Jaypee In Insolvency Case; Homebuyers To Raise Claims Till August 24
While you may have admired the roadways between Delhi and Agra that is Noida Expressway, its creator, Jaypee Infratech, is undergoing insolvency proceedings. Thousands of homebuyers are now in a tight position as they have invested in projects of this developer.
What is it all about?
The National Company Law Tribunal (NCLT) has started insolvency proceedings against Jaypee Infratech. The petition was filed by IDBI Bank under the Insolvency and Bankruptcy Code which was introduced in 2015. The Code was refreshed and brought into picture back then in an attempt to take speedy action against failed businesses within 180 days. This facilitates lenders, creditors and companies to initiate insolvency proceedings.
What is Jaypee’s debt as of now?
The company’s debt amounts to Rs 8,000 crore. Under normal circumstances, assets of such companies are sold in order to reduce the burden of debts. But, despite the company having almost four parcels of 1,200 acres each on the Yamuna Expressway and the Noida-Greater Noida Expressway, a weak market sentiment gets in between such an action. As a result, these parcels cannot be liquidated so quickly to recover costs.
What has the court suggested?
Jaypee Infratech has been asked to clear debts within 180 days or find a resolution within the stipulated period. The time frame can be extended by another 90 days. The court has also provided homebuyers and banks to raise claims by August 24, 2017. In the meanwhile, an insolvency professional will look into these claims.
The NCLT has also appointed Anuj Jain as the CEO of Jaypee Infratech who would have to see through the insolvency proceedings. If the company restores its merit and credibility within the next six months (can be extended by another three months), there wouldn’t be much to worry. However, if it fails to do so, the assets of the company would be frozen and sold to recover the debts.
Has this happened before?
Yes. Jaypee has been in the spree to sell its assets - hydropower projects in Himachal Pradesh to Sajjan Jindal's JSW and cement units to Orient Cement and A.V. Birla's Ultratech over the last three years. Reports claim that the company’s worth outweighs its debts but because its worth would take time to mature, the liquidity crunch has failed the company as of now.
Are homebuyers safe?
“In the interim till the company has been asked to find a resolution, homebuyers are in a safe period,” says advocate Ashok Nigam, practicing in the Delhi High Court.
However, there are some pressing questions that home buyers have on their mind:
- What will happen to allottees? Do they get the ownership of land or whatever structure has been built?
- Is the creditors’ interest paid heed over that of home buyers?
In short, there is every reason for homebuyers to worry.
First, allottees usually do not have any claim on land or the units unless a relevant government body has made a provision or received its dues from the developer. Second, in most cases the secured creditors (banks) have the first claim on the money that would be generated from the auction. The banks do not waive loans on securities such as land. It is only after this that the individual buyers’ interests are usually considered. Meanwhile, no parent company holds any obligations.
Advocate Atulay Nehra says, "In the present case if the creditors / banks plan to re-finance the project with new contractors or with the help of the state the allottees may expect to get their houses in a distant future. No they do not get ownership of any land or structure - either they get their flat or money."
Also, the public money / the banker's money will be paid first , if the assets of Jaypee are liquidated for recovery of money. Once declared bankrupt, the company will have to give off the rights over all the assets - which will be liquidated to recover the losses / dues of the banks and individual claims, he adds. Moreover, all those who have invested and have not got their houses need to fill out this form (can be filed online) or this one and be a part of the court proceedings too . In case the liquidation proceedings are executed, the investors may expect to get their money as per their claims filed within 24th August 2017.
However, homebuyers are insistent that their claims be heeded as much as that of the creditors. Reports claim there could be as many as 35,000 homebuyers and close to 10 home buyers’ associations that would take up this matter. As of now, liquidating the company, if need be, is 270 days away. While banks could look into restructuring the loans, waiving the loans may not be an option available to home buyers. The EMIs will continue despite the fact that the property owners may be left in the lurch. However, waiving it off is not an option because credit ratings of buyers get affect while the banks too may suffer if their non-performing assets (NPA) increase.
According to a media report, India’s bankruptcy courts are at the moment trying to resolve Rs 8 lakh worth of loan defaults or NPA’s.
- Home buyers will have to give details of the amount they have paid the company on a prescribed form. This is a legal requirement and will record the total amount that may have to be paid back to the homebuyers in case all attempts to revive the company fail.
- Homebuyers cannot file cases in courts for recovery of money after the company has been classified as insolvent but the right to get the allotted house does not get diluted. Therefore, affected home buyers should compel state development authority to direct the company to keep its promise of delivering the project.
Will there be a new project completion timeline?
It is likely. Given that the focus is now on clearing the debts of the company, new completion schedules may be set.
