Book extract: The Dirty Dozen by N. Sundaresha Subramanian

Jaiprakash Gaur, an engineer with a diploma from the University of Roorkee, began his voyage as a contractor in the late 1950s.

The book extract is excerpted with permission from N. Sundaresha Subramanian’s The Dirty Dozen: India’s Twelve Biggest Corporate Defaulters, Pan/PanMacmillan India.

Jaypee Infratech

The irrigation departments of north Indian states must have had something to do with entrepreneurship. While Amtek was floated by the son of a Haryana state irrigationdepartment official, its neighbour Uttar Pradesh’s counterpart was not to be left behind. Only in this case, it was the official himself who quit his job midway and began his entrepreneurial journey.

Jaiprakash Gaur, an engineer with a diploma from the University of Roorkee, began his voyage as a contractor in the late 1950s. After taking up small jobs for the department he had worked in earlier, Gaur slowly ventured into bigger ventures. By 1979, he had floated Jaiprakash Associates and started eyeing larger hydel electric power projects along the tributaries of the Ganga, such as the Tehri Dam and the Narmada Valley Project.

A good relationship with successive governments stood them in good stead. Their reputation for taking care of employees and their associates preceded them. It was not until the late 1990s that Jaypee entered real estate in a big way. At that time, the government was toying with new models of infrastructure creation, where land development was offered as a barter.

This model has been the source of many a failed company in the infrastructure sector.By the early 2000s, the next generation led by Jaiprakash’s son Manoj Gaur took charge. Together, they were ambitious and energetic and were keen to take the group to the next level. The Taj Expressway and the developments around it, such as golf courses and the Formula One circuit, beckoned.

While the expressway itself was commissioned despite the several environmental issues that emerged, the heavy investment in the Buddh circuit for Formula One proved bad. When the political changes came apart from this and the power sector woes caught up, the group began to sink.

The opening of the Delhi Noida Direct Flyway (DND Flyway) in 2001 brought the satellite town of Noida closer to South Delhi, triggering a flurry of development along the eastern banks of the Yamuna.

What looked like a boom soon turned into a nightmare. The predicament began in the early 2000s when the Uttar Pradesh government rushed to develop vast expanses of land in Noida and Greater Noida. To attract more developers, the land authorities in Noida devised an unconventional approach of offering land at a significantly reduced price – merely 10 per cent of its actual value – for a ninety-nine-year lease. This triggered the developers’ greed, leading them to acquire extensive tracts of land without foreseeing the potential challenges.

Consequently, they found themselves burdened with an excessive amount of over-developed land and a struggle to find sufficient buyers for their properties. In 2003, the Jaypee Group, operating under Jaiprakash Industries, managed to secure the concession agreement for the development of the Taj Expressway, which was originally established in 2003. This agreement granted them the rights to develop a massive 2,500 hectares (25 million square feet) of land, divided into five portions of 500 hectares each.

Of these portions, three were located in the Noida and Greater Noida areas, with the remaining two in Mirzapur and Agra. Jaypee wasted no time in announcing grand real estate projects and unveiling three extravagant residential townships in the National Capital Region (NCR) – Jaypee Greens Noida, Jaypee Greens Greater Noida and Jaypee Greens Sports City.

Under the name of Jaypee Greens, the group marketed these projects with the help of Canadian architects, Arcop Associates, which designed premium properties complete with golf courses and various luxurious amenities. These three residential townships covered an area of a whopping 6,500 acres. Jaypee Greens Noida’s ‘Wish Town’ alone spanned approximately 1,063 acres and boasted of twenty-four projects, along with residential and commercial plots, hospitals, shopping arcades, schools, golf courses, gyms and more. The group intended to construct 32,000 flats, excluding plot properties, across multiple projects within the Wish Town city, spread across five sectors in Noida along the Yamuna Expressway.

Flats, penthouses, villas and plots were all part of these ambitious endeavours. By early 2010, a staggering 88 per cent of the available space had been sold, generating over ₹900 crore in revenue for the heavily leveraged project. Although the equity amounted to around ₹1,250 crores the group’s debt also surpassed ₹4,400 crore, making the real estate operations a crucial financial cushion.

