We understand that in light of IDBI’s application for insolvency against Jaypee Infratech Limited (hereinafter referred to as “JIL” or “corporate debtor”) being allowed by the NCLT, the past few days must have been extremely difficult for you. We are aware that a lot of media reports as well as legal opinions are being circulated on social media & private messaging services, which are adding to the panic and uncertainty around the situation.
We must apprise you that being duty bound to protect the interests of our clients such as yourself, we have in the past couple of days held meetings with various professionals so that we are in a position to bring to you a concerted opinion.
At the outset, it is important to point out that as per Section 14 (d) of the IBC, on the insolvency commencement date, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, is prohibited till the completion of the corporate insolvency resolution process. Therefore, it is incorrect to suggest (as mentioned in some media reports) that the Authority may, in light of the insolvency resolution process being initiated, recover the lands given to JIL at this stage.
Situation of buyers of Jaiprakash Associates and Jaiprakash Infratech are different
One thing that has emerged out of all the opinions that we have received as well as our own understanding of the Insolvency and Bankruptcy Code’s (“IBC”) applicability to the facts of the present case, is that buyers of projects which are being developed solely by Jaiprakash Associates Ltd (hereinafter referred to as “JAL”) and where payments have been made only to JAL, are somewhat in a comfortable situation and do not have to file any claims against the corporate debtor/JIL. In such cases, it is important to understand that the role of JIL/corporate debtor is restricted to being the lease holder of the land on which these projects are constructed. The entire arrangement has been entered between buyers and JAL, with the application form being addressed only to JAL and the terms and conditions also mandating only JAL to complete construction of the apartment and hand over possession of the apartment to the concerned allottee. Therefore, the claim of such buyers, if any, should only be directed towards JAL and not JIL/corporate debtor, as no payments have in fact been made to JIL. JIL has been named as the confirming party in the Provisional Allotment Letter merely to confirm the position that leasehold rights in the project lands are held by JIL which in turn has authorised JAL to develop the project. If owing to the liquidation of JIL after the 270 days provided for insolvency resolution process, JAL is not in a position to deliver possession of the flats to the allottees, it will be the responsibility of JAL to compensate the allottees.
The situation of buyers who have purchased apartments in projects that were being jointly developed by JAL and JIL is however not the same. In such cases, the terms and conditions of allotment mention that not only will the payments be directed towards JIL/corporate debtor but also the liability of construction of apartments and giving possession is shared both by JAL and JIL. Such buyers having made payments to JIL should proceed to file claims before the appointed insolvency professional. We have also thoroughly reviewed the provisions of the insolvency and bankruptcy code to ascertain the category under which homebuyers can file claims, i.e. whether such homebuyers shall be treated as “financial creditors” or they shall be treated as “operational creditors”. Although the definition of a “financial debt” includes a forward sale purchase agreement, however, in order for a forward sale purchase agreement to be categorised as a “financial debt”, it is imperative that the transaction has the nature of borrowing of money and the payment should have been disbursed against the consideration of time value of money (for interest), which elements, to our understanding, are missing in the transactions between JAL & JIL on one hand and homebuyers on the other. We are therefore of the concerted opinion that homebuyers who have booked apartments in projects being jointly developed by JAL & JIL, should file their claims as “operational creditors” categorising the payments made by them as advances made to JIL/corporate debtor towards services to be provided by JIL at a future date. The relevant form for filing of claims by operational creditors is FORM-B.
As you must have learnt from news reports, buyers have time until 24th August, 2017, to file claims. Let us know if you need help and we will be happy to assist you in filing the claims.
Beware of rumors and false news
We also urge you to kindly not be swayed away by various unsubstantiated news reports and social media messages. Although the insolvency proceedings are a matter of concern for homebuyers, our understanding of the situation till now is that JIL has already initiated talks with financial institutions towards restructuring of debts and revival of the company. We would request you to kindly repose your faith in the legal framework and continue to represent your interests within the realms of law.
Article contributed by Sahil Sethi, Saikrishna & Associates.