ET: Ireo, Supertech, Parsvnath, Ansal, two others challenge insolvency law in SC

19 February 2019: Ireo on Monday challenged the section 5(8)(f) of the Insolvency and Bankruptcy Code 2016 in the Supreme Court which ensures inclusion of home buyers as financial creditors under the code. The company has taken a stay over the insolvency proceedings going-on against them.

Ireo is the latest in the line of several builders who have knocked the SC’s door and have received a temporary relief. In the last one week, Supertech, TDI Infrastructure, Ansal Properties, all have filed a plea in the apex court regarding the insolvency cases going on against them.

“The filing of petitions started after SC in January 2019 gave a stay order in the case filed by Pioneer Urban Land and Infrastructure against the insolvency proceedings going on against it in NCLT-Delhi,” informed Aditya Parolia, partner, PSP Legal Advocates and Solicitors. Parolia is representing about 50 home buyers against Ireo, Parsvnath and Ansal Properties.

In its petition the company had prayed that direction be given against the amendment that has been made in IBC. “The petition is filed under Article 32 of the constitution of India, challenging the validity of the explanation of section 5(8)(f), section 21 (6A)(b) and section 25 A of the Insolvency and Bankruptcy Code 2016 as being violations of articles 14 and 19(1)(g) of the constitution.”

Hearing the petition, justice Rohinton Fali Nariman and justice Vineet Saran on January 21 had said “there shall be stay of further proceedings before the National Company Law Tribunal, Principal Bench, New Delhi.”

Interestingly few days later, the same judge, Rohinton Fali Nariman, upheld the constitutional validity of the IBC code in its entirety in the case related to Swiss Ribbons.

However after SC’s judgement in Pioneer’s case, all other builders quickly moved to SC taking a stay order against all the proceedings.

Shubham Jain, vice president, Corporate Ratings at ICRA said, “Even a single buyer in a single project pursuing such a remedy could put the company at risk of defaulting on loan obligations, irrespective of the liquidity position of the company. Managing such risks will be a challenge for developers, especially those who have legacy projects where completion has been affected by factors such as weak sales, declining prices or inadequate funds.”

It must also be noted that after the said amendment was made in the IBC code, SC had sent the Jaypee Infratech’s case back to NCLT even after it completed the 270 days. “If the judgement goes in the favour of builders it might have a cascading affect on home buyers across India. The entire case of Jaypee Infratech now is based on this particular amendment. SC sent back the case to NCLT after the amendment was made in IBC to give representation to the home buyers involved in the case,” said Ashwarya Sinha, advocate representing home buyers in several cases against builders.

Daizy Chawla, senior partner, Singh & Associates also argues that one must also look at the fact that after the amendment, the number of cases under IBC Code filed by a single/handful of home buyer(s), whose project have been delayed for some reason, have increased tremendously.

“With the focus under IBC remaining on providing recoveries to financial creditors, its effectiveness in addressing the issue of timely completion of projects remains to be seen,” added Jain.

Initially home buyers were treated neither as financial nor operational creditors under the IBC. Hence in June 2018, the amendment of Section 5(8)(f) with respect to the definition of ‘Financial Debt’ ensured inclusion of home buyers as financial creditors under the Code. With this amendment, home buyers can now initiate insolvency proceedings against developers who have not completed projects within the dates specified in the sale agreements.

The Economic Times reported

IT: Jaypee Infra’s promoter makes second attempt to settle dues

19 February 2019: Crisis-hit Jaiprakash Associates has once again submitted a proposal to lenders of its subsidiary Jaypee Infratech for settling dues worth Rs 10,000 crore, amid bids for taking over the realty firm under the insolvency process.

This is the second time in less than a year that Jaiprakash Associates Ltd (JAL) has sought to retain control of the cash-strapped subsidiary. The latest offer also comes close on the heels of state-owned NBCC and realty firm Suraksha group putting in bids for Jaypee Infratech.

