FE: Why not pay HCC dues of Rs 6,070 crore? SC asks govt and NHAI

16 September 2019: The Supreme Court has asked the Centre and NHAI as to why they should not be asked to pay arbitration award dues of Rs 6,070 crore to Ajit Gulabchand-led Hindustan Construction Company (HCC), which is facing insolvency proceedings before the National Company Law Tribunal.

A bench led by Justice RF Nariman last week issued notice to ministries of finance, road transport and highways and law & justice and company affairs and also NHAI, NHPC, Ircon International, NTPC and National Institution for Transforming India in this matter.

The construction company stated in the court that it has 63 unpaid arbitration awards aggregating to Rs 6,070 crore against various PSUs and government bodies as on March 31 which are under challenge but not stayed by any court/tribunal so far. “In turn, the total loans taken by HCC from banks and FIs apart from bank guarantees (BGs) issues by various banks is around Rs 3,948 crore,” its appeal seeking stay of the insolvency proceeding said.

The company added that it owes operational creditors only around Rs 1,808 crore towards supply of manpower, machinery and materials for its projects. In its order, the apex court noted that senior counsel AM Singhvi, appearing for HCC, stated that his client will pay operational creditors around Rs 35 crore within eight weeks.

“…to get stay, you pay these people… your networth is more than what you have to pay. Since you are a solvent company, you pay them. We will help you in getting some money from the government,” Justice Nariman said, refusing to stay the proceedings before NCLT, Mumbai. However, it allowed the company to apprise the NCLT of the SC order.

Challenging the Insolvency and Bankruptcy Code as being violative of fundamental rights, HCC alleged that the 2016 law creates a non-level playing field and an artificial financial stress due to non-payment of determined legitimate and genuine dues against the government bodies and PSUs, which cannot be proceeded against under the Code in respect of arbitration awards.

According to HCC, the “regime of incongruent rights has resulted in an extraordinary situation necessitating remedial measures to be ordered by the SC as to equalise the rights of parties”.

The company said it has to receive money from government bodies under arbitration awards, which are deemed to be dues under the Arbitration Act. However, the actual receipts of such amounts are locked in litigation for years together due to mechanical and casual challenged in one or the other court by way of abusing the process of law, it added.

While HCC is facing the “daily threat” of initiation of insolvency proceedings as already few operational creditors like Haripa Industries, AGL Infra and others are seeking recovery of their dues, the government, instead of paying the award money, has moved the high court seeking refund of money and for recall of the release orders, the appeal stated.

HCC said it not only faces the threat of encashment of its performance guarantees, levy of liquidated damages, termination of its contracts, but also apprehends blacklisting by the government agencies, who themselves have been responsible for its financial mess, the appeal added.

The Financial Express reported

ET: Home buyers welcome SC ruling, say move to help claim dues

10 August 2019: The Supreme Court’s judgment on Friday re-affirming the rights of end-use home buyers as financial creditors under the Insolvency and Bankruptcy Code (IBC) is expected to provide protection and a hope of recovering of their dues especially in projects that are stuck for long with no possibility of delivery in sight.

There are around 1.74 lakh stalled housing units across the top seven cities — Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad, Chennai and Kolkata — and their buyers can now stake claims to their dues by initiating insolvency proceedings against the errant developers.

This is also expected to limit loan delinquencies of banks and housing finance companies who have exposure to retail borrowers. While being a confidence booster for end-use home buyers, the ruling will further the consolidation process in the sector, weeding out non-serious developers. Investors, however, may not be able to cite this judgement to exit stuck projects.

“The SC judgment re-affirms the rights of the home buyers as financial creditors under IBC. This is a landmark judgment so far as genuine home buyers are concerned. However, this may not be a happy news for the investor-home buyers who have initiated IBC against the developers for seeking exit from their investments on account of the current condition of the real estate market,” said Abhilash Pillai, Partner, Cyril Amarchand Mangaldas.

