SC stays insolvency proceedings against Jaypee Infratech: What it means

The Supreme Court on Monday stayed the order of the National Company Law Tribunal (NCLT) initiating insolvency proceedings against Jaypee Infratech. While it comes as a big relief to almost 40,000 homebuyers who can now seek legal recourse in National Consumer Disputes Redressal Commission, some legal experts say that clarity is required on whether the suspended board of directors has been restored or not.

The next date of hearing is October 10.

The apex court also issued notices to the real estate company, the Finance Ministry, the Reserve Bank of India and the Uttar Pradesh government. Notices have also been issued to Ministry of Corporate Affairs and IDBI Bank. IDBI Bank had on August 9 approached NCLT to initiate insolvency proceedings against the embattled real estate firm for defaulting on a Rs 526 crore loan and not handing over homes to buyers who had invested their savings and have been waiting for more than eight years.

It stays the NCLT order dated August 9, 2017. On August 9, the Allahabad bench of the National Company Law Tribunal admitted a petition by IDBI Bank for insolvency proceedings against Jaypee Infratech Ltd. and also approved the appointment of an interim resolution professional. It had appointed Anuj Jain as CEO of Jaypee Infratech who was tasked to revive the company within six months.

It declares that the Section 14 moratorium does not apply as of now. Homebuyers can now seek any legal remedy available to them, be it RERA or NCDRC.

It states that no insolvency proceedings will proceed henceforth until the status of the consumers (homebuyers) - whether they are financial / operational creditors and/or secured/unsecured creditors is decided. Flat-buyers had contended before the court that they will neither get a home nor a refund of their hard earned money on account of being "unsecured creditors".

Homebuyers in Jaypee Infra projects were also required to fill up forms to register their claims for the corporate insolvency resolution process against the company. The matter was brought up by Chitra Sharma, a Delhi resident, who questioned the constitutional validity of the insolvency code since it did not recognise the rights of the homebuyers.

The Jaypee Infratech was a unique case because other companies that were taken up under the Insolvency and Bankruptcy Code were business-to-business firms but Jaypee Infratech involved thousands of homebuyers.

Also, in this case, the housing projects are being developed by Jaiprakash Associates but the land is with JP Infratech. Also, if the turnaround did not happen, the company’s assets would have been liquidated and sold to recover the money. The amount would have first been distributed among secured creditors such as banks and the remaining amount will be passed on to the unsecured creditors who are the homebuyers or others like contractors.

The Supreme Court has stayed the  orders passed by the NCLT including the order passed on August 9 commencing insolvency process against JIL, appointing Anuj Jain as the IRP and ordering moratorium.

“This means the IRP cannot function anymore. But does it mean that the suspended board of directors of JIL is restored and management goes back to erstwhile management is for JIL to take a call on. After all a company cannot be without board and management.  It is for JIL to seek clarification if necessary,” says Sumant Batra, an insolvency lawyer representing the IRP Anuj Jain.

“The silver lining is that all proceedings before the National Consumer Disputes Redressal Commission (NCDRC) can now continue and fresh consumer proceedings against the company can also be filed in the interim,” said Sahil Sethi, senior associate at law firm Saikrishna and Associates.

There are as many as 10,000 homebuyers' complaints before NCRDC currently.

Homebuyers say that there is relief for them at last and are hopeful that they will get permanent relief.

“The order has given us much relief, otherwise we would have had to go back to NCLT and that would have been very time consuming,” said Devender Yadav, a member representing 10 associations of Jaypee Infratech’s Wish Town projects, comprising over 2,500 homebuyers.

“It offers us temporary relief as pending cases before NCRDC can now proceed to their logical conclusion,” said Col SK Nagrath, a retired army officer and president of Jaypee Aman flat buyers association, adding “we are hopeful that the apex court will give us a permanent remedy.”

Another buyer suggested that “all consumer cases should be consolidated and dealt with in a time-bound manner and EMIs being paid by buyers should be kept on hold,” said Krishan Mitroo of Klassic Wishtown Association.

Some legal experts say that the order may add to the confusion as “until there is a decision taken with regard to whether buyers are operational, financial, secured or unsecured creditors, which is the prayer in the petition, insolvency proceedings will not proceed,” explains Vivek Kohli of Zeus Law.

“All stakeholders will now have to wait and watch for the SC’s verdict on October 10,” he says.

Vandana.ramnani@nw18.com