A Paradigm Shift In Outlook Towards Third Party Security?

The recently introduced Insolvency and Bankruptcy Code, 2016 ("IBC") has brought in its wake several judgments and orders which are changing the landscape of the financial markets in an unprecedented manner.

Continuing in the same vein, the Hon'ble National Company Law Tribunal ("NCLT"), Allahabad Bench has transformed the settled principles of third party security whilst deciding the company applications in the matter of Jaypee Infratech Limited ("JIL").

In the said matter, JIL created a mortgage over its immovable properties admeasuring approximately 858 acres, as security for loans disbursed by several lenders to its holding company, Jaiprakash Associates Limited ("JAL"). Whilst the said mortgage was admittedly created by JIL at time when JIL was not in a position to service its lenders and had been declared a non-performing asset by some of its lenders, it appears that the provisions of IBC would be mutatis mutandis applicable to any third-party security