A move by the Reserve Bank of India (RBI) to ensure that commencement of solvency resolution process against developer Jaiprakash Associates (JAL) isn’t delayed by a case pending in the Supreme Court stumbled on the court’s decision to give utmost priority to interests of home-buyers. The apex court refused to allow the RBI to initiate proceedings against JAL till the company, as directed by the court earlier, paid Rs 2,000 crore so as to cover part of its subsidiary Jaypee Infratech’s (JIL) liability towards 32,000 home-buyers. It said that all debt restructuring and proceedings under the Insolvency and Bankruptcy Code (IBC) against JAL and JIL must wait till home-buyers get their refunds or possession of flats. A bench led by Chief Justice Dipak Misra said: “Your (RBI’s) plea will be considered at a later stage.”
JAL owes over Rs 25,000 crore to a consortium of lenders led by ICICI Bank. The RBI’s move was seen by many analysts as a strategic one aimed at pre-empting a situation similar to the Unitech case. The apex court had on December 13 stayed the National Company Law Tribunal’s (NCLT’s) order allowing the Centre’s plea to take over the management of the embattled realty firm even as the court had earlier given time to the company’s chief Sanjay Chandra to negotiate from jail to sell assets to generate Rs 750 crore for refunding money to home-buyers. A May 5 ordinance amending the Banking Regulation Act — which was ratified by Parliament in the monsoon session — had buttressed the RBI’s powers to “issue directions” to banks as it deems fit to initiate insolvency process in case of a default under the provisions of the IBC.
Analysts pointed out that the RBI only can ask banks to start the insolvency proceedings against a firm and not do its own. So, the central bank has locus standi (in filing the petition to the apex court in JAL’s case),” said an insolvency expert, seeking anonymity. In September 2016, JAL had received shareholder nod to allow conversion of its debt into equity with 88% of votes in favour of the conversion.
The banking regulator, however, wants to follow the recommendations of its Internal Advisory Committee that has identified JAL as the company against which insolvency proceedings needed to be initiated at the NCLT as per the provisions of the IBC. The SC also directed amicus curiae Pawanshree Agrawal to set up a separate online portal for JAL home-buyers, who can submit their claims for refund or possession. Earlier a similar website was set up for the JIL home-buyers. The amicus was also asked to extend the deadline for selection of option for possession or refund for the home buyers of JIL. The top court told JAL to deposit Rs 125 crore as directed earlier, failing which it would be held in contempt of court and could land its promoters and directors in jail. The next date of hearing is on February 5.
The apex court also exempted independent directors of JAL from personal appearance before it on account of their old age, but restrained them from going abroad without leave of the court. It reiterated its earlier order that restrained 13 JAL directors — five promoters and eight independent directors — from alienating or creating third party interests in their personal properties. While opposing setting of the portal for JAL home-buyers, senior counsel Mukul Rohatgi and lawyer Anupam Lal Das, appearing for JAL, said that such a portal will jeopardise its ongoing debt restructuring with banks. “JAL has nothing to do with the present insolvency proceedings and was in the process of debt restructuring with the consent of banks,” the lawyers argued.
JAL, with a debt of nearly Rs 29,000 crore, features in the RBI’s second list of companies to be taken to NCLT. It has so far deposited Rs 425 crore and is supposed to deposit another Rs 125 crore on January 25 to safeguard the interests of home-buyers. It is yet to deposit the full amount of Rs 2,000 crore with the Supreme Court registry. JIL, whose total liability stands at Rs 1,575 crore, was among 12 companies against whom banks were asked by the RBI to start bankruptcy proceedings in June last year. In FY17, JAL reported a net loss of Rs 4,362 crore on the back of Rs 6,616 crore in revenues. In Q2 of 2017-18, its net loss stood at Rs 186 crore on revenues of Rs 842 crore.
In order to reduce debt, JAL had in June last year signed a deal with UltraTech Cement, which agreed to acquire its cement plants in Madhya Pradesh, Uttar Pradesh, Uttarakhand, Himachal Pradesh and Andhra Pradesh with a total capacity of 21.20 million tonnes per annum for Rs 16,189 crore. ICICI Bank MD & CEO Chanda Kochhar had said in a statement that with this sale, part of the debt of JAL and Jaypee Cement Corporation has been transferred from a stressed account to a AA.