Jaypee Infratech Insolvency: All Tied Up In Knots
A Jaypee Infratech project in Noida, Uttar Pradesh. Jaypee Infratech owes Rs 9,800 crore to 13 banks and has to build 20,000 flats and hand them over to home buyers. (Photographer: Prashanth Vishwanathan/Bloomberg)

Jaypee Infratech Insolvency: All Tied Up In Knots

A resolution process in waiting for nearly four years. Homebuyers awaiting delivery of nearly 20,000 homes. Financial creditors in line with claims worth Rs 9,782 crore. And a resolution process that has seen one deferral after another.

That sums the insolvency process of Jaypee Infratech Ltd.

On Wednesday, the committee of creditors at Jaypee Infratech will receive fresh resolution plans from Suraksha Asset Reconstruction Company Ltd. and government-owned NBCC (India) Ltd., as per a Supreme Court order dated March 24. That order had set aside an earlier approval of NBCC’s resolution plan by the National Company Law Tribunal in March 2020. In turn, fresh bids were sought with lenders being asked to pick a winning bidder within 45 days.

This will now be the fourth time that the financial creditors will review plans and vote on them.

Round Four: What’s In Store?

Two people with direct knowledge of the matter said that Suraksha ARC is in the process of drawing up its resolution plan for submission. But NBCC’s approach to the new bidding round remains uncertain.

On April 3, NBCC approached the Supreme Court seeking another four weeks to determine whether it can participate in the bidding process again. The public sector builder said since its plan was first approved by financial creditors in December 2019 and later by the NCLT, Jaypee Infratech has seen operational difficulties and the real estate market has taken a hit due to Covid-19.

This, among other factors, necessitates a complete review of the financial parameters of the resolution plan, NBCC said. Further, it said, being a government entity, NBCC would need to seek approvals from various departments of the central government before submitting a fresh plan.

“In case submitting a plan in the circumstances stated above is found to be unviable, the applicant reserves its rights to not submit any further plans,” NBCC said in its petition, a copy of which has been reviewed by BloombergQuint.

Creditors may now have to wait until NBCC’s petition is heard. The committee of creditors is working on an assumption that even if NBCC’s resolution plan doesn’t come by Wednesday, they’ll await the Supreme Court’s decision on its petition before beginning work on reviewing plans, a banker said speaking on condition of anonymity.

IDBI Bank Ltd., a lead lender to Jaypee Infratech, Suraksha ARC and NBCC did not respond to queries mailed. Anuj Jain, resolution professional for Jaypee Infratech refused to comment over a phone call.

What’s Affecting The Plans?

For both bidders, certain elements of the Supreme Court’s March 24 order are adding to complexity of the bid. The order said that certain aspects of NBCC’s resolution plan, which was approved by the financial creditors with over 97% votes, needed to be reviewed and modified, for it to become acceptable under the Insolvency and Bankruptcy Code.

The Rs 750-Crore Question

The first of these is the issue of Rs 750 crore deposited by parent company Jaiprakash Associates Ltd. for the completion of construction of Jaypee Infratech’s units.

ICICI Bank and Manoj Gaur, the former managing director at Jaypee Infratech, had both opposed a clause in NBCC’s resolution plan which sought to use the Rs 750 crore provided by Jaiprakash Associates. The funds would have been used to fund the construction of the pending flats in Jaypee Infratech’s housing projects.

The Supreme Court saw merit in the objection and stated the funds belonged to Jaiprakash Associates and would have to be returned to the company.

“The amount of Rs 750 crore (which was deposited by JAL pursuant to the orders passed by this Court in the case of Chitra Sharma) and accrued interest thereupon, is the property of JAL (Jaiprakash Associates) and stipulation in the resolution plan concerning its usage by JIL (Jaypee Infratech) or the resolution applicant cannot be approved,” the Supreme Court said in its order.

The top judicial body also said if Jaypee Infratech or any of its homebuyers had any payments pending from Jaiprakash Associates, then it be recovered from the Rs 750 crore before settlement.

Without these funds, the bidders will have to find a way to finance the construction work. According to the people cited earlier, this could lead to bidders valuing Jaypee Infratech lower as they would have to borrow fresh funds from lenders.

