August 18th, 2017
On Wednesday, August 16, the National Company Law Tribunal (NCLT) declared Jaypee Infratech as an insolvent company. Insolvency is a situation under which the company does not have sufficient money to pay its debts. Homebuyers are given two weeks to raise their claims against Jaypee Infratech, i.e. till 24th August. This unfortunate turn of events has left homebuyers in a lurch. People who have invested their lifetime savings for a dream house have no idea as to what will happen to their investments in Jaypee. Here we have demystified the air around this issue through frequently asked questions by aggrieved buyers.
The projects which are developed by Jaiprakash Associates Ltd. which is the parent company of Jaypee Infratech will not be affected by initiation of insolvency proceedings. This includes projects like Kalypso Court, Pavilion Heights, Pavilion courts etc.
What is the NCLT ruling in Jaypee Infratech insolvency case?
Jaypee Infrastructure Ltd. is the infrastructure and the construction arm of the Jaypee Group who is responsible for projects like Yamuna Expressway, Wish Town project in Sector 128 of NOIDA. The total debt of Jaypee Infratech is almost 8,000 crore out of which the company owes IDBI alone Rs 526 crore. The government and the Reserve Bank of India (RBI) has decided to take an action to clean up the Indian Banking System of its massive Non Performing Assets (NPAs) and for this, the red line mark is 5,000 crore. Considering this IDBI bank has filed a petition before NCLT to recover its dues. The Allahabad bench of NCLT has admitted IDBI bank’s petition to fast track the debt resolution process under the Insolvency and Bankruptcy Code and Jaypee Infratech has been declared insolvent.
What will happen since the company is declared insolvent?
The NCLT has appointed a debt resolution professional who has to come up with resolution plan to revive the company in 180 days. A 90-day extension may be given at NCLT’s discretion. The resolution plan needs to have a clear road map as to how the company will repay its lenders.
What will happen after the 270 day period expires?
The company will go into liquidation automatically if it is not revived within 270 days. Liquidation happens when a company is unable to pay its debt, i.e. it becomes insolvent. During the liquidation process, the business of the company is brought to an end and all its assets are sold off to pay the creditors. Jaypee Infra has enormous land in and around NOIDA and Greater Noida. This land and all the other assets of Jaypee Infra will be sold off to raise money. The funds raised through this will be first distributed to the secured creditors, i.e, banks and after that money will be given to unsecured creditors, i.e, homebuyers and other contractors. Secured creditors rank highly when it comes to receiving payment. They have a charge over assets held by the company. So when the company goes insolvent they can sell the asset over which they have a charge and can get money. On the other hand, the unsecured creditors do not have a claim over a particular asset and hence its gets harder for unsecured creditors to recover cash they are owned.
What can homebuyers do who have invested in Jaypee projects?
First and foremost the homebuyers have to raise their claims related to flats against Jaypee Infra before NCLT till 24th August. For filing claims, you can contact lawyers through LawRato.
Can a homebuyer file a fresh case before NCDRC for claiming possession of their house?
No, homebuyers cannot institute a fresh claim before NCDRC or any other court as per the order of NCLT.
What is the procedure for the homebuyers to file a claim before NCLT?
Follow this simple steps to file your claim-
- Visit the website of Jaypee Infratech- www.jaypeeinfratech.com
- Click on Corporate Insolvency Process of Jaypee Infratech.
- Click on this link, and you will find the details of the insolvency process against Jaypee.
- On 16th August, the Insolvency and Bankruptcy Board has introduced a new Form F for creditors other than financial or operational creditors. Homebuyers can use this Form F to file their claims.
- Homebuyers can file their claims electronically by sending an email [email protected] or
- Send by post to Anuj Jain, Co BSRR & CO., Chartered Accountants, 8th Floor, Building No. 10, DLF Cyber City, Gurgaon, 122002. There is no need to visit in person.
- Since this Form F has only been introduced on 16th August, the homebuyers who have previously filed their claims need not file again in the new Form.
- Flat owners residing in abroad can also file their claims electronically along with the supporting documents proving their claim.
What are the options with homebuyers if the claim is not filed before 24th August?
Insolvency resolution professional can allow claims even after the stipulated deadline but it is advisable to submit claims by 24th August. Those who fail to file their claims will be last in the priority order when the funds will be distributed.
Homebuyers should understand that the company is only declared insolvent and not bankrupt. There is a thin line difference between insolvency and bankruptcy. A company is declared insolvent when it is unable to pay its debt, it is said to be facing financial difficulties. In many situations, the company may have considerable assets but it is not liquid, meaning that the company is unable to honour its debt obligations. A company is declared bankrupt when it is not able to address its insolvency, implying that in no way the company can repay its debt and the only solution that the company will have to sell its assets to honour its debt obligations. The state of insolvency of the company can be managed or resolved through restructuring, consolidation or debt management schemes.
In the present matter, Jaypee Infratech is only declared insolvent and a period of 270 days is given to the company to address this situation. An expert professional has been appointed to manage the insolvency of the company and revive it.