Why JP Associates May Finally Face Insolvency Proceedings

The RBI rejected a request to restructure JP Associates’ debt outside the bankruptcy process.

Manoj Gaur, Executive Chairman, Jaypee Group.

(Photo: JIIT)

Lenders led by ICICI Bank Ltd. will be forced to invoke the insolvency and bankruptcy code against Jaiprakash Associates Ltd. following an eight-month-old protracted process.

The impending insolvency petition comes after the Reserve Bank of India asked the lenders to file the case, while rejecting a request for restructuring the company’s debt outside the bankruptcy process.

According to two people in the know, ICICI Bank had sought the removal of the Manoj Gaur-led company from the second list of insolvency accounts which the RBI had sent to bankers in August 2017, citing a resolution scheme that lenders had approved for the company.

While sending the second list, the RBI had told bankers that they had time till December 2017 to resolve these cases outside the National Company Law Tribunal. If the banks were unable to resolve the case by then, they would have to go for insolvency proceedings, the regulator had said.

ICICI Bank and Jaiprakash Associates didn’t respond to BloombergQuint’s queries which were e-mailed on Tuesday, 21 August.

The Failed Restructuring Scheme

The restructuring plan, which lenders had approved in June 2017, centered on the sale of land parcels which Jaiprakash Associates controlled around the Yamuna Expressway. Lenders had agreed to carve out these land parcels under a special purpose vehicle for selling them to prospective buyers by fixing a long-term repayment schedule to reduce the company’s debt.

According to Jaiprakash Associates’ annual report for financial year 2016-17, the company’s indebtedness was Rs 31,522 crore as on March 31, 2017, as compared with Rs 30,960 crore a year ago.

In June 2017, the company managed to close the sale of its cement units to UltraTech Cement Ltd, which is likely to have brought down Jaiprakash Associates’ debt by at least Rs 10,000 crore.

By October 2017, Jaiprakash Associates’ board had approved a demerger scheme, where the company would transfer its movable and immovable assets, as well as liabilities worth Rs 11,834 crore to Jaypee Infrastructure Development Ltd.

The restructuring scheme was then sent to the RBI for a final nod before implementation. The banking regulator, according to the people mentioned earlier, didn’t approve the scheme and kept the request on hold.

Supreme Court’s Involvement

One reason behind the regulator’s response to the restructuring scheme is the Supreme Court decision in the Jaypee Infratech Ltd’s insolvency matter, the people cited earlier said. Jaypee Infratech was part of the first list of 12 large corporate accounts for immediate insolvency action in June 2017. It is also a subsidiary in Jaiprakash Associates.

Homebuyers, who were to receive flats in Noida from Jaypee Infratech, approached the Supreme Court seeking a stay on the insolvency proceedings against the company, as it would jeopardise the construction of their apartments.

While the apex court did not stall the insolvency proceedings, it asked Jaiprakash Associates to deposit Rs 2,000 crore to show their commitment towards completing the residential complex.

As part of its order, the Supreme Court also asked the RBI to not initiate insolvency proceedings against Jaiprakash Associates, since it could impact the company’s ability to fulfill their commitment.

The Supreme Court hearings, which started in September 2017, concluded earlier this month, where the court restarted insolvency proceedings against Jaypee Infratech afresh. The court also allowed the RBI to invoke insolvency proceedings against the Jaiprakash Associates.