The apex court said that the IBC gives an additional forum to the home buyers to raise grievances, adding that the provisions under the IBC, Real Estate Regulation Act (RERA) and the Consumer Protection Act will work harmoniously. The court further said that in case of any conflict between the three Acts, the provisions of the IBC will prevail.

“It is a big boost for home buyers as they now have another legal platform to deal with unscrupulous real estate developers. As doubts about legal validity of the said amendment is now cleared, home buyers as a member in the committee of creditors (CoC), will be also able to protect their interests better if builders themselves or banks or any other stakeholders drags a company to NCLT. The ruling will help in bringing sanity to the real estate sector,” said Abhay Upadhyay, president, Forum For People’s Collective Efforts.

Developers, however, will have two defences available under the IBC. One, if the home buyer has defaulted on payment under the builder-buyer agreement, then there will be no entitlement to relief including payment of compensation. Two, under Section 60 (5) of the IBC, the developer can contest the buyer’s insolvency plea at the NCLT on the grounds that it has been filed fraudulently with malicious intent.

“It is a balanced judgement. With a slowdown in the real estate sector, many home buyers are looking for cancellations, that won’t be possible now. Also, speculative investors won’t be able to use the IBC to get exits,” said Kishore Jain, president-Bengaluru, CREDAI.

Developers’ association NAREDCO welcomed the judgement saying that it gave home buyers an equal footing as secured financial creditors.

“This will enable the completion of projects ultimately benefiting both lenders and home buyers. The liquidity crisis looming over the sector as an outcome of a consecutive policy reforms has caused multiple problems for NBFCs and banks,” said Niranjan Hiranandani, national president, NAREDCO.

According to ANAROCK research, as many as 220 projects equaling 1.74 lakh homes are completely stalled in the top seven cities alone.

The Economic Times reported

BS: Will challenge IBC amendments: Essar Steel operational creditors tell SC

8 August 2019: The operational creditors of Essar Steel on Wednesday told the Supreme Court (SC) that they would challenge the latest amendments made to the Insolvency and Bankruptcy Code (IBC), which gave preference to financial creditors over operational creditors. The apex court has agreed to hear the operational creditors on the issue and given them a week to file amended applications challenging the changes brought to the IBC.

The case would be next heard on August 19, when the apex court is also likely to hear other challenges made to the IBC, such as the extension of the corporate insolvency resolution period to 330 days from 270 days and other changes which may apply retrospectively. During the hearing on Wednesday, the court observed that since the Committee of Creditors (CoC) comprised only of secured financial creditors, it was possible that they could be discriminated against.

“When you have a CoC only of financial creditors, and the operational creditor is only given a hearing…nothing beyond, then it is possible that operational creditor can be given nothing. There can be challenges to it,” a two judge Bench led by Justice Rohinton Fali Nariman said.

This observation prompted the operational creditors to submit that even the latest amendments to IBC added to their woes instead of solving it. The court further observed that if the law allowed banks to decide that while they would take haircuts, they could give nothing to the operational creditor, “it was bad law”.

“If this is not addressed even in the amendments, it is a major lacuna. The amendments, instead of addressing the issue, aggravate it,” the court said. The financial creditors tried to justify the latest amendments made to the IBC by claiming that the difference between them and the operational creditors was that they were secured lenders as opposed to the latter. The court, however, observed that as there was “no monopoly” of any operational creditor, it was possible that a new management could switch to another service provider instead of the old one.

Supreme Court’s Observations

  • Some new amendments to IBC will impact operational creditors
  • If problems not addressed, court will look into them
  • Questions possibility of OCs getting nothing in resolution plan
  • Will look into amendments made to IBC to see if they are ‘bad law’

The apex court on Wednesday also asked the lawyers for CoC as to why the operational creditors should also be disadvantaged to possibly receive nothing if the purpose of Corporate Insolvency Resolution Process (CIRP) was “to resuscitate” the company instead of liquidating it.

“In case of liquidation, everyone stands in line and gets what they get. When the plan is to resuscitate, why is it that the operational creditor is given nothing? Why had the NCLAT been driven to interpret it in that way?” the two judge Bench observed.

