The Supreme Court
on Monday announced a series of steps in the Jaypee Infratech
case to ensure homebuyers’ interests were protected without severely affecting the sanctity of the young insolvency law.
A Bench of Chief Justice Dipak Misra and judges A M Khanwilkar and D Y Chandrachud modified last week’s stay order on the insolvency proceedings to allow the interim resolution professional
(IRP) access to records of the company. The IRP has been directed to draft an interim resolution plan duly taking into account the interests of homebuyers and creditors in 45 days.
Keeping in mind the “massive human problem,” the Bench said it would appoint a homebuyers’ representative to the committee of creditors.
Earlier P Chidambaram, who was representing a group of homeowners’ associations, had argued that the homebuyers had paid much more than the banks. Claiming the homebuyers had dues of over Rs 15,000 crore, and they have to be considered on a par with the financial creditors or even above them, Chidambaram said the current process did not provide any representation for the homebuyers.
“We must be part of the resolution plan. We must be part of the committee of creditors,” he said.
To keep a check on the promoters, the court ordered Jaiprakash Associates
(JAL), the original promoter entity of Jaypee Infratech
(JIL), to deposit Rs 2,000 crore in the court by October 27 to protect the interests of over 30,000 homebuyers, who bought flats. If JAL intends to sell any land to deposit this money, such a sale should be done only with the prior consent and approval of the court.
The court also restricted the managing director and directors of both companies
from travelling abroad without prior permission. The move covers Manoj Gaur, who was the managing director of Jaypee Infratech
and executive chairman and chief executive officer of JAL.
Other directors impacted by the move would be Gaur family members Sameer Gaur, Sunny Gaur and Rekha Dixit, who are on the board of these companies.
While the Bench of Chief Justice Misra excluded the nominees of the lenders from the restriction, it did not exempt the independent directors.
JIL’s board, as of February, comprised Sunil Kumar Sharma, vice chairman, and directors R B Singh, B K Goswami, S Balasubramanian, B B Tandon, Lalit Bhasin, K P Rau, S S Gupta, Sham Lal Mohan, Sameer Gaur, Rakesh Sharma and Rekha Dixit.
Sunil Kumar Sharma, R N Bharadwaj, B K Goswami, C P Jain, K P Rau, Homai A Daruwalla, K N Bhandari, S C K Patne, T R Kakkar, Pankaj Gaur, and Ranvijay Singh were on the board of JAL, according to the company website.
While under the insolvency framework, the promoters and directors got replaced by a committee of creditors, in what is seen as “test case” by many, the court allowed the insolvency process to continue without letting off the promoters.
Thousands of aggrieved homebuyers had moved court last month, citing gaps in the Insolvency and Bankruptcy Code. Rulings under the law had earlier held that homebuyers were neither financial creditors nor operational creditors. The regulator had come out with Form F for claimants who were neither financial nor operational creditors, further deepening the doubts of the consumers about their status in the waterfall of payments.
In a packed courtroom with numerous parties, who had filed interventions, allegations of collusion flew thick and fast. While the homebuyers had initially alleged collusion between lenders and the management, on Monday, the lenders alleged the consumers had colluded with the management. Abhishek Manu Singhvi, the counsel for IDBI bank, had sought the removal of a stay that would allow the IRP to form the resolution plan within the 180 days allowed by the law.
The attorney-general said the court’s September 4 stay order had inadvertently sent the company back to the lap of the promoters, who have brought the company to this situation. He also argued that other proceedings under the consumer protection laws could be allowed to continue. It was also pointed out that delivery of 627 flats was done during the IRP’s brief stint before the stay.
The Jaypee group’s counsels objected to the allegations and said what was being delivered to customers was those houses built by them and that the IRP had not built anything new. “We have excess assets. Against liabilities of Rs 9,000 crore, my assets are worth over Rs 17,000 crore. Even in a distress sale these could fetch about Rs 15,000 crore. ...We are an infrastructure player. We have built the Yamuna Expressway,” claimed the group. The group’s lawyers also pointed out that concession period of 30 years was left for the expressway and capitalising this could get thousands of crores.
But, Chief Justice Misra said, “You can give thousand certificates to yourself... [But] we want to take an informed decision.”
The court initially considered a proposal to form an association of all the homebuyers, whose representative would then be nominated to the committee of creditors. It later decided that it would appoint this representative, who would espouse the cause of homebuyers and protect their interests during the formulation of the resolution plan.