“The promoter JAL also submitted a settlement proposal under Section 12A of the Insolvency and Bankruptcy Code(IBC), 2016 for consideration of the Committee of Creditors,” Jaypee Infratech said in a regulatory filing.

However, it did not disclose the details of settlement proposal. This section provides for withdrawal of bankruptcy application subject to certain conditions.
In April last year, JAL had made an unsolicited offer of about Rs 10,000 crore to settle dues of Jaypee Infratech. Meanwhile, lenders of Jaypee Infratech in a meeting on Monday decided to negotiate with NBCC and Suraksha group. Both made presentations before the Committee of Creditors (CoC).

Jaypee Group promoters were also called in the meeting. In 2017, the National Company Law Tribunal (NCLT) admitted the application by an IDBI Bank-led consortium seeking resolution of Jaypee Infratech.

The tribunal had appointed Anuj Jain as insolvency resolution professional (IRP) to manage the company’s business and invite bids from investors. This is the second attempt by the IRP and lenders to complete insolvency process.

In the first round, the Rs 7,350 crore bid of Lakshdeep, part of Suraksha group, was rejected by lenders as it was found to be substantially lower than the company’s net worth and assets.

As per sources, NBCC in its bids has promised to deliver flats to homebuyers in four years. It has also offered 1,400 acre land worth Rs 6,000 crore as well as Yamuna Expressway highway to lenders.

NBCC has suggested that banks should raise about Rs 2,000 crore against the expressway and provide half of the amount (Rs 1,000 crore) to the PSU, which will utilise this fund as an upfront payment. NBCC will also fund the gap of about Rs 1,500 crore between estimated construction cost and receivables from customers.

In contrast, Suraksha group has made an offer of about Rs 20 crore as upfront payment and land worth Rs 5,000 crore, sources said. The Mumbai-based group has promised to complete pending projects in three years.

In October 2018, the IRP started a fresh initiative to revive Jaypee Infratech on the NCLT direction after lenders rejected the over Rs 7,000-crore bid of Suraksha group.

The realty firm has an outstanding debt of nearly Rs 9,800 crore, of which Rs 4,334 crore pertains to IDBI Bank. Other lenders are IIFCL, LIC, SBI, Corporation Bank, Syndicate Bank, Bank Of Maharashtra, ICICI Bank, Union Bank, IFCI, J&K Bank, Axis Bank and Srei Equipment Finance.

Jaypee Infratech is developing about 32,000 flats, of which it has delivered 9,500 units. JAL had submitted Rs 750 crore in the registry of the Supreme Court for refund to buyers. However, this amount was transferred to NCLT as per an order of the apex court.

The India Today reported

BS: Provident, pension funds exposed to IL@FS stare at losses

19 February 2019: Provident and pension fund trusts, which have invested in the IL&FS bonds, are fearing big losses as the debt-ridden company’s bonds are unsecured debt as the Finance Ministry says superannuated bonds don’t carry any government guarantee and all such instruments face the market risks.

The government does not give any guarantee on investments in bonds, as such, and if invested in stock markets they carry the market risks as applicable. It is between the bond issuer and bond holders receiving returns, finance ministry sources said in response to IANS queries. 

Thousands of crores of rupees of over 15 lakh employees of both public and private sector companies are exposed to IL&FS bonds through more than 50 funds. These include PF trusts of state electricity boards, PSUs and banks. 

Queries to EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

The provident and pension fund trust have filed intervening applications in the NCLAT stating they fear to lose all the money since the bonds are unsecured debt. Trusts managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI, and HUL and Asian Paints also have filed petitions.

Usually retirement funds have a low risk appetite and invest in AAA rated bonds (what IL&FS bonds were, once upon a time) and get assured returns with low interest rates.

Their worries stem from the classification of IL&FS profiling its companies as which can meet the dues obligations. 

IL&FS is undergoing resolution process at the NCLT. It will decide, under section 53 of the IBC, the order of priority for distribution of proceeds of the process. 

The company has informed the NCLT of the 302 entities in the group, 169 are Indian companies. Of these, only 22 are emerging as entities that can meet all obligations and 10 firms that can pay secured creditors. 