The questions to the CoC by the SC on Wednesday came after the operational creditors submitted that changes to IBC had been approved by the government and passed by both the Lok Sabha and Rajya Sabha, but was only pending presidential nod. The government had in July cleared about seven changes to the IBC in which it had clarified that the commercial consideration and decision taken by the Committee of Creditors (CoC) would be taken into account when it came to distribution of funds as proposed by a resolution applicant in the resolution plan.

Finance Minister Nirmala Sitharaman had on July 29 told the Rajya Sabha that the new changes to IBC had been brought to clarify the interpretation problems that had arisen due to the National Company Law Appellate Tribunal (NCLAT) ruling in Essar Steel insolvency case. The NCLAT interpretation, Sitharaman had then said “was trying to treat secured creditors, operational creditors at par”, which “defeated the purpose and also the spirit” of IBC.

The NCLAT had on July 4, while clearing the resolution plan submitted by ArcelorMittal for Essar Steel, ruled that both the financial and operational creditors would get nearly 60 per cent of their claims. The earlier arrangement where the CoC comprising of financial creditors had decided that they would get nearly 90 per cent of their admitted claims and the operational creditors would get only 10 per cent of their claims, had been struck down by the NCLAT. Essar Steel’s financial creditors should not have distributed the amount among themselves by keeping the “maximum amount in favour of one or other financial creditors and minimum or NIL in favour of some other financial creditors or the operational creditors,” the NCLAT then said.

Aggrieved by the NCLAT judgment, the CoC has approached the apex court with a plea that appellate authority’s decision to equate financial creditors with operational creditors and disregarding the security interests of the former would lead to “severe plunge in recovery rate of banks and financial institutions” during the CIRP, which could lead them to “grave financial distress,” the CoC has said in its plea.

The Essar Steel insolvency case, which has been going on for more than 700 days now, has seen various rounds of litigation. Currently, Lakshmi Mittal owned ArcelorMittal is the only bidder. Its Rs 42,000 crore resolution plan has been accepted and approved by the CoC, the National Company Law Tribunal, as well as the NCLAT.

The Business Standard reported

IE: Supreme Court cancels registration of Amrapali group for diverting homebuyers’ money

23 July 2019: The Supreme Court Tuesday cancelled the registration of all Amrapali group of companies under the Real Estate Regulatory Authority and the lease of its properties granted by Noida and Greater Noida authorities. The court also asked the Enforcement Directorate to conduct a detailed investigation against the group for diverting homebuyers’ money.

A bench of the Supreme Court headed by Justice Arun Mishra directed National Buildings Construction Corporation (NBCC) to complete the unfinished housing projects in Noida and Greater Noida and handover these to homebuyers.

The top court said Venkataramani will have the power to enter into any tri-party agreement for sale of the group’s properties to recover the dues. The bench said the home buyers’ money was diverted in violation of the Foreign Exchange Management Act (FEMA) and the foreign direct investment (FDI) norms.

The court has been dealing with a batch of petitions filed by home buyers who are seeking possession of around 42,000 flats, booked in projects of Amrapali Group. The company is responsible for the diversion of home-buyers’ money.

Amrapali faced its first major protest in 2015, when 900 families that had shifted to its Sapphire housing project in Noida complained of lack of utilities like electricity and water. In August 2016, cricketer MS Dhoni quit from his role as brand ambassador, with Sharma calling it a “mutual decision”. But two years later, Dhoni sued the group for Rs 150 crore, claiming he had not been paid for his role.

In September 2017, a bench of the National Company Law Tribunal initiated insolvency proceedings at the behest of Bank of Baroda against Amrapali Infrastructure for dues over Rs 50 crore. Following protest after protest in 2016-17, homebuyers of Amrapali’s Dream Valley project, comprising 11,000 unfinished flats, moved the Supreme Court against the decision, saying their interests wouldn’t be protected if insolvency proceedings are initiated.

In August 2018, the Supreme Court attached properties and accounts of 41 companies under the parent Amrapali Group. A month later, the apex court directed the debts recovery tribunal to begin the process of selling 16 of its properties.