Are all projects by Jaypee unsafe at the moment?
Under-construction projects by Jaypee Infratech may see some delays.
Other developments in this case:
- The Noida Authority has promised to protect home buyers' interests. Noida Authority CEO Amit Mohan Prasad was quoted saying, "Hard earned money of home buyers will not be allowed to go down the drain."
- The authority will also work on rescheduling the payment plan under which builders will be directed to deposit the dues within a specified period.
- Unsold inventory of Jaypee would be taken over by the Authority and auctioned to recover dues and has already written to the Uttar Pradesh government for permission.
- In the interim, before 24 August, a buyer, who comes under category of a financial creditor needs to file form-C. The form can be downloaded from the website.
- Meanwhile, Union finance minister Arun Jaitley assured that home buyers who have paid money to the real estate developers should and will get their homes.
Home buyers get together on roads and social media
Thanks to social media, home buyers in all of Jaypee's under-construction properties are getting together on Facebook and WhatsApp groups to communicate the developments as well as show solidarity.
Here are some conversations doing the rounds:
They are not the only ones. Sakal Bhushan, lawyer by profession writes on Facebook, "I have read the IBC thoroughly. My conclusion which I have got approved from a retired judge of Supreme Court is that we need not file any form at present; in fact there is no form prescribed for home buyers (creditors). Forms are only for the financial and operational creditors including workmen and employees. The reason is that at resolution stage the other creditors like home buyers are not affected; it is only when a company moves to the next stage of liquidation (if resolution fails) that the other creditors like home buyers come into picture for distribution of the proceeds in order of preference under Section 53 of IBC. So please don't panic."
However, given Jaypee's public announcement on its website, some home buyers are leaving no stone unturned to do what looks confusing and needful at the same time. In a press release dated 12 August, Anuj Jain, Interim Resolution Professional assures home buyers and says, "The Corporate Insolvency Resolution Process (CIRP) is not a proceeding for liquidation. It is a process to find a resolution for the current situation. I am conscious of the interest of key stakeholders including flat owners. As Interim Resolution Professional, it is my duty to endeavour to protect and preserve the value of the property of the Company and manage its operations as a going concern including continuation of ongoing construction."
On the claims front, Jain says, "Over the next few days I will collect the necessary information to prepare an information memorandum of the Company...The claim is required to be filed (by creditors and flat owners) in the requisite format as prescribed by the IBC and the regulations framed thereunder. The requisite format of all the above forms will be placed on the website of the Company on Monday 14th August 2017 and can be downloaded from there." Jaypee's public announcements and forms are here.
Jeetender Gupta, advocate, Delhi High Court says, Not every Jaypee investor would be required to file claim before NCLT insolvency professional but only the Jaypee Infratech investors.
Jaypee has informed all stakeholders the following:
"Please note that merely because the claim may have been filed in a wrong form by a Creditor will not disqualify the claim from being considered. Further, if any Creditor fails to file proof of claim or complete proof of claim along with the form will also not disqualify the claim from being considered. Such proof can be filed at a later date but not later than approval of resolution plan."
Some FAQ's about claim filing
Lawrato, a network of 5000 lawyers answer some of your doubts:
What if I do not want to file a case against the builder?
Here’s a look at Jaypee’s under-construction projects in the National Capital Region:
Launched January 2007, Noida Expressway, Sector 134.
Launched April 2010, Noida Expressway, Sector 133.
Launched July 2012, Noida Expressway, Sector 131.
Launched December 2011, Yamuna Expressway, Sector 25
Launched November 2011, Noida Expressway, Sector 133
Sun Court 3
Launched January 2012, Greater Noida Central, Swarn Nagri
Launched August 2012, Noida Expressway, Sector 128
The Kalypso Court
Launched June 2008, Noida Expressway, Sector 128
Launched June 2011, Noida Expressway, Sector 134
Launched May 2012, Noida Expressway, Sector 128
Budh Circuit Studios Phase 1
Launched April 2013, Yamuna Expressway, Sector 25
Budh Circuit Studios Phase 2
Launched April 2013, Yamuna Expressway, Sector 22D
Launched August 2010, Noida Expressway, Sector 151
Launched September 2013, Yamuna Expressway, Sector 19
Launched October 2013, Yamuna Expressway, Sector 22D
Villa Expanza Country Homes II
Launched September 2013, Yamuna Expressway, Sector 25
Lunched December 2007, Swarn Nagri
Launched August 2013, Yamuna Expressway, Sector 22D
The Castille 3
Launched January 2014, Swarn Nagri
Launched April 2014, Noida Expressway, Sector 128
Launched February 2014, Yamuna Expressway, Sector 22D