IDBI Bank, the largest creditor of Jaypee Infratech Ltd and the leader of the consortium of lenders to the Jaypee Group, moved Supreme Court on Tuesday to restore the insolvency proceedings against the real estate company a day after SC stayed the National Company Law Tribunal (NCLT) order passed by its Allahabad Bench in August which had declared Jaypee Infratech as insolvent.
A bench headed by Chief Justice of India (CJI) Dipak Misra and Justices Amitava Roy and A M Khanwilkar took into account the submission of IDBI Bank. IDBI Bank contended that the stay of the NCLT order passed by its Allahabad Bench had reversed the position and the company had gone back to defaulting promoters.
National Company Law Tribunal (NCLT) had in August initiated insolvency proceedings against Jaypee Infratech, a subsidiary of Jaypee Group which is yet to deliver flats to around 32,000 homebuyers.
"The bank's money is also public money and we are seeking modification of that order. By staying the insolvency process the court gave the company back to its promoters," Senior advocate A M Singhvi, representing the IDBI bank, said the Jaypee group was in-charge of the company again due to stay order.
A bench headed by chief justice of India (CJI) Dipak Misra on Monday stayed the insolvency order passed by the Allahabad Bench of NCLT. The court was hearing a public interest litigation (PIL) filed by a homebuyer Chitra Sharma, seeking stay on the NCLT order. The Supreme Court also issued notices to the finance ministry, Jaypee Infratech, Reserve Bank of India and the Uttar Pradesh government.
The plea filed by some flat owners said the homebuyers, being unsecured creditors, will get nothing out of the insolvency proceedings as the dues of financial institutions, which are secured creditors, would be cleared first. The insolvency proceedings initiated against the company will render them without any remedy, the PIL said. The apex court will now hear the homebuyers' plea in the case on October 10.
Concerns regarding Insolvency and Bankruptcy Code
Around 32,000 homebuyers had been left in the lurch after the Allahabad bench of the National Company Law Tribunal (NCLT) admitted IDBI's plea for initiating insolvency proceedings against Jaypee Infratech for defaulting on a Rs 526-crore loan. IDBI Bank had consented to the appointment of an interim resolution professional.
Flat buyers, under the Insolvency and Bankruptcy Code of 2016, do not fall under the category of secured creditors like banks and hence they may get back their money only if something is left after repaying secured and operational creditors.
The plea has sought a direction to the Centre and others that the Insolvency and Bankruptcy Code "shall not curtail the legal statutory and vested rights of the flat owners/buyers as consumers" defined under the Consumer Protection Act.
The PIL said that in the alternative, a direction may be issued to the government that flat owners/buyers be declared as secured creditor like banks and FIs.
The petition alleged that the action of the Ministries of Finance and Corporate Affairs of introducing Section 14 of the Code was "unjust, unfair and unreasonable" and violative of Article 14 (Right to Equality) and 21 (Right to Life) of the Constitution.
The home buyers fear that if the insolvency process is not successful, then the liquidation process of the company would be initiated, it said.
It also claimed that if the home buyers refuse to be an unsecured creditor and the company goes into liquidation, their hard-earned money would go to the financial and corporate liquidators. The buyers have also asked for a forensic audit of Jaypee Infra and its holding company Jaiprakash Associates to evaluate the magnitude of their bankruptcy.
Further delay likely?
With Supreme Court stepping in before the resolution process takes off, homebuyers may have to wait a little longer until buyers are categorized as secured claimants under the Insolvency and Bankruptcy Code (IBC). The IBC code allows proceeds from the liquidation of assets to distributed to secured lenders first.
NCLT had appointed a chartered accountant Anuj Jain who was asked to prepare a resolution plan and submit it to NCLT. The plan will then have to be approved by 75 per cent financial creditors (by value) in the committee.
Jaypee Infratech, a subsidiary of Jaiprakash Associates, was declared insolvent in August. Jaypee Infratech Ltd was among the 12 accounts identified by RBI for insolvency proceedings last month.
Earlier there was confusion on whether homebuyers had to submit claim form for financial creditors or operational creditors. Homebuyers in Jaypee Infratech projects were asked to submit claim forms to interim resolution professional (IRP) by 31 August.