In October 2018, the court sent three Amrapali directors — Sharma, Shiv Priya and Ajay Kumar — to police custody for not furnishing details of the 46 companies. “You are playing hide and seek. You are trying to mislead the court,” the bench said.

The Indian Express reported

LM: Apex court stays NCLAT verdict in Essar Steel insolvency case

23 July 2019: The Supreme Court on Monday put on hold the sale of Essar Steel India Ltd to ArcelorMittal after lenders to the bankrupt Indian steel maker challenged an appeals court ruling that said operational creditors have to be treated on a par with financial creditors.

The Supreme Court agreed to “expeditiously” hear the plea filed by banks against the National Company Law Appellate Tribunal (NCLAT) order of 4 July.

The bankruptcy appeals court order, approving ArcelorMittal’s ₹42,000 crore offer for Essar Steel, had upset secured financial creditors, as it diminished their priority rights to the proceeds generated from the sale or liquidation of a bankrupt entity.

A division bench of Justices Rohinton Fali Nariman and Surya Kant said the NCLAT order not be given effect to as of now. The bench added that the monitoring committee comprising the committee of creditors and the resolution professional shall continue its work till the next hearing on 7 August. A consortium of lenders, led by State Bank of India, challenged the NCLAT order on 16 July.

On the following day, the Union cabinet approved several changes to the bankruptcy law, including upholding secured creditors’ priority rights on the sale or liquidation proceeds of insolvent companies.

The proposed changes to the insolvency law are likely to help the secured creditors of Essar Steel. The modifications make the rights of financial and operational creditors explicit. The Insolvency and Bankruptcy Code (IBC) gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues to workers for the past two years and dues to secured creditors in equal priority. Employees other than workmen, and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

A status quo implies that “everything remains as it is, no party should do anything and the NCLAT judgement is stayed”, a senior lawyer said on condition of anonymity. “The Supreme Court will revisit the positions of all the parties on the next date. I believe it is in the banks’ interest to wait till the amendments to IBC are passed in Parliament; it will boost their case. So, they will have no intention to hurry this along.”

A member of the Essar Steel’s CoC said it is confident the apex court would reverse the NCLAT order to the original set forth in the resolution plan, which gives priority in payment to secured creditors. “With the cabinet approving the amendments to IBC, we feel the judges will have more clarity on how the payment should be done,” this person said, requesting anonymity.

In the Essar Steel case, the appellate tribunal had ruled that lenders and operational creditors will get 60.7% of their outstanding claims and proportionately share the money that ArcelorMittal has offered to pay for the Indian firm, which in rupee terms entails a payment of ₹30,030 crore to financial creditors and ₹11,969 crore to operational creditors.

Operational creditors with admitted claim amounts of less than ₹1 crore would get 100%, while for those with claims of more than ₹1 crore, the payment would be 60.26%, according to the NCLAT ruling.

The LiveMint reported

ET: Fate of Indian real estate hangs in balance as SC hears builders’ challenge to IBC

19 July 2019: The Supreme Court of India on Thursday heard the constitutional challenge filed by over 100 builders against the right provided to the homebuyers as ‘financial creditor’ under the section 7 of Insolvency and Bankruptcy Code.

The bench of justices Rohinton Fali Nariman, Sanjiv Khanna and Surya Kant took suo moto congizance and has directed the Additional Solicitor General (ASG) appearing for the government to provide a list of states where RERA authority, Appellate Tribunal and Adjudicating officer are not present.

The order comes after the advocates Aditya Parolia and Piyush Singh, representing over 300 home buyers, pointed out that the RERA act has still not been adopted or proper implementation has not taken place in most of the states.

“Many states have appointed government officers as temporary authorty,” said Parolia. The SC demanded a list of such states as well. The ASG will have to present this list to the court by Tuesday.

Pioneer Urban Land and Infrastructure filed a plea in the Supreme Court in January 2019, challenging the validity of section 5(8)(f) of the IBC2016, where homebuyers were given the right to be considered as financial creditors.

