Fearing that the "threat" of embattled real estate firm Jaypee Infratech Limited going into liquidation is "turning into a reality with each passing day," a group of homebuyers led by Chitra Sharma, a Delhi resident who had first questioned the constitutional validity of the insolvency code two years ago, has moved the Supreme Court seeking its intervention to protect their interests.
The apex court has decided to hear their plea next week.
Sharma was among the first few homebuyers who had moved the apex court in 2017 stating that around 32,000 people had booked flats and were now paying instalments, but their homes were not ready.
"Till date only two serious bids have been received by the Committee of Creditors. One bid has been submitted by National Buildings Construction Corporation Limited, whereas the other has been submitted by Suraksha ARC. None of the said bids have been accepted by the Committee of Creditors till date," the plea filed last month through advocate Ashwarya Sinha said.
It said if no resolution plan is accepted till May 6, JIL would "automatically go into liquidation", leaving thousands of home buyers in lurch and without any solution.
The fresh application in the matter came up for hearing on July 2 before a bench comprising Justices AM Khanwilkar and Dinesh Maheshwari.
As per the Insolvency and Bankruptcy Code 2016, the corporate insolvency resolution process or CIRP must be finalised and approved within 180 days of a company’s admission to the National Company Law Tribunal but the process can be extended by 90 days. The statutory period of 270 days in this case ended on May 6. The Code also says that if the committee of creditors fail to submit a resolution plan within the stipulated period, the company can be sent to liquidation and the proceeds would first go to the secured creditors, the banks in this case and then to unsecured creditors (homebuyers).
"Liquidation of the company will only be in the interest of the banks who will be able to recover the money lent by them to the corporate debtor," it said, adding that "however, the ultimate sufferer of the same will be the homebuyers."
Speaking to Moneycontrol, Chitra, who had filed the application through her advocate, said that 270 days have gone by but no solution has been found.
"NCLT is not a place where buyers should be. The NBCC bid stands rejected because IDBI is not supporting it, already 270 days have expired on May 6. Somebody needs to step in and do something for homebuyers. Our application raises three points – protect the rights of homebuyers, order a forensic audit from the day of inception of the company and address the issue of absenteeism," she said.
She claimed banks have failed everything.
"The resolution has been failed by banks. There is absenteeism because no KYC has been done against some buyers and absenteeism is counted as no vote. This is causing the entire process to fail. Supreme Court never wanted the company to go into liquidation. I want the apex court to decide whether we are secured creditors or not, the moment homebuyers are declared as secured creditors banks will come forward to negotiate to get the resolution through. If the company goes into liquidation all violations by banks will get buried," she alleged.
"Without a forensic audit none of the persons responsible for diversion of funds will ever be made accountable. It will also be impossible to bring back the hard earned monies of the home buyers without the said diversion being traced to the ultimate beneficiary. Liquidation of the company will only be in the interest of the banks who will be able to recover the money lent by them to the corporate debtor," she said, adding the ultimate sufferer will be the homebuyers.
Legal experts said that the move by homebuyers to approach Supreme Court to protect their interests is a step in the right direction.
"Solution for all the real estate cases does not lie under the IBC but under RERA. Banks taking realty companies to IBC to recover their loans is not right. Both these Acts are relatively new and both have to be reconciled," said Vivek Kohli of Zeus Law.
The apex court had on August 9 last year ordered re-commencement of the resolution process against JIL and allowed the Reserve Bank of India to direct banks to initiate corporate insolvency resolution proceedings (CIRP) against Jaiprakash Associates Ltd (JAL), the holding company of JIL, under the Insolvency and Bankruptcy Code (IBC).
In a related case heard by NCLAT on July 2, the court directed representatives of banks, allottees and other stakeholders to appear before it on July 17 to consider how the NBCC resolution plan could be amended for the benefit of home buyers.
The appellate tribunal said its priority was to take care of the interest of the home buyers and asked the representatives of various stakeholders involved to appear before it in the next hearing on July 17 to find how NBCC's plans could be altered for the benefit of all, specially the home buyers. The bench said NBCC is a government company and one can rely on it, adding that it knows "the pain of allottees" and wants to do justice for them.
NBCC had in its revised bid agreed to reduce the value of unsold inventories offered to lenders by around 25 percent. The public sector firm has proposed that it would reduce the value of unsold inventories offered to lenders to Rs 1,300 crore from earlier Rs 1,750 crore. Banks had been reluctant to acquire over 2000 unsold flats as proposed by NBCC in its revised offer.
However, NBCC did not dilute other conditions in its offer, including exemption from future tax liability, mentioned in its bid. In its revised offer, NBCC had proposed infusion of Rs 200 crore equity capital, transfer of 950 acres of land worth Rs 5,000 crore to banks and completing construction of flats by July 2023 to settle an outstanding claim of Rs 23,723 crore of financial creditors.
But it had put several conditions for the implementation of its plan, including a demand to extinguish an estimated income-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 (YEIDA) to Jaypee Group and seeking permission from YEIDA for any business transfer.
As many as 13 banks and over 23,000 homebuyers have voting rights in the committee of creditors (CoC). Buyers have nearly 60 per cent votes. For the bid to be approved, 66 per cent voters should be in favour of the deal.
Earlier in May. creditors, including banks and homebuyers, rejected a bid by Mumbai-based Suraksha Realty through a voting process, following which the CoC decided to consider NBCC's offer.
Jaypee Infratech went into insolvency process in 2017 after the NCLT admitted an application by an IDBI-Bank-led consortium seeking resolution of the realty firm. In the first round of insolvency proceedings, the Rs 7,350-crore bid of Lakshdeep, part of Suraksha Group, was rejected by lenders. Later in October 2018, the Interim Resolution Professional (IRP) started the second round of bidding process to revive Jaypee Infratech on the direction of NCLT.email@example.com