Issue of forensic audit of Jaypee Infratech must be taken up at next CoC meeting: Homebuyers

"We request you to forward my request to IRP today itself so that we have five days' notice period before the 14th COC. Homebuyers have paid 80 to 90 percent of the money as advance to Jaypee, out of which 40-50 percent was used in construction. This construction has also been stopped since 4-5 years. The land was given at nominal charges by UP government to Jaypee.

"Hence, we fail to understand where and how our money has vanished in thin air. On the other hand, banks have given some loans to Jaypee for construction of Yamuna Expressway and other businesses. These loans were never given for construction of flats, rather these flats are self-financed by homebuyers’ money given in advance," the letter said.

An audit was conducted by TR Chadha and Co LLP but it pertains to the period 2014-2017 period, while the majority of the homebuyers paid their amounts during the 2009-2013 period.

"Both these periods are not comparable and just an eye wash to confuse the home buyers. A critical analysis of the publicly available documents of JIL and JAL was commissioned by 9Associations of home buyers. This report by ASA India Financial Advisory Services LLP was shared with IRP-JIL earlier. It points to various instances of diversion of homebuyers’ money to activities other than construction mainly through related party transactions and inflated or gold plating of contracts. This report has also been submitted to Hon’ble Supreme Court in Nov 2017," the letter noted.

“This ASA report mentions several possible financial irregularities visible to them from publicly available information, which run into thousands of crores over the years. The sheer magnitude of these implies that even if a fraction of this money is indeed fraudulently diverted and can be brought back, it would solve the issue at hand at the corporate debtor and bring relief to all its creditors.

"It is surprising that despite this report having been available with the IRP-JIL since November, 2017, the IRP has neither conducted a confirmatory investigation into these matters nor consequently attempted to bring back any diverted money back to the corporate debtor," the letter said.

Lenders of debt-ridden Jaypee Infratech will meet on November 18 to take forward the process of insolvency resolution following the Supreme Court’s directions on November 6 that the Jaypee Infratech insolvency process should be completed within 90 days and that only the government’s construction arm NBCC and Suraksha Realty be allowed to submit their revised proposals before the Committee of Creditors.

Jaypee Infratech informed exchanges on November 13 that "a meeting of Committee of Creditors (CoC) will be held on November 18, 2019".

The agenda of the meeting is to discuss the “Resolution Plans of NBCC (India) Limited and Suraksha Realty Limited expected to be received on November 16, 2019 amongst CoC members followed by discussion with representatives of NBCC and Suraksha and the next steps…Any other matter that may be raised by the member of the CoC,” the notice said.

As many as 13 banks and over 23,000 homebuyers have voting rights in the CoC Committee of Creditors (CoC) of Jaypee Infratech.

The Supreme Court on November 6 had ruled that the Jaypee Infratech insolvency process should be completed within 90 days and allowed the government’s construction arm NBCC and Suraksha Realty to submit their revised proposals before the Committee of Creditors.

A total of 90-day extension has been granted by the apex court under extraordinary powers of the Supreme Court under Article 142. The apex court also clarified that this case should not set a precedent.

The apex court made it clear that the parent company of the embattled firm JP Associates cannot bid for Jaypee Infratech. On July 30 this year, the National Company Law Appellate Tribunal (NCLAT) had allowed fresh bidding for the cash-strapped JIL but had barred its promoter Jaypee Group from participating in the auction.

The apex court said the pendency of any other application before the NCLT or NCLAT, including any interim direction, shall be no impediment for the IRP to receive and process the revised resolution plan from the two bidders.

A bench of justices A M Khanwilkar and Dinesh Maheshwari said it is passing directions in an "exceptional situation" to do complete justice to home buyers, Jaypee group and banks concerned.

"We direct the IRP to complete the CIRP within 90 days from today. In the first 45 days, it will be open to the IRP to invite revised resolution plan only from Suraksha Realty and NBCC respectively, which were final bidders and had submitted resolution plan on earlier occasion and place the revised plan(s) before the Committee of Creditors (CoC), if so required, after negotiations and submit report to adjudicating authority NCLT within such time," the bench had said.

"In the second phase of 45 days commencing from 21st December 2019, margin is provided for removing any difficulty and to pass appropriate orders thereon by the adjudicating authority," the top court had said.

The apex court had directed that a CoC shall be constituted afresh in accordance with the provisions of the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, more particularly the amended definition of the expression "financial creditors".

The court also allowed RBI in terms of its application to this Court to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC, the order said.

