SC tells Jaypee Infratech to deposit Rs 2,000 cr by Oct 27

On Monday, the Supreme Court directed the National Company Law Tribunal appointed insolvency resolution professional (IPR) to take over the management of embattled real estate firm Jaypee Associates. The IPR will chart out a plan that is aimed at protecting the interests of home buyers and creditors as well as submit the same within 45 days.

Simply put, the SC has modified its earlier order and allowed insolvency proceedings against Jaypee Infratech. But it has stayed any proceedings initiated against it in other forums.

A bench comprising of Chief Justice of India Dipak Misra and Justices AM Khanwilkar and DY Chandrachud also directed the real estate giant to deposit Rs 2,000 crore with the registry by October 27. The managing directors and directors of Jaypee Infratech, a sister company of Jaypee Associates, have also been restrained from travelling abroad without prior permission.

The direction came after Attorney General KK Venugopal had submitted that the consequence of the stay would be that the Management of Jaypee Infratech Ltd. would stand restored. This was not a consequence intended by this court. Venugopal further added that if the erstwhile management of the said company continues, it would affect the rights of the creditors and the consumers.

Senior Advocate Abhishek Manu Singhvi, appearing for IDBI Bank Limited submitted that under the statutory scheme, the IRP has to take over otherwise the letter and spirit of the Act is likely to be affected. However, senior advocate Ajit Sinha - representing the home buyers, objected to this contention and said that the affected parties - the home buyers were from the lower and middle income group and had invested life savings with the real estate company.

Last week, the apex court stayed insolvency proceedings against real estate firm Jaypee Infratech at NCLT, Allahabad. The top court had issued notice to the real estate giant and others at the instance of IDBI and a plea filed by homebuyers who haven't received possession of their flats.

According to the Insolvency and Bankruptcy Code (IBC), which was passed by the Parliament in 2016, if insolvency proceedings are initiated against a company, all court proceedings attached to it are stayed. In August, home buyers were left in a lurch after the NCLT admitted IDBI Bank's plea to initiate insolvency proceedings against the debt-ridden company for defaulting on a loan to the tune of Rs 526 crore.

Homebuyer Chitra Sharma's plea offers respite to almost 33,000 buyers who invested their money in 27 projects by the real estate firm. In her plea, Sharma alleged that the NCLT would affect homebuyers - who are considered as unsecured creditors, would get nothing. The dues of financial institutions - who are secured creditors would be cleared first.

Sharma's plea challenged the validity of the law and sought a response from the Centre and others on the issue that it "shall not curtail the legal statutory and vested rights of the flat owners/buyers as consumers" defined under the Consumer Protection Act.

Sharma suggested that if the insolvency proceedings against the company were unsuccessful, then liquidation proceedings could be initiated. The money raised would then go to secured creditors as opposed to the home buyers - some of who have invested their life's savings for their dream flats.

In order to safeguard their interest, Sharma suggested that home buyers be declared as secured creditors like the financial institutions and banks.

The petition alleged that section 14 of the code, introduced by the Ministries of Finance and Corporate Affairs was "unjust, unfair and unreasonable" and violative of Article 14 (Right to Equality) and 21 (Right to Life) of the Constitution.