After Refusing NBCC Bid, Jaypee Infratech Lenders Look To Courts For Cues

The process to finalise a resolution plan for Jaypee Infratech Ltd, which was referred for insolvency nearly two years ago, may stretch out further. Lenders to the company have rejected the only serious bid for the company and are now awaiting directions from the courts before they move forward, said people familiar with the matter.

On Monday, a majority of the Committee of Creditors voted against accepting a resolution plan submitted by government-owned NBCC Ltd., according to two people familiar with the developments, who spoke on conditions of anonymity since the voting tally is confidential.

However, a final outcome of the vote cannot be decided immediately. On Monday, the National Company Law Tribunal asked Jaypee Infratech’s resolution professional to submit the voting tally before the court at the next hearing on July 2. It is the NCLAT which will decide whether the vote followed the necessary process and if the outcome is acceptable.

In the case of Jaypee Infratech, nearly 20,000 homebuyers who are yet to receive flats they have paid for, are part of the CoC. This has complicated the voting process. Homebuyers control 58 percent of the vote in the CoC but they have not been able to vote as a unit. In its Monday order, the NCLAT said that absentee voters would be taken out of the total vote tally to ensure that the process captures the interests of those who participated in the vote.

According to a Jaypee Infratech homebuyer, who spoke on conditions of anonymity, there are about 9,000 homebuyers who have not voted till date. Even assuming that all the others voted in favour of NBCC, a show of support from homebuyers would not be enough to clear the bid if a majority of lenders voted against it. Under the Insolvency and Bankruptcy Code, a minimum 66 percent vote is needed to clear a proposal.

Why Did Lenders Reject The NBCC Offer?

NBCC was the only serious bidder for Jaypee Infratech. Yet, lenders were not in favour of the resolution plan because of conditions imposed by the government-owned firm.

In its resolution plan, NBCC had proposed that it would hive off the Yamuna Expressway asset into a special purpose vehicle, which would be then sold to interested bidders. This would allow lenders to recover loans to Jaypee Infratech. For this to happen, approvals are needed from the Yamuna Expressway Industrial Development Authority. Lenders argued this responsibility lies with NBCC but company asked the lenders to get approvals.

Similarly, the Manoj Gaur-led company had large tax liabilities, which NBCC wanted the secured financial creditors to bear. Lenders were not willing to bear this cost.

Finally, NBCC had proposed that the lenders consider taking over unsold residential units in Jaypee Wishtown, which they can sell to recover loans. The lenders were not keen on this either.

All these conditions, according to lenders, made the bid untenable. NBCC did not see it that way.

Lenders cannot be forced to accept a proposal even by the courts if a majority of the vote has gone against it, said one of the two people quoted above.

According to Babu Sivaprakasam, partner at Economic Laws Practice, a bidder in an insolvency process does not have the right to ask creditors to take any of the cost. Bidders can argue in court about the validity of the liability on the debtor, but cannot propose that the lender must pay for it.

So, What’s Next?

IDBI Bank has already approached the NCLAT with a request to allow it to consider other resolution plans, since it is not in favour of the NBCC plan.

On May 28, Adani Infrastructure and Development Pvt. Ltd. sent an unsolicited bid for Jaypee Infratech to the company’s lenders. The bid included a Rs 500 crore upfront payment, swapping 1,000 acres of land owned by Jaypee Infratech in exchange for lenders reducing the company’s debt, an infusion of Rs 1,700 crore for expediting construction of real estate properties and payment of penal interest to homebuyers for delay in delivery of homes.

According to IDBI Bank, it should be allowed to review the plan and negotiate with Adani Infrastructure, so it can improve recoveries from the account. According to the second person quoted above, the lender may approach the Supreme Court, if it does not get the requisite approval from NCLAT.

Should IDBI Bank not get its way, Jaypee Infratech could be headed for liquidation. Homebuyers would suffer the most in this scenario as Jaypee Infratech owes about Rs 9,800 crore to its secured financial creditors, while dues to homebuyers are nearly Rs 13,000 crore.

According to Sivaprakasam at ELP, the delays faced in the process of Jaypee Infratech’s resolution are not unexpected as the law is still being tested.

“As more and more cases are being resolved, the stakeholders will come to realise the situations where they can get certain exemptions from the courts and where they cannot argue. In the long run, this is only good for the law,” he said.