Supreme Court lifts stay on insolvency move against Jaypee infra

NEW DELHI: The Supreme Court on Monday lifted a stay on insolvency resolution proceedings against Jaypee Infratech and ordered its parent, Jaiprakash Associates, to deposit Rs 2,000 crore with the court by October 27 to cover the unit’s liabilities towards homebuyers in its residential projects. It also asked the insolvency professional to draw up a resolution plan for the company within 45 days, which should take care also of the interests of the homebuyers.

The court prevented Jaypee Infratech from alienating any assets or creating third-party rights. The directors of both companies cannot travel abroad without the court’s permission.

Monday’s order will allow resumption of insolvency resolution proceedings against Jaypee Infratech at the National Company Law Tribunal, initiated by IDBI Bank over a Rs 526 crore loan it defaulted. The Supreme Court last week stayed the proceedings on a complaint by the homebuyers, who claimed that the process undermined their interests as under bankruptcy law, they would not get anything in case the company was liquidated.


A three-judge bench, led by Chief Justice Dipak Misra, lifted the stay after hearing attorney general KK Venugopal, IDBI Bank counsel Abhishek Manu Singhvi and the insolvency resolution professional represented by additional solicitor general Tushar Mehta.

“The stay on insolvency proceedings restored control and management of Jaypee over the company,” the AG said, while pointing out that the company owed more than Rs 10,000 crore to the public sector banking system.

He said the statutes provide for a pecking order which placed secured creditors such as banks above the interests of homebuyers in any eventuality of insolvency or winding up. “If money (from any restructuring) is diverted (among homebuyers), the secured creditors will not get any money. Meanwhile, the cases filed by homebuyers can continue, but any judgements may not be given effect to,” the AG said.

Lawyers for homebuyers in a number of Jaypee projects vehemently resisted any suggestion that kept them out of the resolution process. “We are also financial creditors. Jaypee owes us Rs 15,000 crore, more than what it owes IDBI. They can’t have a resolution plan without us. We must be part of it,” senior advocate Ajit Sinha argued on their behalf. Senior advocate P Chidambaram, appearing for some associations of home buyers, also urged the court to treat homebuyers as financial creditors.

Eventually, the CJI, brushed aside the AG’s arguments that the interests of homebuyers be treated as secondary to that of the secured creditors. “This is a citizenry problem, a human problem of great magnitude. IDBI can’t be selfish. The homebuyers have invested their lifetime savings in these projects,” the CJI said.
The court appointed Shekhar Naphade, senior counsel and Shubhangi Tuli, advocate on record, to participate in the meetings of the insolvency resolution professional and support the cause of homebuyers. "Be it clarified that we have passed this order keeping in view the provisions of the Act (Insolvency and Bankruptcy Code, 2016) and also the interest of the home buyers," the court said in its order.

The hearing has been scheduled for November 13.

Jaypee Associates claimed, through senior advocate PS Patwalia, that it was fully committed to giving flats to the buyers. IDBI held Rs 17,000 crore worth of the company’s assets and this would fetch at least Rs 15,000 crore in even a distress sale, he said. “Our dues are only Rs 9,000 crore.”

He said that the company was expecting the liquidity situation to improve soon.

The lawyer said Jaypee Associates was not under the jurisdiction of the insolvency resolution professional and would deposit the money by selling off land. The top court, however, said that any such sale would be subject to approval of the insolvency resolution professional.

The top court also re-imposed a ban on proceedings against the company other than before the National Company Law Tribunal.