SC stays NCLT Allahabad order initiating insolvency proceedings against Jaypee Infratech
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SC stays NCLT Allahabad order initiating insolvency proceedings against Jaypee Infratech

Bar & Bench

The Supreme Court today stayed the order of the Allahabad Bench of the National Company Law Tribunal (NCLT) directing initiation of insolvency proceedings against Jaypee Infratech.

In a petition by flat buyers, a Bench of Chief Justice Dipak Misra and Justices AM Khanwilkar and DY Chandrachud, apart from staying the August 9 order of the NCLT, also issued notice to the Reserve Bank of India, Ministry of Finance, Ministry of Corporate Affairs and Jaypee Infratech, among others.

The lead petition filed by home-buyer Chitra Sinha, which has been drafted and filed by AoR Ashwarya Sinha, contends that the regime brought about by the Insolvency and Bankruptcy Code, 2016 and the order passed by the Allahabad Bench of the NCLT in the petition titled IDBI Bank vs. Jaypee Infratech Limited, have left the flat buyers without any remedy.

The actions taken under the Code has led to a situation wherein the lifelong savings of the flat owners will go to waste with no prospects of them recovering the same. The buyers, who have booked their homes in different housing projects of Jaypee Infratech, have been left stranded due to the insolvency proceedings initiated against Jaypee.

Section 14 of the Code further prevents the flat owners from approaching the National Consumer Disputes Redressal Commission against Jaypee for deficiency of service, while the owners of flats built by other infrastructure and real estate companies have been given the liberty to do so. This is in violation of Jaypee flat owners’ fundamental right to equality under Article 14 of the Constitution.

The misery of the flat owners is compounded by the fact that the NCLT on August 9 issued a moratorium halting several pending litigation before the consumer forums established under Consumer Protection Act, 1986. It mandates a declaration and forces the aggrieved flat owners as consumers to declare themselves as creditors so that they can be subjected to the liquidation proceedings undertaken by the Official Liquidator in compliance of the NCLT order.

The petition further contends that the statutory rights of consumers under Section 2(d) of the Consumer Protection Act to move different consumer fora in case of deficiency of service cannot be taken away by a moratorium issued by a tribunal.

Under Regulation 9A of the Insolvency and Bankruptcy Board of India, the flat owners have been directed to sign forms which force them to to declare themselves as creditors so that they can be subjected to the liquidation proceedings undertaken by the Official Liquidator. This is despite the fact the forms only pertain to a financial creditor or an Operational Creditor.

The case of flat owners like the petitioners herein are not covered by any of the said forms, since admittedly, they are not financial creditors and they have been held not to be operational creditors by the NCLT as per its decision in Col. Vinod Awasthy v. AMR Infrastructure Limited.

By shutting out the flat owners from accessing this remedy, the Code as well as the order of the NCLT has violated their fundamental rights under Article 19 (1)(g) and 21 of the Constitution, the petition contends. This is because the consumers cannot access the remedy under the Consumer Protection Act till the insolvency proceedings reach their logical end.

Moreover, a conjoint reading of  Sections 33, 36 and 53 of the Code, makes it clear that if the no resolution plan is arrived at during the proceedings, then Jaypee Infrastructure Limited will go into liquidation. Thereafter, all the assets of the company will form the liquidation estate, which will be sold off to clear the dues of the creditors in the order as provided under Section 53. The said provision gives preference to the interests of the secured creditors over the “unsecured creditors” like the petitioners and similarly situated persons.

The petition reminds the Supreme Court that many a time and oft it had come to the rescue of consumers duped by developers and ordered refund of the sums paid and exhorts it not to let Jaypee’s consumers – numbered at 32,000 – be marooned at a critical juncture.

The petitioner has made, inter alia, the following prayers:

  1. Issue a writ of mandamus or any other direction directing the Respondents that Section 14 of the Code shall not curtail the legal statutory and vested rights of the flat owners/buyers as consumers defined under Section 2(d) of the Consumer Protection  Act, 1986; or
  2. In the alternative Issue a writ of mandamus or any other direction directing the Respondents to declare the flat owners/buyers to be notified by the Central Government as a secured creditor in accordance with power provided under Section 36 (4)(a) (v) of the IBC.

The Court, after a lengthy hearing, issued notice and stayed the order of NCLT. The matter will next be heard on October 10.

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