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On August 9, 2017, the Allahabad Bench of National Company Law Tribunal (“NCLT”) admitted the insolvency application of IDBI Bank against Jaypee Infratech Ltd. under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). On June 13, 2017, the Reserve Bank of India (“RBI”) issued a press release whereby it identified 12 accounts which represented 25% of the gross bad loans in the banking system that would be eligible for immediate reference for bankruptcy proceedings. The said criterion for referring accounts for resolution under IBC was identification of total outstanding amount greater than ₹5000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016.
Although RBI did not disclose the identity of said 12 accounts, Jaypee Group, along with Essar Steel, Bhushan Steel and Lanco Group, is considered to be among the said identified accounts. The said application of IDBI, a government owned financial services company, against Jaypee Infratech was in respect of default of an amount of ₹526 crore. Jaypee Infratech Ltd. is the construction arm of the Jaypee Group and was responsible for the construction of the Yamuna Expressway connecting Noida to Agra.
- Wishtown and Jaypee Aman Housing Projects
Jaypee Infratech had constructed the Wishtown Housing Project in Sector 128, Noida and Jaypee Aman Housing Project in Sector 151, Noida, with a promise of delivery by 2012-13. However, the aforesaid projects have not been completed and possession has also not been given to the flat owners. These projects were built on land given to Jaypee by Noida Authority in return for the construction of the Yamuna Expressway. Subsequently, Jaypee Infratech had taken loans from financial institutions including IDBI Bank for the construction and completion of the said projects. Flat owners are apprehensive that in the event of liquidation secured creditors such as IDBI would get preference in repayment thereby leaving flat owners with no possibility of refund of the amount paid. Moreover, it is speculated that the amount received from the sale of assets of Jaypee Infratech might not be sufficient to complete said projects and deliver possession to the flat owners.
- Public Announcement
In accordance with Section 13 of the IBC, the NCLT made a public announcement with regard to initiation of CIRP of Jaypee Infratech and appointment of Mr. Anuj Jain, Chartered Accountant, BSRR and Co. as the Interim Resolution Professional (“IRP”) who shall be vested with the management of the affairs of Jaypee Infratech. It is pertinent to note that NCLT has also ordered a moratorium prohibiting institution of fresh suits or continuation of any legal proceedings against Jaypee Infratech in any court, tribunal and/or arbitration panel. Therefore, all proceedings of flat owners pending in consumer courts/any other proceedings pertaining to the non-delivery of possession/incompletion of the housing project has been effectively stayed till the date of approval of resolution plan by NCLT or passing of liquidation order. It is also to be noted that the CIRP is to be completed within a period of 180 days (extendable by 90 days) from the date of insolvency commencement, that is, August 9, 2017.
- Proof of Claims
Under the IBC, after the initiation of CIRP, the public announcement calls for submission of proof of claims against corporate debtor (Jaypee Infratech) from financial creditors, operational creditors and employees and workmen. It is pertinent to note that on August 16, 2017, the Insolvency and Bankruptcy Board of India (“IBBI”) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2017 whereby inserting Regulation 9A, titled “Claims by other Creditors” and in effect, has introduced a new class of creditors under the IBC, that is, those creditors who does not fall under the ambit of financial or operational creditors. Under the IBC, CIRP can be initiated by financial creditor, operational creditor and also, corporate debtor itself. Although, the amendment does not indicate that CIRP can be initiated by any ‘other creditor’. This amendment is a welcome move since it recognizes that there could be situations when the claim is legitimate but cannot be classified as either financial or operational, as in the case of flat owners of Wishtown and Jaypee Aman.
The amended regulation has introduced Form F and flat owners have been directed to submit said Form F to the IRP by August 24, 2017.
The above named amendment has specified that the following documents are required to establish the claim of these ‘other creditors’:
- documentary evidence demanding satisfaction of the claim (Example: Allotment letter, communications from Jaypee);
- bank statements of the creditor showing non-satisfaction of claim (Example: EMI Monthly Instalments);
- order of court or tribunal that has adjudicated upon non-satisfaction of claim, if any (Example: orders of consumer courts).
As per press release dated August 18, 2017, the IRP has specified that no claim shall be disqualified for the reason of submission of incorrect form.
It is also pertinent to note that Regulation 12(2) of IBBI Regulations allows a creditor who has failed to submit proof of claims before last date mentioned in the public announcement to submit such proof at any time before approval of resolution plan by committee of creditors. As explained hereinbefore, Regulation 9A has recognised the flat owners as a separate distinct class of creditors and hence, it may be argued that proof of claims by flat owners may be submitted even after the aforesaid date. However, in order to be cautious, flat owners should adhere to such aforesaid date and as instructed by the IRP in aforesaid press release, may submit only additional information in respect of the claim after the deadline.
It is pertinent to note that the resolution plan, to be finalized within 180 days of insolvency commencement date, has to be approved by 75% majority of committee of creditors. Under the IBC, all financial creditors are constituted into the said committee. It would be pertinent in public interest to allow said flat owners to have adequate representation in the committee of creditors and for their claims to be treated at par with those of financial creditors such as IDBI Bank and other financial institutions. Section 16(5) of IBC specifies that the term of the IRP shall not exceed 30 days from date of appointment, thereby in this case tenure of IRP will be from August 9, 2017 till September 8, 2017. Moreover, Regulation 17 of IBBI Regulations mandates the IRP to constitute committee of creditors before expiry of aforesaid 30 days and that first meeting of said committee shall be convened within 7 days of constitution. In the first meeting, the committee, by 75% majority, decides whether to appoint IRP as resolution professional and in the event it does not, it must recommend a resolution professional to NCLT.
It is hoped that all the claims of the flat owners are verified and collated in such a way so as to ensure that their interests are protected. It is to be seen whether the government takes any tangible step to ensure that the claims of flat owners are treated at par with those of the financial/operational creditors.
Author: Pratik Das, Legal Intern at Khurana & Khurana, Advocates and IP Attorneys and can be reached at email@example.com