While 120 IL&FS entities are still being assessed, 38 companies cannot meet any payment obligation. 

These trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues and unsecured bondholders’ dues would not be serviced.

The Business Standard reported

ET: The twin assets include a 1-mn-tonne hot-rolled production capacity of Uttam Value Steels at Wardha in Maharashtra.

19 February 2019: Fresh bids are being invited for Uttam Value Steels and Uttam Galva Metallics, after the lenders to the two companies rejected offers from SSG Capital Management and New Zone Intertrade FZE terming them “unsatisfactory”, two people in the know said. 

The official appointed by the bankruptcy court to resolve their debt issues has invited fresh expressions of interest (EoI) for the companies that together owe Rs 5,500 crore to a consortium of lenders. The deadline for submitting new EoIs is March 1. 

Earlier, a consortium led by SSG Capital Management had offered an upfront payment of Rs 427 crore and another Rs 427 crore over a period of five years for the assets, one of the people said. This offer — at just over the liquidation value of Rs 750 crore set by Duff & Phelps — would have required the lenders to let go of more than 80% of the loans outstanding if they had accepted it. 

The offer from the other bidder, a consortium led by New Zone Intertrade FZE, could not be ascertained. The bid was rejected because it was not accompanied by a bank guarantee, the people said. 

The twin assets include a 1-million-tonne hot-rolled production capacity of Uttam Value Steels at Wardha in Maharashtra for which it purchases pig iron from Uttam Galva Metallics. 

Aperson close to the companies said once acquired, the plants could be brought to their full capacity utilisation within six months. The reason for the lukewarm response during the bidding process could be a fall in operating margins in steel production over last year due to strong iron ore prices, he said. 

Both companies had initially received interest from a number of strategic as well as financial players.

The Economic Times reported

TGI: JSW in talks with Vedanta in late offer for Essar Steel

19 February 2019: Sajjan Jindal’s JSW is believed to be in talks with Anil Agarwal’s Vedanta Ltd to mount a late bid for Essar Steel.

If the two business groups, one a leader in steel and the other in non-ferrous metal, come together to make a fresh dash, the offer is likely to be tabled before the lenders by the end of the month.

The committee of creditors of bankrupt Essar Steel had chosen ArcelorMittal as the highest bidder and submitted the Rs 42,000-crore plan of the world’s largest steel maker before the National Company Law Tribunal, Ahmedabad, for approval.

Vedanta, which made a low-ball offer of Rs 35,000 crore for the 8-million-tonne plant at Hazira, may now raise the bid to Rs 45,000-48,000 crore, with the backing of the Jindals.

Sources said the top executives of JSW and Vedanta met in London earlier this month to explore an alliance.

JSW did not respond to a request for comment. Vedanta said it would not comment on “market speculation”.

If Vedanta and JSW mount a bid, it will be another instance of a late offer, especially in large insolvency cases.

In the Binani Cement insolvency case, UltraTech had topped rival Dalmia Bharat’s plan days before the committee of creditors approved it. The CoC ignored UltraTech’s plan and submitted the Dalmia offer for approval.

However, after many twists and turns, UltraTech bagged Binani, upholding the spirit of value maximisation of the Insolvency & Bankruptcy Code.

In Bhushan Power & Steel Ltd, the CoC approved the plan of Tata Steel twice but finally a late and higher bid of JSW was chosen following the tribunal’s diktat. Earlier this month, a letter of intent was issued to JSW for Bhushan.

Once submitted, it will be the second attempt for both JSW and Vedanta for Essar Steel. After showing interest initially, JSW had refrained from bidding, leaving the Mittals, Vedanta and Numetal, a consortium stitched together by Essar’s promoter Ruia and Russia’s VTB, in the fray.

Sniffing an opportunity later, JSW piggybacked a step-down of Numetal subsidiary, which was created to execute the resolution plan, by picking up a 26 per cent. However, Numetal’s plan was put on the backburner, and JSW’s, too, when the Supreme Court asked it to clear the loan of all Ruia companies.

