Rather than the government taking over the company—as it attempted to do in the Unitech case, before it was pulled up by the Supreme Court—it should try and facilitate the purchase of the assets by a strong and serious buyer.
Given the large number of residential projects left unfinished and the thousands of homebuyers left high and dry, the courts and the government must not let an opportunity to revive these slip through its fingers. Not only do the amounts of money run into tens of thousands of crores—most of it belonging to the banks—homebuyers have paid promoters their lifetime savings without getting possession of their flats for years. Rather than the government taking over the company—as it attempted to do in the Unitech case, before it was pulled up by the Supreme Court—it should try and facilitate the purchase of the assets by a strong and serious buyer. The courts, on their own, are unlikely to be able to come up with a concrete plan that will benefit all stakeholders. While they have attempted to be strict with the promoters, so far, this has not yielded any results. For instance, in the Jaypree Infratech case, the promoters have not paid up the original amount of Rs 2,000 crore that the court had asked for and will actually be coughing up a much smaller amount. To be sure, the assets should not be sold for a song, but neither must the government look the gift horse in the mouth. And while, as this paper has consistently argued, both homebuyers and and banks must be prepared to take hits, it is important that the government too is willing to give up something—especially, if it wants to look after the interests of homebuyers.
So far, the ministry of housing and urban affairs has been trying to get the Insolvency and Bankruptcy Code(IBC) amended such that homebuyers are not left out in the cold. It has written to the ministry of corporate affairs—that homebuyers be recognised not merely as financial creditors, but as primary secured creditors. The housing ministry wants the IBC tweaked such that, in the event of the assets of a company being liquidated, homebuyers would have the first right, “above all other secured creditors”. While that may be the ministry’s mandate, it is not desirable since it would set off a bad precedent, prompting other stakeholders to demand a similar status. In the process, the rights of banks would be diluted while the IBC would be undermined. It is precisely to avoid liquidating companies that bids like the one for Jaypee Infratech’s projects from the Kotak Realty-Cube Highways combine should be taken seriously.
Going by media reports, the team will complete construction of the project across some 52 million square ft at an estimated cost of Rs 6,500 crore, ensuring the homebuyers get their apartments; in return, Cube Highways wants to be able to operate the Taj Expressway and tap the revenue potential. Kotak Realty too will be given some of the land on which it can build and monetise apartments. While no details have been made public yet, the banks are expected to recover their loans by monetising the land banks. These are serious bidders backed by sovereign wealth funds, and the UP government should be open to negotiating terms to let Cube run the Expressway if that is what Cube is looking to do. The UP chief minister had promised he would help homebuyers get their apartments. This is a good opportunity for his government to help some 35,000 household.