SC Directs NCLT To Complete Insolvency Proceedings Against Jaypee In 6 Months
In a setback for the harried homebuyers in Jaypee's projects, the Supreme Court (SC) on August 9 handed over the case to the Allahabad Bench of the National Company Law Tribunal (NCLT) for resolution in six months. It has also barred Jaypee promoters from participating in the fresh bidding process. This has come as a jolt to homebuyers who were expecting state-owned National Building Construction Company (NBCC) to complete the insolvency-hit builder's stalled projects.
While homebuyers are now upset considering no conclusive resolution is in sight, the SC has said that homebuyers should be included in the committee of creditors in line with the amendments made to the Insolvency and Bankruptcy Code, 2016. Meanwhile, Rs 750 crore, which was deposited by the company to compensate homebuyers has been transferred to the NCLT.
Let us look at what transpired in the past one year in what is being termed as one of the first insolvency cases against a real estate developer in India.
The fall of the titan
A year has passed by since the NCLT admitted the insolvency petition moved by IDBI Bank against Jaypee Infratech, one of the leading real estate developers in the National Capital Region. The developer was booked under Section 7 of the Insolvency and Bankruptcy Code, 2016, and was asked to clear its debts or find a resolution within 180 days, extendable by another 90 days. Affected homebuyers, who till date await the delivery of their homes, were also asked to raise claims. One year on, homebuyers in Jaypee’s projects are still staring at uncertainty.
The courtroom drama
Launching action against the company liquidation because it could have jeopardised their interest (homebuyers were unsecured investors before the Insolvency Code was amended. This would have meant they would have been the last in the line to make claims in case the company was declared insolvent), several buyers moved the Supreme Court (SC) against the IDBI Bank’s move.
Admitting several petitions, the apex court directed the developer to pay Rs 2,000 crore, barred top management of the company from leaving the country and also directed that the non-institutional directors of the parent company, Jaiprakash Associates Limited (JAL), to appear in person and furnish details of their personal assets.
In November, the developer submitted a demand draft of Rs 275 crore and was asked by the court to deposit Rs 275 crore in two tranches by December-end. This amount was submitted by the developer within the set deadline.
In the meantime, the top court ordered that a web portal be created where aggrieved homebuyers – estimated to be 35,000 in number – could register their complaints.
In May this year, the SC stayed the liquidation proceedings and asked the Jaypee promoters to deposit Rs 1,000 crore by June 15 to refund homebuyers. Later in July, the apex court reduced this amount to Rs 600 crore, and said it would ask the NCLT to expedite the case and decide on revival or restructuring. Latest reports indicate JAL will deposit the Rs 600 crore in seven installments for paying the principal amount to the homebuyers.
Amid the courtroom drama that involved several alterations in timeframes, strategies and restructuring process, affected homebuyers took to the streets, and to the internet demanding stern action against the developer. While some of these homebuyers were looking for a refund of the money, others placed their demand of early possession. Some of them have been waiting for the possession of their flat for over a decade.
As the unrest among homebuyers grew, Union Minister Arun Jaitley and Uttar Pradesh Chief Minister Adityanath assured them justice.
The state government appointed a three-member committee to look into homebuyers’ grievances.
Later the Yamuna Expressway Industrial Development Authority (YEIDA) said that homebuyers in Jaypee's six scrapped projects – Budh Circuit-01, Budh Circuit-02, Nature View, Boulevard, Aman-III and Udaan – would be refunded at any cost.
The growing uncertainty
Initially, Jaypee had planned to raise Rs 2,500 crore from the Yamuna Expressway project to refund buyers. That plan did not work out. Plans of a takeover of the insolvency-hit company did also not materialise.
When Lakshadweep Pvt Ltd, a joint venture between Sudhir Valia-led Suraksha Asset Reconstruction Company and Mumbai-based Dosti Realty, won the bid to buy the company for Rs 7,350 crore, Jaypee declined the offer on the grounds of undervaluation. Independent valuations had estimated Jaypee's liquidation value at Rs 14,798 crore.
Rumours of a takeover by Vedanta were also refuted by the company.
It also put forth an affidavit in the SC, stating that with the help of interim funds, it could finish its under-construction flats.
In another move to placate them, Jaypee offered to give 2,000 shares to each of its homebuyers and proposed to bear 50 per cent of stamp duty on first registration as part of the offer. This offer received a cold response.
The winning moment
The sole winning moment for the affected homebuyers so far has been the awarding of ‘financial creditors’ in insolvency proceedings. Through an amendment in the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, the government has brought homebuyers on an equal footing with financial institutions. Under the changed norms, homebuyers along with banks will have the first claim on a company’s asset in case it is liquidated.
Also read: Homebuyers Are Now Financial Creditors