While promoters raised approximately ₹600 crore through the 2010 initial public offering (IPO) by selling a portion of their shares, flat buyers continued to contribute funds. But the prevalence of corruption, regardless of the ruling party, marred the situation. Politicians and officials demanded significant cuts from builders, sometimes based on a per square foot basis. Jaypee Infratech acknowledged the political risks in Uttar Pradesh in its IPO document from 2015, expressing concerns about potential policy revisions or hindered implementation of transportation and development policies if there was a change in power or the election of a coalition government, which could adversely affect their business.

It is no secret that under Mayawati’s Bahujan Samaj Party government, firms led by Jaiprakash Gaur enjoyed relative successas part ofalarger conglomerate.3 Jaypee Infratech, which was primarily a special purpose vehicle (SPV) responsible for developing the 165- kilometre Yamuna Expressway and five townships along its routes, aimed to complete most projects before the 2012 election. But because of subsequent delays, the Expressway opened in August 2012, five months after the Samajwadi Party took office. Other external factors turned less favourable, too.

‘As the demand calculations were neither in sync with the job market nor with the essential infrastructure in the micro market, the projects were always going to be on a shaky wicket,’ as noted by Amol Shimpi, associate dean and director of RICS School of Built Environment. In July 2012, the Noida Authority issued occupancy certificates for 1,000 flats in Jaypee’s Aman Housing Project. This was out of the total proposed 5,000 flats in Sector 151 along the Noida Expressway. However, on 2 August 2012, the Yamuna Expressway Authority demanded that Jaypee refund advances received for approximately 3,000 studio apartments near the Buddh Formula 1 Circuit. These procedures were subsequently put on hold when Jaypee was referred to the insolvency court. According to its annual report for 2015–2016, Jaypee Infra had launched around 134.40 million sq ft and sold 128.20 million sq ft of it, of approximately amounting to ₹24,295 crore.

Homebuyers faced their own struggles as they grappled with the implementation of the Insolvency Code. Despite efforts by the Insolvency Resolution Professional (IRP) to provide clarifications, ambiguities persisted regarding the modes of payment. The NCLT ruled that homebuyers did not fit the criteria of either ‘operational creditors’ or ‘financial creditors’, as their debts did not concern the time value of money.

In response to these challenges, real estate industry bodies called for government intervention and support to ensure the completion of the stalled projects. Their aim was to deliver the properties to homebuyers and revive the market. The road ahead remained uncertain, but efforts were underway to address the various complexities and provide a resolution to the long-standing issues faced by Jaypee Infratech and its stakeholders.

Homebuyers were angry. Chitra Sharma, a Gurgaon-based former airhostess, had used her life savings to book an apartment at Jaypee’s Kensington Park Apartments. The company had floated twenty-seven such projects. When brochures had been circulated, each of these was going to be an integrated township.

‘Today, there are no flats, no lawns. In many places there are just skeletons,’ Sharma revealed to me. She added, ‘In others even these are not there.’ Many buyers had paid up to 90 per cent of their costs to the company as early as 2013. Now, they were caught in a double whammy of interests and rent payments.

Homebuyers like Sharma had marvelled at Jaypee's reputation before signing up for the projects. ‘I had gone to Kedarnath and was impressed by their (Hydel) project in Vishnuprayag. They were known to take care of their employees well. I thought they would [also] treat their customers well.’

Instead, the money paid by the buyers was used to fund other business activities. ‘We paid money for the building of flats. We did not give it for business. Buyers gave money for a specific purpose. He [the promoters] has used it for some other purpose. Banks are the main villain in this. Why did they do double financing?’

Sharma pointed out that the interests of the banks and the homebuyers are at loggerheads.‘They want to go to Kolkata. I want to go to Bombay. There is no meeting point.’ In September 2017, following a PIL against the NCLT, Sharmamoved the Supreme Court, challenging the constitutional validity of the Insolvency and Bankruptcy Code. ‘This law does not recognize the rights of the homebuyers and recent rulings have said the homebuyer is neither a financial creditor nor an operational creditor,’ the petition argued.

