In Brief
The Supreme Court held that Jaypee Infratech Limited (JIL) gave preferential transactions to its holding company Jaiprakash Associates Limited (JAL) by mortgaging 858 acres of unencumbered land to secure JAL's loans from banks, without direct consideration to JIL itself. The Court found these mortgages fell within Section 43 of the Insolvency and Bankruptcy Code as preferential transactions given at a relevant time to a related party, not in ordinary course of JIL's business. The Court also held that the lender banks, despite holding security interests, are not financial creditors of JIL under the Code because they extended no direct financial debt to JIL requiring disbursement for time value of money. The mortgages were ordered avoided, and the lenders' claims for financial creditor status were rejected.
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