Bidders running out of patience as Jaypee Infra bankruptcy gets delayed

Bidders of Jaypee Infratech Ltd (JIL) are getting impatient with the bankruptcy process run by Indian lenders, which has failed to find a solution since August 2017. One of the first bankruptcy cases sent under insolvency and bankruptcy code 2016, the company has attracted two bidders in the final round-–NBCC India and Suraksha ARC.

The homeowners, who had moved the Supreme Court to get a seat on the CoC (committee of creditors), are also awaiting the keys of their houses for over a decade. At the same time, lenders, who sunk Rs 22,000 crore in the company and have not received a single penny since 2017, are waiting for the resolution -- under which they will get less than 30 percent of their dues back.

Multiple rounds of litigation were initiated by various parties, including flat buyers, lenders and bidders against the resolution process, which has been marred with allegations and counter allegations since day one.

After IDBI Bank moved court, the Supreme Court in its judgment in November 2019 directed the entire process to be completed within 90 days and asserted that revised plans should be invited only from the final two bidders, NBCC India and Suraksha Asset Reconstruction Company.

The resolution plan of government-owned NBCC India was approved by the CoC in December 2019 and by March 2020, the NCLT approved NBCC’s resolution plan with some modifications. But NBCC decided to appeal against the NCLT order in the NCLAT (National Company Law Appellate Tribunal) alleging that the NCLT made unilateral and arbitrary modifications of its resolution plan by allowing objections raised by dissenting creditors, ICICI Bank and Yamuna Expressway Industrial Development Authority (YEIDA).  

As the matter was pending in the NCLAT and hence getting delayed, the homeowners approached the Supreme Court yet again. The apex court then transferred the case to itself last year and this March, it directed the RP to complete the resolution process within 45 days by inviting modified/fresh plans only from NBCC and Suraksha Realty, once again. Apart from getting a steady flow of income from the Yamuna Expressway, connecting Delhi to Agra, both bidders were also attracted by the huge land parcels owned by the company on both sides of the expressway, which can be developed into mega cities.

Botched final round

The just concluded final round was marred with allegations and counter allegations again as home owners and one of the bidders, Suraksha ARC objected to the NBCC proposal which came late and giving funds to dissenting lenders. Suraksha ARC has offered Rs 1,736 crore more to the creditors as compared to NBCC at a total package of  Rs 6,984 crore. The CoC will vote on both proposals by May end.

Homeowners, who are aggressive in litigation, think the NBCC plan is not suitable for them and sought legal opinion from former Supreme Court judge, BS Chauhan. The former judge  said NBCC has provided treatment for the dissenting financial creditors by allowing them exclusive security interest enforcement of their respective security interests -- which does not meet IBC code norms or the previous SC judgements. In its plan, NBCC has further provided for enforcement of other security interests viz. guarantees provided by third parties as well as other third party security interests created to secure the outstanding dues of Jaypee Infra towards treatment for the dissenting financial creditors.

"In my view the treatment provided by NBCC for the dissenting financial creditor cannot be said to be in compliance/consonance of the provisions of the IBC 2016 as well as the judgment of the Supreme Court as the provision for allowing enforcement of third party security interest cannot be permitted as the resolution plan should deal with only the assets of the corporate debtor and no other assets,” the former judge said.  

The issuance of NCDs (non-convertible debentures) to the dissenting financial creditors in the event of shortfall is in contravention of the observations of the Supreme Court as the same in no manner can be treated as ‘payment’ he said.  “The Supreme Court has recognized only two modes of ‘payment’ to dissenting financial creditors, ie, payment of money or payment by mode of enforcement of security interest. Further I understand that the redemption period for NCDs is proposed as 21 years. In such a scenario any payment to dissenting financial creditors shall have to be made before any payment is made to assenting financial creditors under the resolution plan. This may thus make the resolution plan indefinite and hence viability of the same can be challenged,” he said.

Besides, the former judge said, providing additional land of Jaypee in the event of shortfall, is not in line with the observations of the Supreme Court as the security interest enforcement should be pertaining to security interest relatable to the financial debt of a dissenting creditor only and provision for other lands of the Jaypee Infra would not fall under such 'security interest’ criteria and hence cannot be accepted as treatment for dissenting financial creditors. Any provision for additional land may be construed as debt asset swap and such provision in earlier resolution plans was set aside by the SC, he said.

On Suraksha’s plan the former judge said it has provided treatment for the dissenting financial creditors by way of allowing the dissenting financial creditors having exclusive security interest enforcement of their respective security interests only to the extent of liquidation value payable to them.  “For the dissenting financial creditors having common security interest Suraksha ARC, in its resolution plan, has earmarked and identified exclusive security interest and has made provision for the dissenting creditors to recover money to the extent of their entitlement under the Code by way of enforcement of such security interest which is in line with the previous SC judgements, he said.

As it is quite certain that whoseover among the the bidders loses the race, will move courts, it will certainly be a long road ahead for homeowners and the lenders.

The Long Wait

August 2017: Jaypee Infra sent to IBC for debt resolution
December 2019: NBCC India emerges as highest bidder
March 2020: NCLT clears NBCC India plan with modifications
March 2020: NBCC appeals to NCLAT against NCLT modification
April 2020: SC transfers all cases to itself
March 2021: SC orders CoC to complete entire process in 45 days
May 2021: Suraksha ARC emerges as highest bidder

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