The court’s initial moves raised hopes for the homebuyers, but over a year later, Sharma said it felt like they were back to square one as the court referred the matter back to the NCLT.

The court managed to force the promoters to pay up a deposit of ₹750 crore.7 But that was not enough. Colonel S. K. Nagarath,a retired army dentist in his eighties, was a figure several homebuyers looked up to. The president of the Jaypee Aman Owners Welfare Association, he had bought two flats from the Jaypee Group. The association raised a slew of concerns, including allegations of financial irregularities and a call for a thorough forensic audit. Colonel Nagarath, a spirited advocate for the homebuyers, argued that since the buyers had parted with their hard-earned money even before the banks stepped in, they deserved to be given priority over the financial institutions.

Taking matters into their own hands, the colonel and the homebuyers wasted no time in seeking an investigation from the union Ministry of Corporate Affairs. Armed with excerpts from Jaypee Infratech’s annual report and publicly available documents, they aimed to expose what they believed to be a cunning manoeuvre orchestrated in cahoots with the banks.

‘Our money has been cunningly siphoned off,’ exclaimed Colonel Nagarath.He explained how the repercussions of this crisis hit countless families, particularly the middle-class and lower-income groups who had invested heavily in these properties. Many had poured in a staggering 90 per cent or more of their apartment’s total cost.

The amounts invested ranged from Rs 25 lakh to several crores, particularly in the swanky high-end projects.In May 2017, things came to a head after a group of flat buyers lodged an FIR, accusing Jaypee Infratech’s managing director, Manoj Gaur, of cheating and criminal conspiracy.

Around this time, the group presented an ambitious four-phase schedule for delivering over 30,000 residential units, commencing from June 2017 and extending until 2021.

But despite the group’s additional promise of refunds for some scrapped projects, many homebuyers remained unconvinced. After five years of relentless struggle, things began to look up for the Jaypee flat buyers, when Jaypee Infratech Limited (JIL) sought a CIRP on 9 August 2017. In the case of Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd vs Axis Bank Limited Etc., the Supreme Court laid down detailed principles for identifying a preferential transaction which could be voided under the Insolvency and Bankruptcy Code, 2016.

The corporate debtor JIL was an SPV set up by its parent entity, Jaiprakash Associates Ltd (JAL), for certain construction, development and infrastructure projects. JAL held approximately 71 per cent of JIL’s shares and had provided operational debt to JIL to the tune of ₹261 crore. The SPV had mortgaged some of its properties to secure the loans advanced by certain banks to JAL (‘impugned transactions’). Among the lenders of JAL were Axis Bank,Standard Chartered Bank, ICICI Bank, State Bank of India, United Bank of India, UCO Bank, Karur Vyasa Bank, L&T Infrastructure Finance Company, Central Bank of India,Canara Bank, Karnataka Bank, IFCI, Allahabad Bank, Jammu & Kashmir Bank, South Indian Bank Limited, Bank of Maharashtra among others and some financial institutions.

IDBI Bank Ltd, a creditor of JIL, filed an application to initiate a CIRP against the debtor,alleging that JIL had committed a default in repayment of its dues approximating ₹526.11 crore.

Pursuant to this, the CIRP commenced, and a resolution professional was appointed to manage the affairs of JIL. RP Anuj Jain noticed the impugned transactions and filed an application before the NCLT under the Insolvency Code, seeking declarations that the transactions were of fraudulent, undervalued and preferential nature. The NCLT allowed the application and ordered to the ‘release and discharge of the security interest created by JIL’ and deem the properties mortgaged by way of the impugned transactions to be ‘vested’ in JIL.

However, the lenders of JAL filed separate appeals before the NCLAT. The tribunal allowed the appeals and set aside the NCLT order (the ‘impugned order’). A volley of appeals against the impugned order was launched before the Supreme Court, causing delays in the CIRP that could not be completed within the designated 330-day timeframe. Further, while the SC ordered the release of the security interest, it did not provide any clarity on the status of the loan amount provided by JAL’s lenders to JIL.

