Jaypee homebuyers stuck in incomplete real estate projects for almost a decade, have now written to the Insolvency and Bankruptcy Board of India (IBBI) to consider their suggestions while framing regulations for the implementation of the new ordinance. They have demanded that the voting share of homebuyers be calculated on the basis of principal amount and 15 per cent interest and that the Board allow usage of electronic means for the purpose of voting by homebuyers.
“Such a provision would ensure that the home buyers are equitably restituted in respect of the inordinate delay they have suffered in the completion of real estate projects. Further, a provision in this regard would be in compliance with the RERA and various orders of the Hon’ble Supreme Court,” home buyers have said in the letter written by their lawyers, a copy of which has been shared exclusively with Moneycontrol.
They have also submitted that the Board specify the manner of voting in meetings of the Committee of Creditors. “We request that the Board allow usage of electronic means for the purpose of voting by homebuyers. Such a manner of voting would be akin to the voting methodology applied for shareholders of listed companies, where a large number of shareholders cast their vote using electronic means,” the letter stated.
President Ram Nath Kovind on June 6 gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. The Ordinance provides significant relief to home buyers by recognising their status as financial creditors. It also gives them due representation in the Committee of Creditors and makes them an integral part of the decision-making process. It also enables them to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers.
Granting of financial creditors status to homebuyers means that they will now be treated at par with banks and institutional creditors and will be given priority while recovering dues from bankrupt or insolvent real estate companies. They will also be allowed to equitably participate in an insolvency resolution process and be a part of the committee of creditors.
These changes were based on the recommendations of a high-level law committee chaired by Injeti Srinivas, Secretary in the Ministry of Corporate Affairs. The committee had submitted its report ‘Report of the Insolvency Law Committee’ in the month of March.
The Insolvency and Bankruptcy Board of India is empowered to issue regulations for the implementation of the Ordinance.
In the letter addressed to MS Sahoo, chairperson of IBBI, as many as 2460 home buyers of Jaypee Infratech Limited (JIL) and Jaiprakash Associates Limited (JAL) belonging to nine associations have requested that IBBI “issue the appropriate regulations at the earliest” and consider “requests of the homebuyers while framing the regulations.”
Calculation of voting share of homebuyers
Homebuyers have said that “the basis of calculation of voting share of home buyers should be an aggregate of the principal amounts paid to the real estate developer along with compensation for delay in the form of interest at the rate of 15 per annum on the principal amounts, calculated from the date when the delivery of flats was promised.
The letter noted that the Supreme Court and the National Consumer Disputes Redressal Commission (NCDRC) have held in favour of grant of compensation for delay to the home buyers in the form of interest at 12 per cent to 18 per cent per annum, on multiple occasions in the past.
In the above context, it is relevant to note that homebuyers are also entitled to claim compensation on account of delay in real estate projects, under sections 18 and 19 of the Real Estate (Regulation and Development) Act, 2016 (RERA).
“Considering the above, it is critical that the Regulations provide for the inclusion of compensation for delay in the form of interest at the rate of 15 per cent per annum on the principal amounts paid by the homebuyers. Such a provision would ensure that the home buyers are equitably restituted in respect of the inordinate delay they have suffered in the completion of real estate projects. Further, a provision in this regard would be in compliance with the RERA and various orders of the Hon’ble Supreme Court.
Meetings of Committee of Creditors (CoC) when Interim Resolution Professional (IRP) appointed to represent financial creditors
Homebuyers have requested that the regulations clearly lay down that the ‘first meeting of creditors’ would mean the first meeting of creditors after the coming in force of the regulations.
While it is clear that the ‘first meeting of creditors’ refers to the first meeting of creditors after the coming in force of the Regulations, however, for the removal of any ambiguities, it is requested that the Regulations clearly lay down that the ‘first meeting of creditors’ would mean the first meeting of creditors after the coming in force of the Regulations, they have said in the letter.
Manner of voting of creditors in meetings of CoC.
With regard to the new section 25 A that has been inserted in the Code after the coming into force of the Ordinance, home buyers have said that if this is implemented in a ‘literal manner’, it would pose an immense logistical challenge for the IRP appointed to represent the financial creditors. The challenge would be especially pronounced in cases where a large number of home buyers are involved in the insolvency process of real estate projects.
Home buyers have asked the Board to specify the manner of voting in meetings of the CoC and that it should allow the use of electronic means for the purpose of voting by them. “Such a manner of voting would be akin to the voting methodology applied for shareholders of listed companies, where a large number of shareholders cast their vote using electronic means,” they say in the letter.
They have also pointed to the problems that may arise due to non- participation of some home buyers in the voting process and suggested that the votes cast by the home buyers be extrapolated to be representative of the remaining home buyers who have not cast their votes.
“For example, if the total number of home buyers are 10,000 and only 1000 homebuyers cast their votes, then it is our suggestion that the 1000 homebuyers should be considered to represent all the 10,000 homebuyers. Accordingly, if 800 out of the 1000 voting homebuyers vote in favour of the resolution plan and 200 homebuyers vote against it, then in such a case, it should be considered that 80% of the total homebuyers (i.e. 8,000 out of the 10,000 homebuyers) have voted in favour of the resolution plan,” says the letter.
“The suggested measures are necessary for the protection of interests of the homebuyers. Further, non-inclusion of the above measures would be contrary to various orders of the Hon’ble Supreme Court and provisions of the RERA,” the letter adds.
Jaypee Infratech was one of the 12 companies in the first ever list that Reserve Bank of India prepared as cases that needed immediate resolution of their debt under the Insolvency and Bankruptcy Code. Jaypee’s case was referred to the Allahabad bench of the National Company Law Tribunal last year which appointed an insolvency resolution professional to prepare a rescue plan for the company. The 270-day deadline to find a solution to the company’s debt problems under IBC lapsed on May 12. As per IBC, a company has to be sent for liquidation if no solution is found within that time but that was not the case because the case is being heard at the SC under ‘public interest’.Vandana.email@example.com