In a judgment passed today, the Supreme Court has initiated the insolvency resolution process against Jaypee Infratech Limited afresh..The Bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud also directed the constitution of a fresh Committee of Creditors (CoC), and held that the funds deposited by Jaypee thus far will not be disbursed to home buyers seeking a refund..The Court decided the same in a batch of petitions filed by over 646 home buyers who had invested in projects floated by Jaypee Infratech Limited (JIL), which is a special purpose vehicle created by its holding company, Jaiprakash Associates Limited (JAL)..By way of background, IDBI Bank Limited had instituted a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) against JIL before the National Company Law Tribunal (NCLT) at its Bench at Allahabad. The bank sought the initiation of a Corporate Insolvency Resolution Process (CIRP) against JIL. IDBI claimed that JIL had committed a default of Rs. 526.11 crores in the repayment of its dues..On 9 August 2017, NCLT initiated the CIRP in respect of JIL. An order of moratorium was issued under Section 14, by which the institution of suits and the continuation of pending proceedings, including execution proceedings was prohibited. An Interim Resolution Professional (IRP) was appointed under the provisions of the IBC..Around the same time, numerous flat buyers filed consumer complaints before the State and National Consumer Disputes Redressal Commissions, as a result of the delay in handing over possession. However, they were precluded from getting relief in light of the order of moratorium issued under Section 14 of the IBC. In order to protect their interests, the home buyers approached the Supreme Court..On September 4, 2017, the Court issued notice in a batch of writ petitions. Then, on September 11, the Court modified its earlier order. Among other directions, it was held that the Interim Resolution Professional (IRP) shall forthwith take over the management of JIL. The company was required to deposit a sum of Rs. 2,000 crore..As the insolvency resolution proceedings went on, it was noted that the CoC as constituted under Section 21 of the IBC did not include a representative of the home buyers. In this light, the Supreme Court appointed Senior Advocate Shekhar Naphade and AoR Shubhangi Tuli as amici curiae, to participate in the meetings of the CoC on behalf of the home buyers..Naphade was permitted to open a web portal reflecting the details of the home buyers. After this was done, it was found that an amount of Rs 1300 crores was required to be refunded by way of principal alone to the home buyers who were seeking refunds..On May 16 this year, the Court was informed that JIL had deposited a sum of Rs 750 crore, as against the Rs. 2,000 crore it was required to deposit. The home buyers sought the issuance of interim directions to facilitate a pro-rata disbursement of this amount to those of the home buyers who seek a refund..During the course of the hearing, the Court noted that the liquidation of JIL will not serve the interests of the home buyers. This was an argument made by Senior Advocate Fali S Nariman, appearing of JIL. Among other things, he sought that JIL be made part of the resolution process..However, the Court declined the request on the basis of Section 29A of the IBC. It stated,.“Clauses (c) and (g) of Section 29 A would operate as a bar to the promoters of JAL/JIL participating in the resolution process. Under clause (c), a person who at the time of the submission of the resolution plan has an account which has been classified a Non-Performing Asset under the guidelines of the RBI or of a financial regulator is subject to a bar on participation for a stipulated period..Under clause (g), a person who has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the adjudicating authority under the IBC is prohibited from participating….… The bar under Section 29A would preclude JAL/JIL from being allowed to participate in the resolution process. Moreover, the facts which have been drawn to the attention of the Court leave no manner of doubt that JAL/JIL lack the financial capacity and resources to complete the unfinished projects. To allow them to participate in the process of resolution will render the provisions of the Act nugatory. This cannot be permitted by the Court.”.Senior Advocate Anand Grover, appearing on behalf of the home buyers, seriously doubted the credentials of JIL to complete the ongoing project. He submitted that loans granted to JAL have been declared as non-performing assets and that the company is a defaulter of more than 30 banks. Moreover, it has not even been able to deposit the Rs. 2,000 crore amount as directed by the Supreme Court in September last year..Nariman submitted that an independent committee of experts should be constituted by this Court to evaluate the financial capability of JAL/JIL to continue executing the ongoing project. He stated that following the opening of the web portal under the directions of the Court, only 8% of the home buyers have opted for refunds while 92% have chosen not to claim refunds, thereby implying a confidence in the ability of JIL/JAL to complete the project..Appearing for the IRP, Senior Counsel Parag Tripathi submitted that the Court has two options before it. The first option would be to revive the process of corporate insolvency by extending the time period of 270 days specified in the IBC, and the second option would be for the Court to appoint a Committee, as suggested by Nariman..The Court was inclined to agree with the first option, keeping in mind that the interests of the home buyers were not adequately represented during the resolution process that was initiated in August 2017 and was supposed to come to an end in February this year. This was largely due to the fact that home buyers were only recognized as financial creditors in June this year, when the government passed the Insolvency and Bankruptcy (Amendment) Ordinance, 2018..