On 6 November 2019, the apex court resolved most of the litigations and instructed the insolvency resolution professional to finish the CIRP within ninety days. Two contenders, NBCC and Suraksha Realty, were competing to acquire Jaiprakash Infratech Ltd. The CoC favoured NBCC over Suraksha, and the former’s plan was approved by the NCLT, albeit with modifications. NBCC challenged these modifications in the Supreme Court anyway. On 24 March 2021, the Supreme Court rejected NBCC’s plan, ordering a restart of the CIRP process.

Two months later, on 7 July 2021, the CoC approved Suraksha’s resolution plan, which was then submitted to the NCLT.The case currently awaits approval from the tribunal, with only the Yamuna Expressway Industrial Development Authority (YEIDA) having presented its argument against the plan.

The submissions from ICICI Bank, Bank of Baroda and JAL are still pending at the time of writing.The judgment here is of much importance to investors and lenders, as the approach of the SC in this case highlights the risk of a transaction being set aside and the diligence required to be exercised by investors and lenders going forward. For more than 22,000 homebuyers who endured a decade-long wait for their flats, the NCLT’s 491-page ruling, approving the consortium bid of Suraksha Realty and Lakshdeep Investments and Finance, on 7 March 2023, came as a relief. The announcement offered a clear path towards the fulfilment of nearly 20,000 stalled residences in Noida and Greater Noida.

N. Sundaresha Subramanian The Dirty Dozen: India’s Twelve Biggest Corporate Defaulters Pan, an imprint of PanMacmillan India, New Delhi, 2024. Pb. Pp. 312
The sensational rise and shocking downfall of India's twelve largest corporate defaulters. In June 2017, the Reserve Bank of India sent shockwaves through the nation as it disclosed a list of the country’s twelve biggest defaulters who were responsible for approximately a quarter of all bad loans in the Indian banking system. The alarming discovery of the ‘dirty dozen’pulled back the curtain on the murky landscape of corporate irresponsibility and regulatory neglect, revealing the harsh reality of gross economic disparity, complacent governance and coordinated deceit. In The Dirty Dozen, business journalist N. Sundaresha Subramanian investigates the cause and impact of India’s chronic bad loan issue. Recording the economic misadventures of Vijay Mallya, Nirav Modi and Jatin Mehta, among others, he lays bare the intricate maze of financial chaos, political plunder and malpractices that ail the country’s corporate landscape. In doing so, he makes an eye-opening diagnosis of the nation’s financial health since liberalization. In a country where millions struggle for basic sustenance, The Dirty Dozen offers a brave, hard-hitting and much-needed exposé of crooked business moguls who have orchestrated deeply damaging financial manoeuvres and amassed millions, enjoying impunity nonetheless and leaving India’s economy teetering on the edge.

The book extract that has been published is a report on the Jaypee Infratech that seemed to be immensely successful. In collaboration with successive governments, the group garnered some upcoming and prestigious real estate projects such as the Delhi-Noida-Delhi Flyway (DND), the Taj Expressway, the Buddh circuit for Formula One and Wish Town. The latter is a story that has plagued many, many middle-class individuals and families, whose dream was to own a house, they invested in the housing project, only for it to be crumbled by the financial malpractices of the Jaypee Infratech. Today, many of these buildings are incomplete, with the skeletal infrastructure exposed to the elements, that will most likely come crashing down in the near future. It is a horrific story that has been narrated well by N. Sundaresha Subramanian.

The Dirty Dozen is worth reading. N. Sundaresha Subramanian is a business journalist and newsroom leader. With his rich experience in hard-hitting journalism and a keen focus on public interest, he has driven award-winning coverage in critical areas including corporate and regulatory affairs, corporate governance and wrongdoing, policy, geopolitics and emerging areas of ESG and energy transition. Currently the Executive Editor at Economic Times’ ET Prime, Sundaresha began his journey in journalism as part of the team that launched the Mumbai edition of Hindustan Times in the early 2000s and has since worked with DNA Money, Mint and Business Standard. He lives and works in Delhi.