Homebuyers want a new promoter to be inducted for the resolution of JIL. Seek for extension of the insolvency resolution period by 45 to 60 days for induction of a new promoter.
Stating that an insolvent company cannot place a bid for another insolvent company, as many as nine associations of Jaypee homebuyers representing about 5,000 people, have opposed Jaiprakash Associates (JAL) proposal to reacquire Jaypee Infratech Ltd (JIL).
The counsel for homebuyers argued before the Supreme Court on July 17 that JAL does not have the financial capacity to deliver flats to owners and that a new promoter needs to be inducted for the resolution of JIL. The counsel added that the proposal submitted by JAL on July 16 should be rejected as it is “flawed”.
Homebuyers sought an extension of the insolvency resolution period by 45 to 60 days for the induction of a new promoter, lawyers present at the hearing told Moneycontrol.
“It is submitted that JAL does not have the capacity to deliver the flats as around 22,000 homebuyers are suffering due to delays of more than 4 (four) years in completion of various projects of JAL and JIL. If JAL was serious about delivering the flats, the present situation would not have arisen. Further, JAL would have avoided insolvency process of JIL and would not have thrown homebuyers to uncertainties of insolvency,” Anand Grover, representing homebuyers of nine associations informed the court.
The Jaypee matter is listed for further hearing on July 18. Suraksha Realty, Cube Highways and counsels for other homebuyers Ajit Sinha are expected to make their submissions in the next hearing.
“There are also serious doubts about the credentials of JAL as JAL appears to have diverted funds from JIL towards its other business. The Applicant Associations had appointed ASA Financial Services to conduct an audit of JIL’s financials and the audit report (ASA Report) demonstrated that JAL may have diverted more than Rs 10,000 crore from JIL,” Grover claimed.
JAL failed to pay the latest installment of Rs 1,000 crore by June 15, as per the order of the court. It is a defaulter of more than 30 banks. JAL has also defaulted on fixed deposits, foreign currency convertible bonds (FCCBs) and payments to Noida Authority and even the latest proposal, the Rs 600 crore is spread over time indicating that the company has no resources, Grover told the court.
Due to cross-default/default by group companies, it would be very difficult, if not impossible, for JIL to raise loans if JAL reacquires JIL. Further, the homebuyers would also face problems in availing home loans if JAL reacquires JIL, homebuyers argued through their counsel.
Grover said that loans given to JAL have been classified as non-performing asset (NPA) which renders JAL ineligible as a resolution applicant/new promoter under Section 29A (b) of the IBC. He said that most members of the applicant associations opted for possession of their flats on the basis that the insolvency resolution process of Jaypee Infratech Limited (JIL) would result in Jaiprakash Associates Limited (JAL) being ousted as a promoter of JIL and a credible and solvent third party would be inducted as a promoter of JIL.
“Homebuyers were under such belief as Section 29A of Insolvency and Bankruptcy Code, 2016 (IBC) bars defaulter and insolvent entities such as JAL to bid for another insolvent company, i.e. JIL in the instant case. The logic of Section 29 A(b) is simple: an insolvent company cannot place a bid for another insolvent company,” Grover told the bench.
There are about 25,000 Jaypee homebuyers who have been impacted by the present proceedings. Only 8-10 per cent, roughly 2,500 homebuyers want their money refunded that amounts to about Rs 1100-1400 crore. As many as 92 per cent of homebuyers have sought possession of their flats.
If it was known to the homebuyers (including the members of the Applicant Associations) that JAL or any other insolvent party may again become a promoter of JIL, the outcome of the survey conducted by the amicus curiae may have been entirely different, he told the Supreme Court.
