When the case under the Insolvency and Bankruptcy Code, 2016, a corporate insolvency resolution process (CIRP) was initiated against Jaypee Infratech Ltd by National Company Law Tribunal (NCLT), on 9 August 2017, stuck homebuyers did not know that they could also join the list of affected parties. But now the choice that faces Jaypee homebuyers is this: should they fill Form C or Form F issued by the Insolvency and Bankruptcy Board of India (IBBI).
First, know the background. IDBI Bank approached the NCLT when Jaypee Infratech failed to service its outstanding dues of about Rs526 crore to the bank. In accordance with the insolvency code, NCLT appointed an insolvency resolution professional (IRP) to take charge of the company in order to try and resolve the current situation.
However, homebuyers were missing as parties that could file a claim in the initial forms available from IBBI. After agitation from homebuyers, the government made a few amendments in the code and the homebuyers were asked to submit their proofs of claim to the IRP on or before 24 August 2017. Even if a homebuyer failed to submit the proof of claim by 24 August 2017, her claim will not be disqualified. The proof can be filed later, but it has to be done before a resolution plan is filed with the committee of creditors.
Therefore, it is better to file the form and the proofs as early as possible. It is important to note that despite the insolvency process, homebuyers will have to continue paying their EMIs if they had taken a home loan. But a new problem has arisen for the already beleaguered Jaypee homebuyers—they don’t know which form to fill: C or F. Let’s look at the resolution process first.
Things to know
Several projects of Jaypee Infratech are now under corporate insolvency resolution process. If you have a stake in one of these projects, here are a few things you should know
> Read the builder-buyer agreement before choosing the form to fill.
> Regardless of the form you use, your claim will not disqualified.
> The form must be submitted by 24 August 2017. Supporting documents can be provided later.
> For now, construction of ongoing projects will continue as before.
> If you have taken a home loan, you must continue paying the EMIs.
Corporate insolvency resolution process
Claimants can file their claims to the IRP via email at IRPJIL@bsraffiliates.com. They can also send their claims by post to Anuj Jain, c/o BSRR & Co., Chartered Accountants, 8th Floor, Building No. 10, DLF Cyber City, Gurgaon, 122002. You don’t need to visit this office in person.
The objective of CIRP is to find a way of reviving the company. For homebuyers “the IRP is making an endeavour to ensure that development of the projects continues. The provisions of agreement or allotment letter continue to be valid and all rights of parties (including cancellation by the flat buyer) can be exercised subject, however, to the provisions of the Insolvency and Bankruptcy Code, 2016,” the frequently asked questions (FAQs), published by the IRP, clarified. Form, FAQs and other details of the case and the CIRP process are available on Jaypee Infratech’s website at www.jaypeeinfratech.com.
The IRP will try to find if the company can continue work, and try to raise and organise the funds to pay the creditors and execute the development of housing projects. “CIRP refers to a mechanism under the Insolvency and Bankruptcy Code, 2016, through which financial creditor(s) or operational creditor(s) of a corporate debtor assess whether the said corporate debtor’s business is viable, and if it is, to exercise the options for its rescue and resurrection,” said Mayur Shetty, associate partner, Rajani Associates, a Mumbai-based law firm. The IRP is granted 180 days to find a resolution, which can be extended by 90 days but this extension can only be granted by the NCLT. If the IRP fails to get a resolution in the time granted, the company would be liquidated to pay the creditors.
Creditors’ order of precedence
There are different categories of creditors for the purposes of receiving proceeds of liquidation. These categories matter because some get paid before the others, and the latter ones are paid only if money remains.
As per the Section 53 of the insolvency code, the money will be first paid towards expenses incurred on the CIRP and liquidation of the company. After that will be the dues to workmen, secured creditors, wages and any unpaid dues owed to employees other than workmen, and financial debt due to unsecured debtors. Next will be any dues to central and state governments. “The homebuyer would be paid after the above claims are satisfied, in that order,” said Shetty.
However, according to Harsh Pathak, a Delhi-based lawyer, “The insolvency code has not defined homebuyers in any of the categories. It is relevant to note that from the reading of Section 53, homebuyers may be considered in the category of either financial debts owed to unsecured creditors or any remaining debts and dues.” The homebuyers’ category will also depend on the payment plan opted by them, he added.
Considering the stakes of homebuyers in different projects of Jaypee Infratech Ltd, a new Form F (for creditors other than financial creditors and operational creditors) has been released by the IBBI. However, “Before a homebuyer fills any form, she should look closely at the builder-buyer agreement signed with Jaypee Infratech and then choose which form to fill,” said Ashwin Bishnoi, partner, Khaitan and Co. (a law firm). “
If there is an “assured return” payable to the homebuyer—which was not paid—then she may be able to fill Form C (form for financial creditors) rather than Form F,” added Bishnoi.
Filling the wrong form, however, need not disqualify your claim. According to the IRP’s FAQs, “If any flat buyer is unsure or confused about his/her status as financial, operational or other creditor, he/she may file claim in either of the three forms and the IRP will not disqualify the claims for incorrect form filed.” Therefore, if there is a small chance that a homebuyer may fall in the category of financial creditors, he should file Form C. “A financial creditor has greater rights and protection under the Bankruptcy Code than other classes of creditors,” said Bishnoi.
According to the process under the insolvency code, “IRP will constitute a committee of creditors in which the homebuyers may have their participation for formulating the final resolution plan, whereby they can take care of the interest of the homebuyers before the final disposal of assets and distribution of funds,” said Pathak.
However, as homebuyers are way back in the line of creditors, the question is what will happen if the liquidation of assets does not generate enough cash to pay all the creditors?
“The Code does not envisage what would be the fate of any of the creditors who have not been paid from the liquidation process,” said Shetty. However, the homebuyers can initiate proceedings against the corporate debtor and its promoters under various other laws, civil as well as criminal,” he added.
Till the CIRP is on, no other case against the company under any law can be registered, and existing cases are freezed. “Given the costs involved in insolvency, homebuyers may also consider forming a common council/association so that they are better organized to safeguard their interests and also add value to the resolution process,” suggests Bishnoi.
Whichever form you choose to fill, it is important that one fill the applicable form by 24 August.