Workers labour at a construction site (Photographer: Sara Hylton/Bloomberg)

Will Homebuyers Get Parity With Jaypee Infratech Lenders?

The Supreme Court has given Niranjan Dhingra hope. He is among hundreds of homebuyers who challenged the insolvency proceedings against Jaypee Infratech Ltd., worried that they will lose apartments and not get any compensation.

Dhingra had booked an apartment at the 1,162-acre Wish Town project in Noida in 2010. Seven years later, as towers remain unfinished after a funds crunch stalled work, lenders to Jaypee Infratech initiated insolvency action to recover debt. The court on Monday ordered that homebuyers’ interests must be protected while finalising any plan.

The central bank had identified the real estate developer among 12 large stressed companies that contribute a quarter of India’s Rs 8.3 lakh crore bad loans. Armed with powers granted by a government ordinance, it asked lenders to refer the companies for resolution under the Insolvency and Bankruptcy Code, the latest mechanism to resolve Indian lenders’ mounting non-performing assets.

Homebuyers were worried that any resolution under the IBC would give lenders preference in repayment. And their concerns were not unfounded.

The bankruptcy code does not include homebuyers in the definition of operational creditors like vendors, said Manoj K Singh, founding partner of law firm Singh & Associates. The insolvency board recently introduced a form for persons other than such creditors. Yet, there is “no clarity” where homebuyers will be placed in the hierarchy.

After the apex court’s directive, Singh expects the insolvency professional to keep homebuyers on a par with secured financial creditors like lenders.

Chitra Sharma, the main petitioner who had booked her flat at Wish Town in August 2010, agreed. The Supreme Court’s order makes it clear that “everyone has to put the interest of the buyers first”.

Sharma was pursuing her case at the National Consumer Disputes Redressal Commission when the insolvency proceedings were initiated.

She expects a road map when the insolvency professional presents the interim resolution plan to the Supreme Court in 45 days. The court made an exception in the Jaypee Infratech matter as the bankruptcy code allows a maximum of 270 days to come up with a plan. The court also appointed an amicus curiae who will attend the meetings to represent homebuyers.

“First and foremost, they should define a timeline. We have been waiting for our flats for seven years,” she said. “I want what you have promised in the brochure. It should be delivered in the form of the integrated towers.”

Senior Advocate Sanjay Hegde said any resolution will require consensus between lenders and homebuyers. “It will also require consensus on haircuts.” That would help find a solution as the law is not clear on when the homebuyers get paid.

At first glance, it appears that institutions have the law in their favour, he said. The Supreme Court order is indicative of leeway, he said. “When the IRP comes back with a plan, the court will examine legality and viability of the recommendations.”

It will have to be seen if institutions behave like Shylocks and say that their rights are first and deny homebuyers any leeway. In such a scenario, I imagine the court can likely find ways to protect the buyers, including by asking the government to amend the law.
Sanjay Hegde, Senior Advocate

(Updates and earlier version to correct the name in the first para)