Homebuyers are “financial creditors”
The Supreme Court on Thursday ordered commencement of insolvency proceedings afresh against distressed realtor Jaypee Infratech Ltd (JIL) before the National Company Law Tribunal, while also bringing the parent company, Jaiprakash Associates Ltd (JAL), within the ambit of similar action.
Having failed to make any headway for a year, the SC sent JIL back to NCLT and asked the interim resolution professional to seek fresh bids, including providing an opportunity to three who had bid earlier. However, the court barred JIL and JAL from the new process.
The companies cannot participate in the resolution process under Section 29 of the Insolvency and Bankruptcy Code (IBC). JIL has an outstanding debt of Rs 8,000 crore to its creditors.
In a double whammy, the court also allowed the Reserve Bank of India to direct banks to initiate a corporate insolvency resolution plan against JAL itself under IBC as it had defaulted on huge amounts to creditors. The failure of a resolution plan before NCLT can lead to liquidation of a firm.
Can’t ignore interests of 92% of homebuyers: SC
A bench of Chief Justice Dipak Misra and Justices A M Khanwilkar and D Y Chandrachud had used the SC’s powers under Article 142 of the Constitution for larger common good and instil confidence among unprotected homebuyers in NCLT-monitored insolvency proceedings. It had even forced JIL and JAL to deposit Rs 750 crore with the SC for possible return of principal amount to those seeking refunds.
But with the Centre amending the IBC to recognise homebuyers as “financial creditors”, the legal situation changed dramatically when the court was informed that only 8% of homebuyers were seeking refund while the rest wanted flats.
“We cannot be unmindful of the interest of 92% of homebuyers, many of whom would also have obtained loans to secure a home. They would have a legitimate grievance if the corpus of Rs 750 crore is distributed to homebuyers who seek refunds,” said Justice Chandrachud, who authored the judgment for the bench. The SC directed transfer of Rs 750 crore with interest to NCLT for further proceedings.
Having realised that it could not facilitate refund to 8% of homebuyers at the cost of 92%, the court concluded it would be better to go by the IBC-mandated resolution process in which investors can have a major say through representation in the committee of creditors (CoC).
Ordering constitution of CoC for JIL afresh by incorporating homebuyers in it, the bench said, “We are emphatically of the view that it would not be appropriate for the court to appoint a committee to oversee the corporate insolvency resolution plan and assume the task of supervising the work of the committee. We must particularly be careful not to supplant the IBC mechanisms by substituting them with a mechanism under judicial directions. Such a course of action would, in our view, not be consistent with the need to ensure complete justice under Article 142 under the regime of law.”
“We are keenly conscious of the fact that the claim of homebuyers who seek a refund of monies deserves to be considered with empathy. Yet, having given our anxious consideration to the plea and on the balance, we are not inclined to accede to it for more than one reason. Once we have taken recourse to the discipline of the IBC, it is necessary that its statutory provisions be allowed to facilitate the conclusion of the resolution process.”