Committee of creditors rejects NBCC resolution plan for Jaypee Infratech

Both NBCC and Suraksha ARC had bid for JIL’s assets, which owns a huge land bank alongside the Delhi-Agra Yamuna Expressway, apart from the expressway itself
The committee of creditors (CoC) on Thursday rejected the resolution plan submitted by government-owned NBCC (India) for Jaypee Infratech (JIL) and has decided to send Suraksha Asset Reconstruction Company’s (ARC's) plan for voting from Monday. 

Both NBCC and Suraksha ARC had bid for JIL’s assets, which owns a huge land bank alongside the Delhi-Agra Yamuna Expressway, apart from the expressway itself. 

At the CoC meeting held on Thursday, the resolution professional said the plan submitted by NBCC was non-compliant -- taking into account the earlier Supreme Court (SC) judgment in the JIL case and the Insolvency and Bankruptcy Code (IBC), 2016.  

Suraksha ARC has offered Rs 1,736 crore more to the creditors, compared to NBCC, at a total package of Rs 6,984 crore. The offer to lenders includes a debt swap, with part of the land bank owned by JIL.

At the CoC meeting, IDBI Bank said the issues should be resolved amicably and NBCC be given another chance. But the resolution professional said due to a tight deadline fixed by the top court in March this year, it cannot give more time to NBCC to make its plan compliant.

One of the first bankruptcy cases sent under IBC, 2016, in August 2017,  the company had attracted two bidders in the final round – NBCC (India) and Suraksha ARC.

The homeowners, who had moved SC to get a seat on the CoC, are also waiting to get the keys to their new homes for over a decade. 

At the same time, lenders, who sunk Rs 22,000 crore into the company and have not received a penny since 2017, are waiting for the resolution  and will get less than 30 per cent of their dues back.

There were multiple rounds of litigation initiated by various parties, including flat buyers, lenders, and bidders, against the resolution process, which was marred by allegations and counter-allegations since Day One. 

After IDBI Bank moved court, the SC - in its judgment in November 2019 - directed that the entire process be completed within 90 days and that revised plans be invited only from the final two bidders -- NBCC (India) and Suraksha ARC. 

In fact, the resolution plan of the government-owned NBCC (India) was approved by the CoC in December 2019. By March 2020, the National Company Law Tribunal (NCLT) had approved the NBCC’s resolution plan with some modifications. But NBCC decided to appeal against the NCLT order in the National Company Law Appellate Tribunal (NCLAT) and alleged 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.  

Since the matter was pending in the NCLAT, the homeowners approached the SC again. The apex court then transferred the case to itself last year. In March this year, it directed the resolution professional to complete the resolution process within 45 days by inviting modified/fresh plans only from NBCC and Suraksha Realty once more. 

Apart from getting a steady stream of income from Yamuna Expressway - connecting Delhi and Agra - both bidders were also attracted by the huge land parcels owned by the company on both sides of the expressway which could be developed into mega cities.

The just-concluded final round was marred by allegations and counter-allegations again as homeowners and one of the bidders - Suraksha ARC - objected to the NBCC proposal of giving funds to dissenting lenders by way of NCDs (non-convertible debentures), which could delay the entire process again. 

Homeowners think the NBCC plan is not suitable and had sought legal opinion from former SC judge B S Chauhan. Chauhan said NBCC has provided treatment of dissenting financial creditors by allowing them exclusive security interest enforcement, which does not meet IBC norms or earlier SC judgments. 

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 JIL towards treatment of dissenting financial creditors.

‘’In my view the treatment provided by NBCC of dissenting financial creditors cannot be said to be in compliance/consonance of the provisions of the IBC, 2016, as well as the judgment of the SC. The provision for allowing enforcement of third-party security interests cannot be permitted, as the resolution plan should deal with only the assets of the corporate debtor,” observed the former judge.

The issuance of non-convertible debentures (NCDs) to the dissenting financial creditors in the event of shortfall is in contravention of the observations of the SC, as the same in no manner can be treated as ‘payment’, he said.  

“The SC has recognised only two modes of ‘payment’ to dissenting financial creditors, i.e., 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. 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 SC, 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 JIL would not fall under such 'security interest’ criteria and hence, cannot be accepted as treatment of 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 of 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 judgments, he said.

If NBCC decides to move court again, it will prolong the bankruptcy process, said a banker.

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