The National Buildings Construction Corporation Ltd (NBCC) had submitted a revised plan in a sealed cover last month before the Supreme Court. The court, however, had not open the seal of the revised plan and told that it would deal with it later.

Earlier, sources had told Moneycontrol that the government’s construction arm NBCC may consider reducing the upfront amount to lenders if it decides not to transfer Jaypee Infratech's unsold inventory to them in the revised proposal.

NBCC participated in the second round of bidding for the 16 stalled Jaypee Infratech projects. It had proposed infusion of Rs 200 crore as equity and transfer of 950 acres of land worth Rs 5,000 crore to the banks towards settling claims of Rs 23,723 crore. It had earlier promised to complete all the 24,000 units by July 2023.

Also Read: Here's all you need to know about the Jaypee Infratech case

Sources had said earlier that NBCC may propose to keep the entire inventory to itself and sell it in the open market to raise money to bridge the funding gap.

"NBCC was initially planning to give Rs 200 crore to lenders and taking Rs 1300 crore from them for the unsold inventory. Now if it decides not to hand over the unsold inventory to lenders, it may consider reducing the upfront amount," sources had said.

The issue of unsold inventory was a major deal breaker in the plan NBCC had submitted earlier. NBCC had earlier agreed to reduce the value of unsold inventories offered to lenders by 25 percent. It had proposed that it would reduce the value of unsold inventories offered to lenders to Rs 1,300 crore from earlier Rs 1,750 crore but banks were reluctant to acquire over 2000 unsold flats as proposed by NBCC in its previous offer and the plan did not go through.

In the revised proposal, it may have also perhaps proposed completing all the unfinished 16 projects within four years.

"If the project is 70 percent complete, it may be handed over within one year, those that are 40 to 70 percent complete may be deliverd within two years and those that are less than 40 percent complete may be delivered within three years," sources had told Moneycontrol.

There are around 250 towers that are required to be completed and given possession across 16 projects. The status of each project is different. Some that are almost 90 percent complete may be given possession within three months while others that are just 40 percent complete may take longer. The company will also be required to complete all the facilities simultaneously. Therefore, four years is what it may require to complete all the projects,” sources had told Moneycontrol.

On September 5, NBCC had agreed to submit a revised proposal to take over the embattled company’s unfinished units.

During the hearing, the Centre had told the court that it would waive taxes, running into crores, due to Jaypee Infratech, if NBCC was to take over the embattled real-estate firm.

NBCC’s proposal submitted earlier had come with several conditions, including a demand to extinguish an estimated tax liability of Rs 33,000 crore over a period of 30 years arising out of the transfer of land parcels from Yamuna Expressway Industrial Development Authority to Jaypee Group and seeking permission from YEIDA for a business transfer. NBCC's bid was rejected due to these "rigid conditions" by the committee of creditors.

NBCC in its resolution plan submitted earlier had proposed creation of a separate company for the Yamuna Expressway to unlock revenue. This could not go through as the IBC norms did not allow for it then but amendments to IBC in August have allowed mergers and demergers.

The second deal breaker (in the NBCC resolution plan submitted earlier) was to do with the income tax demand of Rs 33,000 crore. The recent IBC amendment has made it clear that income tax demand and demand from authorities should be dealt like any other operational creditor. Post the amendments, there is now clarity that any statutory demand is an operational creditor. This problem too seems to have been resolved, experts had said.

With this two major deal-breakers in the resolution plan submitted by NBCC earlier have been dealt with by the recent amendments, sources had told Moneycontrol.

On August 22, the court had ordered status quo for a week on the insolvency proceeding after the Jaypee Group challenged an order of the National Company Law Appellate Tribunal (NCLAT) that allowed fresh bidding for Jaypee Infratech. The NCLAT had barred the parent company, Jaypee Associates, from bidding.

A group of homebuyers moved the apex court in 2017, saying around 23,000 people had booked flats and were paying installments, but their homes were not ready.

Crisis-hit Jaypee group firm Jaypee Infratech went into insolvency in 2017 after the National Company Law Tribunal (NCLT) admitted an application by an IDBI Bank-led consortium seeking resolution of the firm. Jaypee Infratech, a subsidiary of Jaiprakash Associates, has an outstanding debt of nearly Rs 9,800 crore.

Interim Resolution Professional (IRP) Anuj Jain, in October 2018, started a fresh initiative to revive Jaypee Infratech on the NCLT's direction. In the second round, lenders first rejected bid of Suraksha Realty and then that of state-owned NBCC.

In the first round of insolvency proceedings, the Rs 7,350 crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders.

Vandana.ramnani@nw18.com