It now appears that Vedanta will submit a higher offer, as it is not saddled with any legal issue and JSW will piggyback a special purpose vehicle which will own and manage the asset. ArcelorMittal had also announced plans to team up with Japan’s Nippon Steel to own and manage the asset.

Where does Ruia’s fit in the late manoeuvres of JSW and Vedanta? Watch out for an answer in a couple of years, highly placed sources said.

The Telegraph India reported

FE: Bhushan Power resolution: Lenders to approach NCLT for early hearing

19 February 2019: Lenders to Bhushan Power and Steel (BPSL) will soon approach the National Company Law Tribunal (NCLT) requesting an early hearing for approving the resolution plan of its preferred bidder JSW Steel for the bankrupt company.

Though the resolution professional, Mahender Khandelwal, had on February 14 submitted to the NCLT for approval JSW Steel’s Rs 19,700-crore bid, the adjudicating authority is yet to approve the plan.

“We will be making a mention in the NCLT urging it to hear and approve the plan as soon as possible,” said a banker.

In August last year, lenders had approved JSW Steel’s plan for BPSL. However, rival contender Tata Steel moved the National Company Law Appellate Tribunal (NCLAT) alleging that lenders had given JSW Steel undue chances to revise its bid even after declaring Tata Steel as the preferred bidder.

The NCLAT, however, on February 4 rejected Tata Steel’s contention, paving the way for JSW Steel to take over BPSL.

JSW Steel has offered to pay Rs 19,350 crore to the financial creditors of BPSL, implying a nearly 60% haircut for lenders. Apart from this, the Sajjan Jindal-promoted company has offered to pay operational creditors a sum of Rs 350 crore against their admitted claims of `733 crore. Tata Steel’s total bid was of Rs 17,000 crore.

BPSL was admitted by the New Delhi bench of the NCLT on July 26, 2017 for initiation of the corporate insolvency resolution process on the plea of Punjab National Bank.

A clutch of 34 financial creditors claimed `47,303 crore from the company as on January 3, 2019. Of this, the RP has admitted claims worth Rs 47,150 crore.

The Financial Express reported

ET: Home buyers seek participation in builder’s bankruptcy

18 February 2019:  A group of home buyers of Navi Mumbai-based Monarch Developers have filed an intervention application against the builder at the National Company Law Tribunal, which is hearing an insolvency petition against the builder. 

As many as 1,500 under-construction flats have been sold by the developers spread across Navi Mumbai. These people, who see little hope of getting possession of their flats, have filed an application at the court seeking participation in the case. 

“We are representing certain home buyers and have filed an intervention application in NCLT for intervening in the company petition filed by Capri Global under the Insolvency and Bankruptcy Code, to protect their interests in this matter,” said Vinay Chauhan, partner, Corporate Law Chambers India, who is representing the group of home buyers. He declined to divulge further details. 

“We are hopeful that as envisaged under the said code, the interests of homebuyers will be protected,” he said. 

Home buyers have prayed that the court direct the interim resolution professional (IRP) to ensure that the interest of the home buyers are not compromised, if the court admits the case. ET has viewed a copy of the application. 

They have sought a court order directing financial creditors to amend/rectify the application, in case there is a disclosure in the application, stating that the flats belonging to the applicants are part of security obtained by it from the corporate debtor. 

Flat buyers have also prayed the court to instruct the IRP to “judiciously and scrupulously” scrutinise all the claims made by the financial creditor. 

“…so that the home buyers get the possession of their flats at the earliest.” 

Capri Global filed an insolvency petition last year, which is pending for admission as the next court hearing will take place in March. 

“We confirm that we have filed an insolvency application in NCLT against Monarch Brookefields LLP, an entity of the Monarch Developers group,” said a spokesperson for Capri Global. 

The claim amount at the time of filing the application was Rs. 97.68 crore. 

Many other home buyers have reached out to Chauhan after the application was filed. 

The builders have been running about three projects, where retail home buyers have booked flats.

The Economic Times reported