The Supreme Court’s decision to persist with insolvency proceedings against Jaypee Infratech while also asking the insolvency resolution professional (IRP) to ensure the concerns of home-buyers are addressed is probably the best way out of the current impasse. Last week, IDBI Bank, the lead lender to the bankrupt Jaypee, had asked the court to restore insolvency proceedings against firm. While the decision comes as some sort of reprieve for home-buyers, it does not undermine the insolvency process. Had the SC agreed to call off insolvency proceedings altogether, it would have been a big blow to the efforts of IDBI Bank and a host of other lenders that are attempting to recover their dues via the IBC. Following a directive from RBI, banks have approached the National Company Law Tribunal (NCLT) to initiate insolvency proceedings for about a dozen large accounts. It is therefore important, even critical, that the insolvency process under the IBC not be derailed even before it has taken off because a lot of money—anywhere between Rs 4-5 lakh crore—is at stake.
In the absence of insolvency proceedings, the management of Jaypee would have been back at the helm of affairs rather than the IRP. That, as counsel for IDBI Bank Abhishek Manu Singhvi had argued, would have unintentionally benefited the defaulting promoters rather than the secured creditors. Home-buyers, of course, had understandably petitioned the SC to do away with the insolvency process since under Section 53(1)(f) of the Insolvency and Bankruptcy Code (IBC), their claims would rank way below those of workmen, secured creditors, employees, unsecured creditors and so on, just ahead of the preference shareholders. The SC has now said they can be represented on the committee of creditors, which means they will have a bigger say. However, home-buyers need to be constructive and not disrupt the process; in other words, they must be willing to share the pain. While the IRP will surely explore all options to try and get the best deal for both the lenders and the home-buyers, the latter must be prepared to take a haircut just as the lender would need to. As many have argued, loans given by state-owned banks are ultimately public money, too. In asking the IRP to come up with a resolution in 45 days rather than the 180 days stipulated in the code, the SC has done well to try and speed up matters. Should the IRP be able to find buyers for the unfinished projects and land banks at reasonable prices, both lenders and homebuyers may have something to cheer about.