In a relief to IDBI Bank and others in the consortium of lenders to Jaypee Infratech, the Supreme Court on Monday not only restored the insolvency resolution proceedings against the real estate developer that were stayed on September 4 but also expedited it. However, while modifying its previous order, the court continued to lend a helping hand to the firm’s 32,000 flat buyers, by directing the National Company Law Tribunal (NCLT)-appointed interim resolution professional (IRP) to take over the “records and management” of the company and submit an interim resolution within 45 days (against 270 days granted by the Insolvency and Bankruptcy Code of India (IBC), 2016), which shall include the interests of “low- and middle-income home buyers”.
To be sure, the apex court also appointed senior counsel Shekhar Naphade and counsel Shubhangi Tuli to participate in the meetings of the Committee of Creditors to “espouse the cause of home buyers and protect their interests”.
Also, the court asked the real estate firm’s parent company Jaiprakash Associates to deposit `2,000 crore with it on or before October 27; of course, without the IRP’s consent, no property can be sold by the firm.
The SC’s latest order could set a precedent on how to balance the rights of creditors and home owners under IBC. The code is still ambiguous on the relative rights of home buyers, even though a recent amendment by the government brought them in as stakeholders. In terms of the order of preference among the stakeholders in laying hands on the assets of a company liquidated under the code, secured creditors come first followed by unsecured ones and the government.
Describing the turmoil faced by flat buyers of Jaypee Infratech a “human problem of high magnitude”, a bench headed by Chief Justice Dipak Misra said that it is not “concerned about the companies, but only about the interest of home buyers and creditors”.
The court will hear the matter next on November 13.
IDBI Bank through senior counsel AM Singhvi had earlier said that the stay order had the impact of transferring the control and management and bank accounts of Jaypee back to its promoters, who had led the company to the current situation. The lender has a debt of `4,000 crore out of the total consortium debt of Rs 10,000 crore to the Jaypee Group.
Commenting on the September 4 stay order, insolvency law expert Sumant Batra had told FE earlier that it amounted to barring the IRP from functioning and even restoring the suspended board of directors of Jaypee Infratech. With Monday’s modified order, these fears are settled.
The judges also restrained all directors and managing directors of Jaypee Infratech and the holding company who were on board at the time of initiation of the insolvency proceedings from travelling abroad without prior permission of the court. However, nominee directors of the lenders — IDBI Bank, ICICI Bank and State Bank of India — have been exempted.
Senior counsel P Chidambaram, who represented 2,500 home buyers belonging to 10 associations, argued that they are financial creditors and the biggest stakeholders, having contributed around Rs 15,000 crore, whereas IDBI Bank, the largest lender to the Jaypee Group, had given a loan of Rs 9,000 crore only. Other home buyers were represented by senior counsel Ajit Sinha and Anand Grover. IBC was represented by additional solicitor general Tushar Mehta.
Senior counsel PS Pathwalia and RS Suri, representing Jaypee Infratech and Jaiprakash Associates, respectively, said that they have mortgaged over Rs 17,000 crore of assets with IDBI Bank and even the value of assets in duress is Rs 15,000 crore. The counsel, however, said that the group has no money to pay as of now, but is keen to deliver the flats.
About 32,000 home buyers who had invested in the realty major’s 27 housing projects in the national capital region were left in the lurch after the Allahabad bench of the NCLT on August 9 admitted IDBI Bank’s plea for initiating insolvency proceedings against the firm for defaulting on a Rs 526-crore loan. The tribunal had appointed Anuj Jain as the IRP to carry out the proceedings, as the board of directors of the company would remain suspended.