SC asks NCLT to deal with insolvency proceedings against Jaypee group
The Supreme Court on Thursday asked the Allahabad branch of the National Company Law Tribunal (NCLT) to initiate fresh insolvency proceedings against Jaypee Infratech Limited (JIL) and reconvene the committee of creditors (CoC) to include a representative of homebuyers, who said they had been let down by the ruling that will mean longer delays in receiving compensation for the flats they haven’t received for a decade.
A bench led by chief justice Dipak Misra also allowed the Reserve Bank of India (RBI) to direct banks to initiate corporate insolvency resolution proceedings against JIL’s parent company Jaiprakash Associates Limited (JAL).
Homebuyers, who are being treated as financial creditors under an amended Insolvency and Bankruptcy Code (IBC), were bitterly disappointed by the order, which said they wouldn’t be allowed a preferential refund of money they have paid to the developer.
“The facts which have emerged before the Court from the application filed by the RBI clearly indicate the financial distress of JAL and JIL,” said the bench, also comprising justices AM Khanwilkar and DY Chandrachud. The court rejected JAL’s request to participate in the fresh bidding process for JIL. Their promoters too shall be ineligible, the court said.
Jaypee Infratech had in 2007 proposed to build 32,000 flats and sell some plots under the Integrated Wish Town project located in sectors 128, 129,131, 133 and 134 along the Noida-Greater Noida Expressway. Jaypee Infratech, which developed the 165-km Yamuna Expressway and Formula One circuit, promised buyers that the flats would be delivered starting in 2011-12. It has delivered around 12,000 flats and plots. But it failed to deliver around 20,000 flats in its Wish Town and Jaypee Aman projects.
The NCLT will now start fresh insolvency proceedings against JIL, initiated by IDBI Bank, after the realtor defaulted in paying back a loan of Rs 526 crore, under the amended IBC that puts homebuyers on par with financial creditors.
The old law had kept homebuyers outside the category, and they were the last in line to get their money back. It was for this reason that the homebuyers had challenged the earlier insolvency proceedings, which failed, leaving the company tribunal with no other option but to order JIL’s liquidation under the IBC. The top court had ruled out liquidation, saying it wouldn’t benefit homebuyers.
The top court had earlier assured homebuyers a refund of their money, and Thursday’s ruling means the proceedings will now start all over again
“It takes us back to square one as the homeowners continue to get entangled in legal technicalities of IBC,” said Ashwarya Sinha, lawyer for Chitra Sharma, the first to approach SC against the NCLT order accepting IDBI’s plea to start insolvency proceedings against JIL. “The only redeeming feature is that homeowners have significant voting power in the CoC meetings in view of the recent amendments,” he said.
SC also transferred the NCLT the Rs 750 crore JIL had deposited with it subsequent to the court order. Homebuyers had prayed for disbursal of the amount on a pro-rata basis to them. The bench said the new IBC didn’t permit it to direct a “preferential payment”. As homebuyers have been defined as creditors, it would be improper and unjust to order payment to a “particular class” of creditors, the court said.
“We are highly disappointed with the SC order. The bidding process has already wasted one whole year and now the same process will be started again. We have already suffered as the builder delayed delivery of flats for the last 10 years. And now the SC also couldn’t provide any relief and do justice to home-buyers,” said Krishan Mitroo, a buyer and retired army officer.
SK Nagrath, president of the Jaypee Aman Buyers Association, said: “We are calling a meeting of the homebuyers to plan the next course of action. We are thinking to file a review petition in the Supreme Court and also meet central government ministers to look out for a solution without further delay.”
Lawyer Sinha said the order in Jaypee’s case was strange given that a co-ordinate bench of the top court was dealing with an identical situation in the case of the Amrapali group. “But in that case the court has roped in NBCC (India) Ltd. to take over the project to ensure homebuyers get their houses and do not keep fighting in various courts for their rights,” Sinha added.
The Jaypee Group urged homebuyers to trust the realtor. “We are waiting for the certified copy of the order. We will read it and then adhere to it. We will follow the directions made by the court. We want to tell the homebuyers that they should have faith in the Group,” said Ajit Kumar, legal advisor to the Jaypee Group.
Kumar said the group would make all efforts to finish and deliver the projects,
“With the amendment brought about by the ordinance promulgated in June 2018, the interests of the homebuyers have been sought to be safeguarded. Accordingly, we accede to the request made on behalf of the RBI to allow it to follow the recommendations to initiate proceedings against JAL under the IBC,” the top court said.
In exercise of its special powers, SC said the 180-day period by when insolvency proceedings need to be completed will start from Thursday. And, if necessary, the NCLT can pass appropriate orders if a further extension is sought.
The interest accrued on Rs 750 crore lying with the SC registry too was transferred to the NCLT. SC also permitted the Insolvency Resolution Professional (IRP), appointed during the earlier insolvency proceedings, to invite fresh resolution proposals from potential buyers. This would be in additional to the three already short-listed bidders.