Why thousands of Jaypee homebuyers stand on shaky ground
Their perceived vulnerability stems from the fact that homebuyers figure very low in the creditors’ order for payment of dues under the Insolvency Code.noida Updated: Aug 25, 2017 14:29 IST
The insolvency proceedings launched against Jaypee Infratech (JIL) have left over 30,000 people who invested in apartments spread across 27 projects of the real estate firm standing on shaky ground.
This vulnerability stems from the fact that homebuyers figure very low in the creditors’ order for payment of dues under the Insolvency Code. Once the resolution and liquidation process is completed, a portion of the proceeds will go towards recovering liquidation costs. The workmen will be paid next, followed by banks and financial institutions involved in the projects. Payment of salaries to other employees will be made subsequently, after which government dues will be settled. It is only then that homebuyers will be taken into consideration.
The Jaypee Group is developing projects spread over 3705 acres along the Noida-Greater Noida Expressway and Yamuna Expressway in Gautam Budh Nagar district through its two promoter companies - Jaypee Infratech and Jaiprakash Associates Ltd. The corporate insolvency resolution process has been initiated only against Jaypee Infratech which is developing 27 projects (Full list of projects here) including apartments and plots in Wish Town and Aman in Noida and Sports City in Greater Noida. Projects promoted by Jaiprakash Associates in Noida’s Wish Town and Jaypee Greens in Greater Noida are unaffected by the insolvency proceedings.
The creditors committee, set up by the Insolvency and Bankruptcy Board of India, will look at ways to recover JIL’s debt, and liquidate company assets if required. This process will go on for around six months, with a grace period of another 90 days.
JIL’s consolidated debt stood at over Rs 7,900 crore with a negative interest coverage ratio as on March 31, which goes to show that the company is not earning enough to repay its debt.
Earlier this month, these concerns had forced homebuyers to move the Supreme Court against the insolvency proceedings launched in the National Company Law Tribunal (NCLT). Contending that such an action would prevent homebuyers from getting either the promised flats or compensation from the JIL, they asked the apex court to take steps aimed at protecting their interests.
Some legal experts, such as senior lawyer and NCLT bar association member Saurabh Kalia, believe homebuyers should not hold back on monetary payments to JIL on account of the ongoing controversy. “Despite the insolvency proceedings, homebuyers who are yet to get possession of their houses should continue paying their EMIs. The insolvency resolution professional will definitely look at ways to keep the construction work going,” he said.
However, financial experts in the know of JIL’s books say the company is unlikely to have enough money to continue building. “The NCLT-appointed interim resolution professional will have to check the extent of dues owed to contractors for the housing projects,” said a banker on the condition of anonymity.
Doubts have also been raised about the liquidation of JIL’s assets being able to generate enough funds to repay homebuyers after other creditors are compensated. Sources in the government say they are working on amending the Insolvency Code to help homebuyers in this regard.
“We have to amend the code to create a separate category for homebuyers or bring in a new definition that clubs them with creditors such as banks and financial institutions,” a government official said.
The Allahabad bench of the NCLT admitted insolvency proceedings against JIL on August 9, after IDBI Bank – the leader of a consortium of lenders to the company – moved a petition that pointed out that the real estate had defaulted on a Rs 526-crore loan.
JIL was among the 12 companies that were referred to the NCLT following a Reserve Bank of India order asking banks to launch insolvency proceedings for recovering dues.
First Published: Aug 25, 2017 13:22 IST