“…in the absence of a statutory recognition of the position of the home buyers as financial creditors, the law did not allow for real and substantive entitlements to them in the CoC…Unfortunately by the time that the Ordinance came into being on 6 June 2018, the period of 270 days had expired.”.Coming to the relief sought by the home buyers regarding disbursement of the Rs. 750 crore deposited by JIL, the Court gave the following reasons, among others, as to why the request could not be acceded to:.“Firstly, during the pendency of the CIRP, it would as a matter of law, be impermissible for the Court to direct a preferential payment being made to a particular class of financial creditors, whether secured or unsecured…Directing disbursement of the amount of Rs 750 crores to the home buyers who seek refund would be manifestly improper and cause injustice to the secured creditors since it would amount to a preferential disbursement to a class of creditors….…We cannot be unmindful of the interests of 92% of the home buyers many of whom would also have obtained loans to secure a home. They would have a legitimate grievance if the corpus of Rs 750 crores (together with accrued interest) is distributed to the home buyers who seek a refund… Allowing a refund to one class of financial creditors will not be in the overall interest of a composite plan being formulated under the provisions of the IBC…”.Therefore, to do complete justice to secure the interests of all concerned, the Court directed the following:.“(i) In exercise of the power vested in this Court under Article 142 of the Constitution, we direct that the initial period of 180 days for the conclusion of the CIRP in respect of JIL shall commence from the date of this order. If it becomes necessary to apply for a further extension of 90 days, we permit the NCLT to pass appropriate orders in accordance with the provisions of the IBC;.(ii) We direct that a CoC shall be constituted afresh in accordance with the provisions of the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, more particularly the amended definition of the expression “financial creditors”;.(iii) We permit the IRP to invite fresh expressions of interest for thes ubmission of resolution plans by applicants, in addition to the three short-listed bidders whose bids or, as the case may be, revised bids may also be considered;.(iv) JIL/JAL and their promoters shall be ineligible to participate in the CIRP by virtue of the provisions of Section 29A;.(v) RBI is allowed, in terms of its application to this Court to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC;.(vi) The amount of Rs 750 crores which has been deposited in this Court by JAL/JIL shall together with the interest accrued thereon be transferred to the NCLT and continue to remain invested and shall abide by such directions as may be issued by the NCLT.”.Read the judgment:
In a judgment passed today, the Supreme Court has initiated the insolvency resolution process against Jaypee Infratech Limited afresh..The Bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud also directed the constitution of a fresh Committee of Creditors (CoC), and held that the funds deposited by Jaypee thus far will not be disbursed to home buyers seeking a refund..The Court decided the same in a batch of petitions filed by over 646 home buyers who had invested in projects floated by Jaypee Infratech Limited (JIL), which is a special purpose vehicle created by its holding company, Jaiprakash Associates Limited (JAL)..By way of background, IDBI Bank Limited had instituted a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) against JIL before the National Company Law Tribunal (NCLT) at its Bench at Allahabad. The bank sought the initiation of a Corporate Insolvency Resolution Process (CIRP) against JIL. IDBI claimed that JIL had committed a default of Rs. 526.11 crores in the repayment of its dues..On 9 August 2017, NCLT initiated the CIRP in respect of JIL. An order of moratorium was issued under Section 14, by which the institution of suits and the continuation of pending proceedings, including execution proceedings was prohibited. An Interim Resolution Professional (IRP) was appointed under the provisions of the IBC..Around the same time, numerous flat buyers filed consumer complaints before the State and National Consumer Disputes Redressal Commissions, as a result of the delay in handing over possession. However, they were precluded from getting relief in light of the order of moratorium issued under Section 14 of the IBC. In order to protect their interests, the home buyers approached the Supreme Court..On September 4, 2017, the Court issued notice in a batch of writ petitions. Then, on September 11, the Court modified its earlier order. Among other directions, it was held that the Interim Resolution Professional (IRP) shall forthwith take over the management of JIL. The company was required to deposit a sum of Rs. 2,000 crore..As the insolvency resolution proceedings went on, it was noted that the CoC as constituted under Section 21 of the IBC did not include a representative of the home buyers. In this light, the Supreme Court appointed Senior Advocate Shekhar Naphade and AoR Shubhangi Tuli as amici curiae, to participate in the meetings of the CoC on behalf of the home buyers..Naphade was permitted to open a web portal reflecting the details of the home buyers. After this was done, it was found that an amount of Rs 1300 crores was required to be refunded by way of principal alone to the home buyers who were seeking refunds..On May 16 this year, the Court was informed that JIL had deposited a sum of Rs 750 crore, as against the Rs. 2,000 crore it was required to deposit. The home buyers sought the issuance of interim directions to facilitate a pro-rata disbursement of this amount to those of the home buyers who seek a refund..During the course of the hearing, the Court noted that the liquidation of JIL will not serve the interests of the home buyers. This was an argument made by Senior Advocate Fali S Nariman, appearing of JIL. Among other things, he sought that JIL be made part of the resolution process..However, the Court declined the request on the basis of Section 29A of the IBC. It stated,.