antecedent debt or other liabilities which have the effect of putting such creditor, surety or guarantor in a better position in the liquidation waterfall than the position which it would have been in if such transfer had not been made. The Supreme Court on Thursday sought response from the lenders of Jaiprakash Associates (JAL) as to why they should not be asked to return a land bank of 858 acre to Jaypee Infratech (JIL), which is undergoing insolvency proceedings. JAL, the parent company of JIL, had mortgaged the latter’s land bank to secure loan of Rs 20,510 crore from a consortium of around 20 banks including State Bank of India, Axis Bank, ICICI Bank and Standard Chartered Bank. A bench led by Justice AM Khanwilkar issued notice to JAL’s lenders on an appeal by homebuyers challenging the National Company Law Appellate Tribunal’s August 1 order that allowed JAL lenders to control over 858 acres of JIL land. The next hearing of the case will be on October 17. Stating that the NCLAT had “erroneously legitimised certain transactions which they apprehend were “preferential,” Jaypee Green Krescent homebuyers said that the appellate tribunal overlooked the fact that the transactions were entered into by the corporate debtor in its run-up towards insolvency, where the management of JIL was aware of the impending insolvency event as its accounts were already declared NPA. They further alleged that the preference was given to creditors of JAL and they got a “favoured treatment.” “… there was no viable explanation for entering the impugned transactions for the benefit of JAL, when the corporate debtor itself was facing acute financial crunch,” the petition stated. It said that Section 43 of the code provides for the avoidance of preferences given by a corporate debtor and also invalidates any transfer of property or creation of an interest thereof by it during the look-back period to a person on account of antecedent debt or other liabilities which have the effect of putting such creditor, surety or guarantor in a better position in the liquidation waterfall than the position which it would have been in if such transfer had not been made. According to the petition, the resolution professional under Section 25(2)(j) of IBC is duty-bound to examine all the transactions undertaken by the corporate debtor during the period of two years preceding the insolvency commencement date and file an application for avoidance of transactions. “The management of the corporate debtors, related parties and their creditors often have the benefit of superior information of the financial affairs and may collude to siphon off assets with the knowledge that the corporate debtor may become insolvent in the near future,” the homebuyers stated. However, the JAL lenders told the apex court that the transactions were made in the ordinary course of business and there was nothing to show that they were made to defraud the JIL creditors. NCLAT had set aside a National Company Law Tribunal Allahabad bench’s May 16, 2018 order, which had directed JAL to return the land to JIL and discharge the interest created over the patch of land to lenders. The tribunal had quashed the deal and termed the transaction as “fraudulent” and “undervalued.” The NCLAT had on July 30 extended the CIRP period of JIL for 90 days during which fresh bids for the company can be submitted. Though fresh bids can be submitted by NBCC, Adani Infrastructure and Development, among others, the NCLAT had held JAL eligible to place new bids. Appeals against this NCLAT judgment are pending before the Supreme Court. In the first round of insolvency proceedings conducted last year, the Rs 7,350-crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders. In October 2018, the RP had started second round of bidding. On the suggestions of the SC, NBCC is supposed to file its revised plan to complete the pending projects. The Adani group is also now in the fray with its unsolicited bid. The IDBI Bank-led consortium had initiated insolvency proceedings against JIL for failing to repay debt of around Rs 24,000 crore. The NCLT had admitted the IDBI Bank-led consortium’ plea.