As many as 136 similar writs were filed by builders like Supertech, Parsvnath, BPTP, Ansal Hi-Tech Townships, Today Homes Noida, Ireo, SARE Shelters Projects, Wave MegaCity Centre, CHD Developers, Spaze Towers, Orris Infrastructure, AVP Buildtech, Three C Shelters, Emaar Hills Township, TDI Infrastructure, ATS Realty, among others.

All these writs were attached to the original plea of Pioneer Urban Land and Infrastructure and are being heard together.

According to the builders, home buyers must make their claim through RERA and consumer forums, and the amendment in IBC has only resulted in additional encumbrance upon them. They also say that the definition of ‘default’ occurring in such cases is not clear. The financial creditors can initiate the insolvency proceedings against a corporate debtor when it commits a ‘default’. In case of delay of a project the definition of ‘default’ becomes vague.

Also, according to builders, there have been cases where the delay has happened on the buyer’s end paying the instalments. They also dispute the ambiguity about treating home buyers as secured or unsecured creditors.

Hence, such cases when referred to insolvency forum turns into abuse of process of law and also sometimes lead to delay in project delivery.

In the previous hearing held on July 10, the ASG had said that there was no illegality in amendment brought by it in IBC. The centre had said that the law was amended to protect the interest of home buyers who had invested their money to purchase flats. The amendment helped in their representation in the Committee of Creditors under IBC.

The affidavit filed by the centre in the SC further said that the explanation was inserted under Section 5(8)(f), providing that the allottees under the real estate project are considered as financial creditors, was only for the purpose of abundant clarity.

The case will next be heard on July 23.

The Economic Times reported

FE: IBC recovery: Cabinet puts financial creditors back on top again

18 July 2019: Stung by the NCLAT orders that have trimmed lenders’ say on the recovery from what is envisaged in the insolvency code, the government has reinforced their authority in deciding how to disburse the proceeds under the insolvency process.  Essentially, this would mean financial creditors’ precedence over other claimants in laying hands on the recovered amounts would be cemented and the tribunals would find it impossible to upset the order of distribution prescribed in the code.

The Cabinet on Wednesday approved a clutch of amendments to the Insolvency and Bankruptcy Code with an intent to make the resolution/liquidation process faster and also remove ambiguities, if any, that might have resulted in various NCLT/NCLAT benches giving rulings that were divergent and even went against the spirit of the legislation.

“Inclusion of commercial consideration in the manner of distribution proposed in resolution plan (will be) within the powers of the committee of creditors (CoC),” a government spokesperson tweeted after the Cabinet meeting. The CoC comprises only financial creditors.

The government thinks that the appellate tribunal’s order, asking secured lenders of Essar Steel to disburse a larger share of recoveries to operational creditors than what was decided by the CoC, was clearly against the intent of the IBC.

The NCLAT had trimmed lenders’ share of the recovery from 90% to 60%. “The proposed amendment clarifies that the CoC has the discretion to decide on the amount that operational creditors will get, with safeguards so that certain sum is indeed received by them,” said Sapan Gupta, national practice head (banking and finance), at Shardul Amarchand Mangaldas.

Sources said the government is also considering making a submission explicitly stating the intent of the law before the Supreme Court where the Essar Steel ruling has been challenged by the CoC led by State Bank of India. The idea is to ensure that the NCLAT verdict doesn’t set a precedent and undermine the CoC’s say on the distribution of recovery proceeds. Analysts say any such government intervention will potentially alter the apex court’s verdict in favour of banks in the Essar Steel case.

To cut delays, the amendments have mandated that the entire resolution process, including litigation, will have to be completed in 330 days. Currently, while the IBC allows a maximum of 270 days for resolution to be over, it doesn’t set any time-frame to complete the litigation process, resulting in several high-profile cases, including Essar Steel, dragging on months together.

At the time of its constitution, the CoC will also be empowered to decide on the liquidation of a stressed company (if there is no case for a revival of it), instead of waiting for months to entertain resolution plans for it. Analyst say as per the amendments, votes of financial creditors like home buyers will be cast “in accordance with the decision approved by the highest voting share (over 50%) of such financial creditors”.