Treatment Of Dissenting Creditors

In its order the Supreme Court noted that NBCC’s proposal to repay dissenting creditors with land parcels does not meet the description of “payment”. As per NBCC’s plan, the dissenting financial creditors would get equity stake in the special purpose vehicle created to hold Yamuna Expressway and a portion of the 1,526 acres of land held in a land bank, at liquidation value of their claims.

The NCLT bench had recognised in March 2020 that such a trade-off might not be appropriate and modified it where NBCC would pay dissenting creditors their due payments within 18 months in cash, along with due interest. The Supreme Court in its order held that the NCLT had erred in modifying the resolution plan and asked the committee of creditors to review the clause and make necessary changes.

“The Adjudicating Authority (NCLT) has not erred in disapproving the proposed treatment of dissenting financial creditor like ICICI Bank Limited in the resolution plan, but has erred in modifying the related terms of the resolution plan and in not sending the matter back to the committee of creditors for reconsideration,” the Supreme Court said.

According to details available in the Supreme Court’s order, the dues to dissenting financial creditors work out to Rs 612 crore. According to the people cited earlier, the order would force the bidders to shell out more cash in order to take over Jaypee Infratech, which would result in lowering the returns for the creditors who agreed to the plan.

Valuing Land Parcels

As part of the insolvency process, the winning bidder would get control of 758 acres of unencumbered land which was under dispute. The dispute arose from the resolution professional identifying this land as having been fraudulently used by Jaiprakash Associates to raise money for itself, without giving any counter guarantees to Jaypee Infratech.

The Supreme Court finally ordered that the 758 acres would remain under Jaypee Infratech without any encumbrances.

In its resolution plan, NBCC had not made any mention of this land parcel or what it planned to do with it. In their appeals to the Supreme Court, the homebuyers have argued that the land should be put to use and homebuyers should be provided with compensation for delay in delivery.

“...the grievance voiced by some of the homebuyers is also justified that adequate provisions are required for dealing with the other chunk of 758 acres of land. This is another aspect which is required to be examined by the committee of creditors for ensuring the viability of the plan and maximisation of the value of the assets of the corporate debtor JIL,” the Supreme Court order said.

In its petition on April 3 seeking more time, NBCC said the process of valuing this land and deciding on what to do with it is a time-consuming process. This, too, remains a contentious issue.

Meanwhile Homeowners Wait...

As the Supreme Court noted in its order, an acceptable resolution will need to address the claims of various stakeholders, especially homebuyers of Jaypee Infratech.

Some of these homebuyers had agreed to buy homes in the company’s residential projects nearly a decade ago and are still awaiting delivery of their flats.

Rashim Singh, a homebuyer in Jaypee’s Kosmos housing projects, said the insolvency proceedings have seen multiple delays so far. Even the Supreme Court, which had finished hearing the challenges against NBCC’s resolution plan in September 2020, only announced its order in March 2021. According to her, the homebuyers are eagerly waiting for the current round of bids being put to vote soon, so the winner can finally proceed with construction.

“The fact is the homeowners have not received the homes they have paid for more than a decade ago. We just want the voting to end soon and construction work to begin so our long wait comes to an end,” Singh said.

Jaypee Infratech’s homebuyers protest in Delhi, April 3, 2021. (Picture Courtesy: Rashim Singh, homebuyer, Jaypee’s Kosmos project.)
Jaypee Infratech’s homebuyers protest in Delhi, April 3, 2021. (Picture Courtesy: Rashim Singh, homebuyer, Jaypee’s Kosmos project.)

Even after four years, it is not clear that the insolvency process is coming to an end.

If either of the two bidders chooses to not participate in the resolution process again, or if the financial creditors are not happy with the terms of the revised plans, Jaypee Infratech may face the prospect of liquidation. The outcome of any such liquidation process is uncertain.

Legal experts see the Jaypee Infratech resolution process as a one-off in the short history of insolvency proceedings in India.

“If you take this case, all the legal challenges it has seen and the repeated bidding to consider it as a precedent, then this case becomes antithetical to the entire IBC process. The law in itself does not envisage any such actions,” said Ajay Shaw, partner, DSK Legal. The case would only be “half done” if after all this a suitable bidder is not found, he added.

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