In relief to over 30,000 homebuyers, SC stays Jaypee insolvency proceedings

NCLT's August 9 order had left the worried homebuyers' position ambiguous

The Supreme Court (SC) on Monday stayed the National Company Law Tribunal (NCLT) order initiating insolvency proceedings against Noida-based developer Jaypee Infratech. The decision came as a relief to over 30,000 homebuyers, whose position became tenuous after the August 9 NCLT order; despite having paid over 90 per cent of the price with delivery of flats long overdue, their status was unclear under the Insolvency and Bankruptcy Code (IBC).   

The order came in a writ petition filed by Chitra Sharma, a homebuyer, who had purchased a flat from the debt-ridden company.  The court has issued a notice to all parties, including the Centre, the company, the Noida Authority and the Uttar Pradesh government, and set the next hearing for October 10.   Experts said the pending cases before the Consumer Disputes Redressal Commission, which were under a moratorium, might come alive. Consumers demand that relief under these, which cannot be reversed, should be expedited. The decision could impact homebuyers in other insolvency-bound firms.

 “It is a temporary relief. There are over 200,000 homebuyers across various distressed companies. Including their dependents, the number of affected people would be around 500,000-600,000. These people are living in economic distress, having paid equated monthly instalments (EMIs) and rent for the past eight years,” said S K Nagrath, president, Jaypee Aman Owners Welfare Association.

Nagarath said homeowners had appealed to the committee of ministers, which met them last week to expedite matters pending before the consumer redress fora. Further, the homeowners also demand that the Reserve Bank of India suspend the EMIs for a period of one year as a relief. “We are not asking for a waiver, but only want that distressed families get a breather.”

Speaking to Business Standard earlier, Ashwarya Sinha, who is representing Sharma, had said that the petitioner was questioning the constitutional validity of the insolvency code, since it did not recognise the rights of homebuyers and sought harmonious construction with other recent laws such as Real Estate (Regulation and Development) Act (RERA), which protected the rights of homebuyers. Other demands include forensic audit of the company and takeover of distressed projects by state-owned developers. 
 

Sources close to the Insolvency and Bankruptcy Board of India said the regulator was of the view that the law would emerge stronger after being tested by the courts. 

But, lenders are keeping their fingers crossed, given the larger impact the outcome of the case could have. Other developers such as Amrapali, AMR Infrastructure, Unitech are caught in a debt trap. 

A lawyer representing the bank, which filed the insolvency petition in the NCLT against Jaypee Infratech, said that the moratorium given to the debtor company means that the other cases against the debtor can be revived till the next date of hearing and an order can be passed. This is a setback for the banks, as they will now not be able to recover their dues. 

Param Pandya, research fellow, corporate and financial law vertical at Vidhi Centre for Legal Policy, said, “The SC’s stay on the NCLT order is not just a huge relief for homebuyers across the country, but an interesting case for the legal pundits to analyse. The lack of clarity in judicial precedents and the release of Form F had confounded the confusion, in relation to the status of homebuyers under the IBC. The SC should clear the clouds on this legal issue. While the SC’s interference in this case is more than justified, from a futuristic perspective and in the light of the decision in the Innoventive Industries case, it will be vital to see on what principles the SC decides to interfere in the insolvency resolution process.”

 He added, “An unremitting intervention by courts in the functioning of the IBC could potentially jeopardise the very efficacy of the IBC.”

The NCLT had by its August 9 order prohibited “the institution of suits or continuation of pending suit or proceedings against the corporate debtor, including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property, including any action under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) Act, 2002; the recovery of any property by any owner or lessor where such property is occupied by or in possession of the corporate debtor.” This sweeping order had put many pending proceedings with the National Consumers Disputes Redressal Commission in limbo. The SC stay will now allow these proceedings to continue. Nagrath said his association would push for expedition of these matters. “Once these are disposed of, they cannot be reversed. So, we hope that these proceedings are expeditiously disposed of.”

(With inputs from Veena Mani in New Delhi)