In addition to Section 29A (b), JAL is also disqualified under Section 29A (g) of IBC. In simple terms, Section 29A (g) provides that a person who is engaged in a fraudulent transaction should not be allowed to bid for another company as such person may again engage in fraudulent transactions. The National Company Law Tribunal (NCLT), Allahabad in May 2018 has set aside a fraudulent transaction involving mortgage of around 750 acres of JIL’s land in favour of lenders of JAL. This mortgage was without any consideration and the land of 750 acres may be worth Rs 5,000 crore. The matter is now before the National Company Law Appellate Tribunal (NCLAT), which has specifically framed an issue in this regard, Grover informed the court.
JAL’s proposal, although presented under the garb of protection of interest of homebuyers, is aimed at twin benefits of avoiding insolvency of JAL and regaining control of JIL, thereby defeating the RBI’s application for insolvency proceedings of JAL as well as Section 29A of IBC, he argued.
New promoter needs to be inducted for the resolution of JIL.
“Liquidation will be not in the interest of any stakeholder, least of all homebuyers. It is in the interest of the homebuyers, banks as well as the creditors that a new promoter be inducted for JIL,” Grover said.
Homebuyers have also demanded that the insolvency resolution process be extended. Considering that the amended IBC provides for voting rights of homebuyers in the COC, it is critical to extend the insolvency resolution process so that the new COC (which would include homebuyers) can decide on induction of a new promoter, homebuyers of nine Jaypee associations said.
“As the period (270 days) for the resolution plan under the IBC is over for induction of a new promoter of JIL, it is important that this Hon’ble Court may kindly grant an extension of further minimum of 45 days and upto a maximum of 60 days (45/60) days for completion of the CIRP of JIL,” homebuyers said.
“In the said 45/60 days, the new COC can decide on the evaluation criteria, negotiate with bidders, invite fresh/revised bids and evaluate and approve resolution plans of Suraksha Realty, Cube- Kotak Consortium and/or other qualified bidders,” they said.
Referring to these impediments encountered by JAL such as stay order granted by National Green Tribunal (NGT) attributing to delay in construction of flats have been rejected by orders of the National Consumer Disputes Redressal Commission (NCDRC) as there was no stay, the homebuyers’ counsel argued in court on Tuesday.
The contention of JAL that they faced impediments on account of the purported stay imposed by the NGT is patently incorrect as the stay by the NGT was only on handing over possession without an occupation certificate, which had no bearing on the construction at all, he told the court, Grover claimed.
He also said that during the pendency of the corporate insolvency proceedings (CIRP), i.e. from 9 August 2017 onwards, construction work was done under the aegis of the Interim Resolution Professional (IRP) under whom JAL were mere contractors.
Also, the claim by JAL that flats have been delivered is a fractured claim as the flats have been delivered in incomplete stages and are not accordance with the allotment letters. These include the fact that flooring is not complete, doors and windows are missing, no objection certificates have not been obtained from the Fire Department, offer of possession is being made without the occupation certificate.
Jaiprakash Associates Limited (JAL) on Monday informed Supreme Court that it would give possession of 500 flats every month and pay the principal amount of all those who wanted refund provided it was allowed to generate funds by monetizing its assets. These include Rs 2700 crore from Yes Bank against permission requested from the court to monetize the toll collection on Yamuna Expressway for 10 years and Rs 600 crore by disposing off its cement plant in Madhya Pradesh.
JAL represented by senior advocate Fali S Nariman had also referred to the impediments in the timely delivery of homes to the homebuyers. The first impediment was between 2009 and 2011 and because of the Commonwealth Games, the building contractors, who had been engaged by JAL/JIL for construction, transferred a substantial workforce from the housing projects to work for the CWG under the orders of the Centre.
The second impediment leading to temporary disruption of work at site was an ex-parte order issued by National Green Tribunal on January 11,2013 restraining all builders of Noida and Greater Noida area from extracting any quantity of underground water for the purposes of construction or otherwise. The third impediment (for 2 years) was another order issued by NGT dated August 14, 2013 to the effect no further construction was to be done within 10 km radius of Okhla Bird Sanctuary without obtaining proper environment clearance, Nariman had informed Supreme Court on Monday.
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