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RBI seeks Supreme Court nod to begin insolvency proceedings against JP Associates

Homebuyers worry if insolvency proceedings are initiated, who will deposit Rs 2,000 crore meant for refunds.

Vandana Ramnani @vandanaramnani1

The Reserve Bank of India on Monday approached the Supreme Court seeking permission to initiate insolvency proceedings against Jaiprakash Associates (JAL), the parent company of Jaypee Infratech (JIL).

The move had more than 25,000 homebuyers of Jaypee Infratech in Noida and Greater Noida worried that if insolvency proceedings against JAL are allowed, who will deposit Rs 2,000 crore with the Supreme Court registry and ensure that homebuyers are refunded from the amount, sources told Moneycontrol.

The matter will come up for a hearing in the apex court on January 10.

In its application, the RBI has prayed that the “Court may be pleased to allow the applicant to follow the recommendations of the IAC in accordance with the provisions of the Ordinance…”. RBI’s Internal Advisory Committee had identified JAL as the company against which insolvency proceedings needed to be initiated.

The RBI approaching the Supreme Court seems to be a reasonable approach given the fact that the top court is already apprised of the matter. If any process had gone to a lower court (National Company Law Tribunal or NCLT), it could have had the potential of upsetting the apex court as it recently happened in the case of Unitech, said an insolvency expert.

Jaiprakash Associates, with a debt of nearly Rs 29,000 crore, is part of Jaypee Group, promoted by Manoj Gaur and his family and features in RBI’s second list of 28-30 companies to be taken to NCLT. It has deposited Rs 425 crore so far. Besides, JAL is yet to deposit the full amount of Rs 2,000 crore with the Supreme Court registry.

In case insolvency proceedings are initiated against JAL, it may leave homebuyers in a lurch because until now “JAL was the backstop option, the money required for construction of flats bought by homebuyers from JIL would have come from JAL. JIL hereby may not have recourse to JAL,” sources said.  The 4,000 homebuyers who own premium projects by JAL in Wishtown and Sports City may also get impacted in the process, they added.

“The RBI’s application … would complicate the matter further for the much harrowed homebuyers. If corporate insolvency resolution process or CIRP is commenced against JAL, the provisions of Insolvency Code or IBC will apply and IBC provides for moratorium on all fresh and continuing litigation against the company. Simply put, initiation of CIRP would mean discontinuation of the litigation against JAL at all levels including at the NCDRC and Supreme Court level. Who will then deposit that Rs 2,000 crore amount to refund home buyers, asks Abhishek Dubey, a Delhi-based lawyer based and a Jaypee flat-buyer.

It makes sense if JAL is asked by the apex court at the January 10 hearing to fulfill its obligation to deposit Rs 2000 crore first before proceedings begin against it,” legal sources say.

Homebuyers say that forensic audit of JIL should also be conducted to crystallise the liabilities of JAL towards homebuyers of JIL.

Some insolvency experts are of the view that it is in the interest of JIL stakeholders that the insolvency proceedings of the holding company run parallel with that of JIL. “As far as the payment of Rs 2,000 crore is concerned, the order has been issued to the directors and promoters of the company to make the payment and that is independent of the insolvency process. Initiation of insolvency against JAL will not have any bearing in so much as proceedings in SC are concerned,” they said.

There is also every likelihood of the Supreme Court stating that any final order passed by NCLT will be subject to the final outcome of the Supreme Court proceedings. The Supreme Court may attach strings to it. Buyers therefore need not worry, said insolvency experts.

In order to avoid legal complications, the RBI had reportedly asked the lead banker, ICICI Bank last week to exempt Jaiprakash Associates from being filed at the NCLT for now, banking sources aware of the matter had said.

Currently, financially troubled Jaypee Infratech, subsidiary of Jaiprakash Associates, has been battling lenders in the National Company Law Tribunal (NCLT) but reached the Supreme Court dragged by the home buyers impacted by the insolvency proceedings.

Jaypee Infratech is among 12 large stressed companies in the first list referred to banks by RBI to start bankruptcy proceedings in June 2017.

The apex court has ruled that the promoters of the company would not be allowed to sell their personal assets or property without its permission.

While the second list of companies were to be sent to the NCLTs before December end, any resolution plan on selling of its assets could violate the SC ruling, a senior banker had said.

On August 9 last year, the Allahabad bench of the NCLT had accepted lender IDBI Bank’s plea and admitted Jaypee Infratech as a case under insolvency resolution for defaulting Rs 526 crore. It appointed Anuj Jain as the insolvency resolution professional from BSSR & Co.

The SC ruling came after over 20,000 home buyers in the Jaypee Infratech’s projects raised concerns of not getting back their money as the first right of dues would go to the banks and other operational creditors. While some buyers have paid the full amount to the company, there are others who may have paid either 60 percent or perhaps 90 percent of the amount.
First Published on Jan 8, 2018 09:13 pm
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