Jaypee Infratech Insolvency FAQs: What Should Homebuyers Do Now?

The Allahabad bench of the National Company Law Tribunal declared Jaypee Infratech as an insolvent company on Wednesday. Homebuyers will be given time till 24 august to raise claims related to their investment in the Jaypee projects. But where does the aggrieved buyer stand now? Let’s try answering some of the commonly asked questions.

What is the insolvency and bankruptcy code?

The Insolvency and Bankruptcy Code, 2016 (“Code”) is a legislation which aims to consolidate the existing framework of insolvency and bankruptcy laws/regulations in India. It aims to simplify the existing regime of conflicting or overlapping laws and lays down procedures which deal with insolvency proceeding for companies and individuals.

What happens next under the bankruptcy code to the company (Jaypee)? What happens if the financial issues are not addressed during this period of 270 days (including the possibility of a 90-day extension)?

Under the Code, an insolvency resolution professional will now be appointed by the NCLT. The task ahead is complex as they will try to turn the company around in order to make it financially viable again. It is not an easy task, failing which, in terms of the Code, they will have to liquidate the assets of the company to recover monies owed. Moreover, in the interim period, the existing management of the company shall remain suspended. The lenders who have moved the proceedings as well as persons who have invested their money in these real estate projects of Jaypee will have to be heard by the insolvency professional. At this point, the position of the property buyers is not completely clear. There is a prescribed time period to register their claims against the company and it is crucial that interested parties must register their claims in order to be considered.

Will RERA play a role? Will the claims of aggrieved property buyers be dealt with and in a worst case scenario, where will the aggrieved buyer stand?

The current position is not that simple. On one hand you have the Code and on the other you have the Real Estate (Regulation and Development) Act, 2016 (“RERA”) which provides safeguards to the contractual relationship between the builder and the allottees. As far as these insolvency proceedings are concerned, the Code shall definitely have a dominant position. While the management of the company has been taken over by an insolvency professional under the Code, RERA and the existing consumer protection laws are still available to aggrieved allottees who are awaiting possession in terms of their respective builder-buyer agreements. Jaypee, like other developers, had to ensure that they are RERA-compliant by now. Interestingly, the Code has a legal provision wherein it has an overriding effect with conflicting laws. Similarly, RERA too has similar overriding provisions which, in this case, aim to secure the rights of the aggrieved allottees. These are matters of interpretation. Therefore, at this point, the final outcome will be based on the interpretation and orders of the NCLT.

Homebuyers have financed Jaypee Infratech for the construction of these projects. Should they not be considered as financial creditors on par with banks?

This is an interesting question because the Code does give financial creditors a level of control during the insolvency resolution. Previously, the NCLAT had taken a view in a matter where the developer had offered “assured financial returns” – aggrieved property buyers were treated as financial creditors. However, the arguments made and reasoning put forth in that case were unique. In that case, the NCLAT took a view that assured returns were tantamount to financial debt under the Code. In the present case, it shall depend on the NCLT to decide whether aggrieved homebuyers will be treated as financial creditors or not.

Should the aggrieved buyer stop paying the EMI’s during the insolvency proceedings?

A person who has availed of loan facilities from a financial institution must continue to pay their loans in term of their loan agreements irrespective of any proceedings under the Code.

Do you think this is fair, given that honest homebuyers feel cheated that the developers continue to get their hard earned money?

There have been a lot of legislative and regulatory changes where the focus has shifted to property buyers and addressing their concerns. The enactment of RERA and notification of the rules by the States is one such example. The consumer forums have recently passed several orders which are pro-property buyers and have aimed at securing the rights of allottees. This shift in focus of the Government is a clear indicator that they would like the real estate market to be more transparent and organised, which would be mutually beneficial for both the developers and the buyers. The growing trend is that faith is being gradually restored in securing the rights of property buyers. Therefore, any interpretation by courts in the future will not be in isolation and they will take into account the issues faced by thousands of aggrieved property buyers. During this interim period, it is imperative that property buyers remain legally compliant in order to prevent default at their end.

(Yudhist Narain Singh is a real estate lawyer based in New Delhi.)

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