On Monday, September 4, the Supreme Court will hear a writ petition filed by Chitra Sharma, a flatbuyer, against an order by the National Company Law Tribunal. “We are challenging the constitutional validity of the Insolvency and Bankruptcy Code. This law does not recognise the rights of the homebuyers, and recent rulings have said the homebuyer is neither a financial creditor nor an operational creditor,’’ Aishwarya Sinha, Sharma’s lawyer, told Business Standard. Sinha said once notice was issued, other flatbuyers were likely to implead in the matter with their own submissions.
Col. SK Nagarath, a retired army dentist in his 80s, is a figure several homebuyers now look up to. The president of the Jaypee Aman Owners Welfare Association is busy finalising an impleadment in Sharma’s petition, which many feel could have been researched and drafted better. The association, which has hired the services of a senior advocate, is also busy tying up finances for this legal expedition. Each interested member has been asked to pay Rs 5,000.
Among the issues the association is planning to raise are the alleged financial irregularities and a demand for a forensic audit. Nagarath says as the homebuyers had paid their money even before banks lent to the project, they should have priority over the banks.
Nagarath and the homebuyers have already submitted a request for investigation with the Union Ministry of Corporate Affairs, citing extracts of annual report of Jaypee Infratech and other publicly available documents. “It is a gambit, which they have played in collusion with the banks. Our money has been siphoned off,’’ he said.
He explained how the crisis had hit various families, especially the middle-class and lower-income groups.
Many of them have paid 90 per cent or more of the cost of their apartments. The amount invested ranges from as low as Rs 25 lakh to a few crores, in some of the higher-end projects.
Jaypee flatbuyers have seen the trouble for nearly five years now. But in May, things came to a head after some flatbuyers filed an FIR charging Jaypee Infratech managing director Manoj Gaur with cheating and criminal conspiracy. Around this time, the group had put up a four-phase schedule for delivery of over 30,000 units. The timeline began from June 2017 and was extended till 2021.
Separately, the group had also promised refund of money in some scrapped projects. In that backdrop, a National Company Law Tribunal order of August 9 put a moratorium on all other claims and proceedings and appointed chartered accountant Anuj Jain from BSR Associates as the interim resolution professional.
A similar problem is faced by about 40,000 flatbuyers of Amrapali group, another builder with several projects in Noida. But, the NCLT order is yet to come in this matter.
“The land was being offered at a fraction of the lease amount. This made developers greedy and they started taking large pockets of land not realising that it would be unmanageable. They then over-developed with the surplus land but they could not find many buyers,” said Parveen Jain, president of industry body Naredco.
Jaypee group, through its vehicle Jaiprakash Industries, had won the concession agreement to develop what was originally Taj Expressway in 2003. The agreement included right to develop an area of 2500 hectares (25 million square feet), divided into five parcels of 500 hectares each. Three of these land parcels were in the Noida-greater Noida area, while the other two were in Mirzapur (Aligarh district) and Agra. Jaypee group sold these projects under the banner of Jaypee Greens. It roped in Canadian architects Arcop Associates to develop premium properties linked to golf courses and other luxury living paraphernalia. By early 2010, it had sold 88 per cent of the space it had on offer. At over Rs 900 crore, funds from real estate operations provided a big cushion for the highly levered project. While equity was about Rs 1,250 crore, debt stood at over Rs 4,400 crore. Even as promoters sold part of their shares to raise around Rs 600 crore in the 2010 initial public offering, flatbuyers continued to put in funds.
On top of all this was corruption, irrespective of the party in power, with politicians and officials demanding huge cuts from builders, sometimes paid on per square foot basis. In the IPO document, Jaypee Infra had mentioned a risk factor on politics in Uttar Pradesh. “If there is a change in power or if a coalition government is elected in the future, the policies of the state government with respect to transportation (including toll rates) and development could be revised, or the effective implementation of such policies could be impeded, either of which could have an adverse effect our business.” It’s no secret that the company, which was part of the larger group of realty, infrastructure and power firms led by Jaiprakash Gaur had a good-run under the Bahujan Samaj Party government headed by Mayawati.
Jaypee Infratech, which was essentially a special purpose vehicle to develop 165-km Yamuna Express way and five townships along the new road, had structured its timelines in such a way that most of these are completed before the 2012 elections. But, delays began to creep in. The expressway itself opened only in August 2012, five months after the Samajwadi Party came to power.
The Noida Authority had in July issued occupancy certificates allowing possession and registry of 1,000 out of total 5,000 flats proposed in Jaypee’s Aman housing project located in Sector 151 along the Noida Expressway. On August 2, the Yamuna Expressway Authority asked Jaypee to refund advances received for about 3,000 studio apartments near the Buddh Formula 1 circuit. But, these steps are in a limbo after the NCLT order.