Three Things That Could Stall Jaypee Infratech Insolvency The Second Time

Bidders for Jaypee Infratech Ltd. have raised three major concerns that could prevent them from participating in bankruptcy resolution.

Representatives from Suraksha Asset Reconstruction Company Ltd. and NBCC Ltd., who met with the committee of creditors on Thursday, raised concerns regarding hiving off of the land owned by Jaypee Infratech, the Rs 750-crore deposit that parent Jaiprakash Associates Ltd. made with the Supreme Court against homebuyers’ claims and the status of Jaypee Infratech’s 759-acre wrongfully used by Jaiprakash Associates to avail loans from banks, according to three people in the know. They spoke on the condition of anonymity as the talks with the lenders are private.

As the three issues face legal tangles, the bidders want to submit conditional bids depending on how these are dealt with, the people said. The committee of creditors, however, is firm that it will not accept any conditional bid, the people said. The creditors and the bidders are still negotiating.

NBCC and Suraksha ARC didn’t respond to BloombergQuint’s emailed queries. Anuj Jain, the resolution professional for Jaypee Infratech, declined to comment.

Jaypee Infratech was one of the 12 large cases shortlisted by the RBI for insolvency proceedings in June 2017. The developer owes lenders around Rs 13,000 crore, while homebuyers waiting for their apartments have claimed close to Rs 14,500 crore.

The company's insolvency process has already failed once. The CoC had rejected the bid submitted by Suraksha ARC since lenders representing only 6.5 percent of Jaypee Infratech's debt agreed. In August 2018, the Supreme Court ordered the insolvency in Jaypee Infratech be restarted so that the case doesn’t end up in liquidation. The top court has been actively involved in the process since it involves thousands of homebuyers as Jaypee Infratech and Jaiprakash Associates have been unable to complete construction work of residential apartments in Noida.

Rs 750-Crore Deposit

The apex court had asked promoters of Jaypee Group to deposit Rs 1,000 crore for completion of the construction work. Jaiprakash Associates managed to deposit only Rs 750 crore, which the Supreme Court transferred to the Allahabad Bench of the National Company Law Tribunal. The top court, in its August order, said the money can’t be released to homebuyers as it would be against the covenants of the Insolvency and Bankruptcy Code where secured creditors might be subjected to injustice.

The Allahabad bench is now hearing arguments by the homebuyers who are seeking that the funds be released for construction. The tribunal will decide on how much money residential projects of Jaypee Infratech and Jaiprakash Associates will receive.

NBCC and Suraksha ARC want clarity on how and when these funds would be disbursed so that they could factor that in the resolution plans, according to the people quoted earlier. The bidders want the availability of funds as a condition in their bids.

But the creditors are firm that if the bidders factor these funds in their plans and then don’t get the money from the NCLT, NBCC and Suraksha ARC may have to raise the funds on their own, the people said.

Hiving Off Road Asset

As part of its resolution plan, NBCC proposed that the lenders in the CoC may be provided equity stake in Yamuna Expressway, which would be hived off for sale, according to the people. The government-owned builder proposed that when the expressway is sold to interested bidders, the lenders would receive a portion of the payment.

Suraksha ARC argued that it should also be allowed to monetise the road asset. The bidder had proposed it in the its last resolution plan, which the lenders rejected.

Fraudulent Land Transfers

In May 2018, the Allahabad bench of the NCLT had ordered that 759 acres of land owned by Jaypee Infratech, which was used by Jaiprakash Associates to raise loans, be given back to the company. The NCLT had noted that these transactions were preferential and fraudulent since Jaypee Infratech never received any money for the transfer of assets. Jaiprakash Associates had then approached the National Company Law Appellate Tribunal, and matter is still pending.

The bidders sought clarification on the status of these land parcels and whether they can monetise it to fund their operations, once their resolution plan is approved. According to two of the three people quoted earlier, the creditors refused to make any promises.