“Clauses (c) and (g) of Section 29 A would operate as a bar to the promoters of JAL/JIL participating in the resolution process. Under clause (c), a person who at the time of the submission of the resolution plan has an account which has been classified a Non-Performing Asset under the guidelines of the RBI or of a financial regulator is subject to a bar on participation for a stipulated period..Under clause (g), a person who has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the adjudicating authority under the IBC is prohibited from participating….… The bar under Section 29A would preclude JAL/JIL from being allowed to participate in the resolution process. Moreover, the facts which have been drawn to the attention of the Court leave no manner of doubt that JAL/JIL lack the financial capacity and resources to complete the unfinished projects. To allow them to participate in the process of resolution will render the provisions of the Act nugatory. This cannot be permitted by the Court.”.Senior Advocate Anand Grover, appearing on behalf of the home buyers, seriously doubted the credentials of JIL to complete the ongoing project. He submitted that loans granted to JAL have been declared as non-performing assets and that the company is a defaulter of more than 30 banks. Moreover, it has not even been able to deposit the Rs. 2,000 crore amount as directed by the Supreme Court in September last year..Nariman submitted that an independent committee of experts should be constituted by this Court to evaluate the financial capability of JAL/JIL to continue executing the ongoing project. He stated that following the opening of the web portal under the directions of the Court, only 8% of the home buyers have opted for refunds while 92% have chosen not to claim refunds, thereby implying a confidence in the ability of JIL/JAL to complete the project..Appearing for the IRP, Senior Counsel Parag Tripathi submitted that the Court has two options before it. The first option would be to revive the process of corporate insolvency by extending the time period of 270 days specified in the IBC, and the second option would be for the Court to appoint a Committee, as suggested by Nariman..The Court was inclined to agree with the first option, keeping in mind that the interests of the home buyers were not adequately represented during the resolution process that was initiated in August 2017 and was supposed to come to an end in February this year. This was largely due to the fact that home buyers were only recognized as financial creditors in June this year, when the government passed the Insolvency and Bankruptcy (Amendment) Ordinance, 2018..“…in the absence of a statutory recognition of the position of the home buyers as financial creditors, the law did not allow for real and substantive entitlements to them in the CoC…Unfortunately by the time that the Ordinance came into being on 6 June 2018, the period of 270 days had expired.”.Coming to the relief sought by the home buyers regarding disbursement of the Rs. 750 crore deposited by JIL, the Court gave the following reasons, among others, as to why the request could not be acceded to:.“Firstly, during the pendency of the CIRP, it would as a matter of law, be impermissible for the Court to direct a preferential payment being made to a particular class of financial creditors, whether secured or unsecured…Directing disbursement of the amount of Rs 750 crores to the home buyers who seek refund would be manifestly improper and cause injustice to the secured creditors since it would amount to a preferential disbursement to a class of creditors….…We cannot be unmindful of the interests of 92% of the home buyers many of whom would also have obtained loans to secure a home. They would have a legitimate grievance if the corpus of Rs 750 crores (together with accrued interest) is distributed to the home buyers who seek a refund… Allowing a refund to one class of financial creditors will not be in the overall interest of a composite plan being formulated under the provisions of the IBC…”.Therefore, to do complete justice to secure the interests of all concerned, the Court directed the following:.“(i) In exercise of the power vested in this Court under Article 142 of the Constitution, we direct that the initial period of 180 days for the conclusion of the CIRP in respect of JIL shall commence from the date of this order. If it becomes necessary to apply for a further extension of 90 days, we permit the NCLT to pass appropriate orders in accordance with the provisions of the IBC;.(ii) We direct that a CoC shall be constituted afresh in accordance with the provisions of the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, more particularly the amended definition of the expression “financial creditors”;.(iii) We permit the IRP to invite fresh expressions of interest for thes ubmission of resolution plans by applicants, in addition to the three short-listed bidders whose bids or, as the case may be, revised bids may also be considered;.(iv) JIL/JAL and their promoters shall be ineligible to participate in the CIRP by virtue of the provisions of Section 29A;.(v) RBI is allowed, in terms of its application to this Court to direct the banks to initiate corporate insolvency resolution proceedings against JAL under the IBC;.(vi) The amount of Rs 750 crores which has been deposited in this Court by JAL/JIL shall together with the interest accrued thereon be transferred to the NCLT and continue to remain invested and shall abide by such directions as may be issued by the NCLT.”.Read the judgment:
