A car drives past signage for the Jaypee Greens Wish Town Noida Integrated City as residential buildings stand under construction in the project in Noida, Uttar Pradesh. (Photographer: Prashanth Vishwanathan/Bloomberg)

Jaypee Infratech Now On Life Support As Supreme Court Stays Liquidation

The Supreme Court on Wednesday stayed liquidation proceedings against beleaguered developer Jaypee Infratech Ltd., keeping homebuyers’ hopes alive of getting their properties.

The apex court asked for status quo to continue in the insolvency resolution till june 15. Till this date, resolution professional Anuj Jain will continue to manage the company’s affairs. Within this timeframe, Jaiprakash Associates Ltd, the promoterfor Jaypee Infratech has been asked to deposit Rs 1,000 crore as a security against the claims of home buyers.

That follows the September 2017 order to deposit Rs 2,000 crore. The company has so far deposited Rs 750 crore. If the promoter is not able to deposit the money by June 15, the liquidation proceeding would continue.

The matter came up after the committee of creditors rejected the highest bid it had received on May 9. The 270-day resolution period under the insolvency and bankruptcy code ended on May 12, forcing the resolution professional to file a liquidation application with the Allahabad bench of the National Company Law Tribunal.

The creditors’ committee for Jaypee Infratech had estimated the liquidation value at Rs 7,759 crore. In comparison, financial creditors alone have claims worth over Rs 9,700 crore. Homebuyers are understood to have claims exceeding Rs 15,000 crore.

The Supreme Court was not in favour of liquidation as it would lead to a significant deterioration in value for the stakeholders, including homebuyers, Parag Tripathi, the lawyer representing Jain, said.

Tripathi informed the court that the creditors of Jaypee Infratech have already declined to consider a resolution plan submitted by the company’s promoter as it was not allowed to participate under Section 29(A) of the insolvency and bankruptcy code (IBC). Jaiprakash Associates also didn’t show any proof of funds when asked by the lenders, Tripathi said.

Under Section 29(A), a promoter of a company which had been classified as a non-performing asset by banks for a period exceeding one year would not be eligible to submit a resolution plan. Jaiprakash Associates owed more than Rs 7,000 crore in principal and interest, which was classified as “overdue”, according to its auditor’s report for financial year 2016-17.

A lawyer representing the Reserve Bank of India at the Supreme Court on Wednesday stated that the regulator had shortlisted Jaiprakash Associates in a list of defaulters which were due for insolvency proceedings. The RBI opposed the company’s involvement in the resolution plan for Jaypee Infratech.

Also read: Why Lenders To Jaypee Infratech Rejected The Highest Bid On The Table

The Rejected Bidder

What India’s top court couldn’t hear today due to paucity of time was an intervention petition filed by Lakshadeep Investments and Finance Pvt Ltd., the highest bidder shortlisted under the insolvency process whose bid was rejected by the lenders.

Lakshadeep Investments, promoted by Sun Pharmaceuticals Ltd. Executive Director Sudhir Valia, is a joint venture between Suraksha Asset Reconstruction Company (ARC) Ltd. and Dosti Realty. The company sought to be part of the Jaypee Infratech hearing and have its offer be reconsidered.

In its petition, a copy of which was reviewed by BloombergQuint, the bidder detailed what it was offering the financial creditors and the homebuyers of Jaypee Infratech. Lakshadeep Investments has offered to repay debt worth Rs 1,200 crore upfront, Rs 4,046 crore worth non-convertible debentures issued to lenders, Rs 4,866 crore worth of land to swapped for reduction of debt, Rs 60 crore equity to lenders and an upside sharing worth Rs 145 crore.

That works out to Rs 10,314 crore in gross value.

At present value—which takes into account the time taken to repay—the bid was worth over Rs 7,900 crore, a person close to the development told BloombergQuint on condition of anonymity. This is higher than the liquidation value of the company and would ensure that the financial creditors recovered more than 70 percent of their dues.

In its petition, Lakshadeep Investments said that it has received in-principle sanction from Yes Bank Ltd. for working capital loans worth Rs 3,500 crore, which will be used to finish the residential properties of Jaypee Infratech. The company, in an official statement, said it aimed to complete the residential projects within the next three to four years.

Also read: Jaypee Group Offers 2,000 Shares For Free To Each Homebuyer

Behind The Scenes

Lakshadeep Investments was shortlisted as the highest bidder for Jaypee Infratech in April by the lenders, pipping JSW Group, Cube Highways and the Adani Group. Lakshadeep Investments, in its petition, claimed that its bid was higher by at least Rs 1,500 crore compared with the Adani Group, the second-highest bidder.

After being shortlisted, IDBI Bank, the leader of the committee of creditors, advisors Deloitte and IDBI Capital, and KPMG, the company representing the resolution professional, met with Lakshadeep Investments to rework its bid. The aim, according to two people aware of the matter, was to ensure that its offer is acceptable to the CoC and had a high chance of getting the majority approval.

Though Lakshadeep Investments spent a month trying to rework its bid, it received only 6.5 percent of the lenders’ votes on May 9. What’s even more surprising was that IDBI Bank, which controlled 44 percent of the vote share, voted against it.

IDBI Bank didn’t respond to queries sent by BloombergQuint.

Before the lenders voted to disqualify Lakshadeep Investments’ bid, they'd met a delegation from Jaiprakash Associates about its resolution plan. The Supreme Court, in September last year, had asked Jaiprakash Associates to submit its offer under the Insolvency and Bankruptcy Code. That was before the government amended the code to bar promoters from participating in the resolution process.

Also read: Jaypee Promoters Submit Over Rs 10,000 Crore Revival Plan For Jaypee Infratech

Related-Party Transactions

Prior to submitting their bids for Jaypee Infratech, the four bidders had been informed of related-party transactions. Jaiprakash Associates had given Jaypee Infratech’s land to its own lenders in exchange for bringing down debt, according to a presentation made by the resolution professional to the potential bidders. This land was worth over Rs 900 crore and Jaypee Infratech had not received any consideration for transfer of ownership, the document said.

Jaiprakash Associates had entered into a contract with Jaypee Infratech to develop its land on a “cost plus” basis, which included all direct and indirect costs, overheads and profit. The amount billed by Jaiprakash Associates is at a margin of 15 percent on the cost incurred, the presentation said. In addition, the promoter levied 5 percent material handling charges on purchase of raw materials such as steel and cement.

BloombergQuint has reviewed parts of the presentation. Jaiprakash Associates didn’t respond to queries sent on Tuesday.

Jaiprakash Associates has already informed the court that it will not be able to deposit the Rs 1,000 crore ordered by the court. If it is not able to pay this amount, the liquidation proceedings will continue at the Allahabad bench of the NCLT. In any case, the final decision in Jaypee Infratech will be dependent on what the Supreme Court says on July 4.