“The law (IBC) is already very, very clear. But if there is any further clarity required to make it even more explicit, the government is open to doing that as well,” an official source had told FE earlier in the day. There should be no confusion that operational creditors were not on a par with the secured financial ones, he added.

While approving ArcelorMittal’s Rs 42,000-crore offer for Essar Steel, the NCLAT recently modified the resolution plan cleared by the CoC, holding that secured creditors will get only Rs 30,030 crore, or 60.7% of their (admitted) claims of Rs 45,559 crore, and the rest will go to operational creditors, treating the latter on a par with financial creditors. Operational creditors had made total claims of Rs 19,719 crore and could get Rs 11,969 crore, or 59.6%, as per the NCLAT’s order.

The earlier plan approved by the lenders had provided for 90% recovery for all financial creditors and around 20.5% for operational creditors (with dues of more than Rs 1 crore), based on their claims admitted by the adjudicating authority.

In another case, the NCLAT is trying to ensure that Provident Funds recover their dues ahead of secured lenders on grounds that it involves savings of people.

In the Essar Steel case, the NCLAT noted that distributing a larger share of the proceeds only to secured financial creditors at the cost of operational creditors was against the provisions of Sections 30(2) (b) and Regulation 38 (IA). However, legal experts have pointed out that Section 30(2)(b) clearly says that as long as the operational creditor gets a minimum of liquidation value, the CoC can decide on the amount to be distributed. Moreover, Section 31 says that once the resolution plan is approved by the Adjudicating authority, it is binding on the corporate debtor, employees, members, creditors and so on. They also say that Regulation 38, which says the amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors, simply means that the former should get their money back earlier.

The CoC in its appeal before the apex court last week stated that it had the power to deal with all commercial aspects of the resolution plan submitted by ArcelorMittal India. Manoj Kumar, head (M&A, transactions and insolvency) at consultancy firm Corporate Professionals Capital, said: “The concept of fairness to all stakeholders (in distribution) is already provided in the law with a minimum guarantee of liquidation value to the operational creditors on priority, and the rest is left to the commercial wisdom of the resolution applicant. As the approving authority is CoC, all plans are bound to be tilted in favour of financial creditors and till the time the plan provides the minimum liquidation value to operational creditors, it cannot be considered as illegal.”

According to another amendment approved by the Cabinet, the financial creditors who have not voted for a resolution plan that is approved by a 66% majority and the operational creditors will get the resolution proceeds or the liquidation value, whichever is higher. “This will have retrospective effect where the resolution plan has not attained finality or has been appealed against,” the government said. This means the Essar case could be covered under it.

The Financial Express reported

TOI: Supreme Court assures Jaypee homebuyers to protect their interest

12 July 2019: The Supreme Court said that it would intervene to protect Jaypee homebuyers if the resolution plan under the insolvency proceedings failed on Thursday. It is likely to step in order to stop liquidation of the company to safeguard the investment of the buyers. It asked all the parties to work together including NBCC and creditor banks, to sort out differences over the plan. 

After failing to come up with a policy to protect buyers’ interest, the Centre urged a bench headed by Justice A M Khanwikar to adjourn the hearing as the case was listed before the National Company Law Appellate Tribunal (NCLAT) on July 17 for a final decision on the resolution plan. It posted hearing for July 18. The court said in an attempt to take over Jaypee Infratech Ltd which is facing insolvency proceedings, the parties should explore all possibilities to pave the way for other builders.

The bench has assured the homebuyers that their interest would be protected, they have urged the bench to pass an interim order to stop liquidation of the company, according to a newspaper report. “We should wait for the outcome of the tribunal proceedings. We also want the government to explore all possibilities. If the proposal (resolution plan) given to the tribunal is acceptable to all, then the problem will be solved,” the bench said.

It may be noted that in 2017, Jaypee Infratech went into insolvency after the National Company Law Tribunal (NCLT) admitted an application by an IDBI Bank-led consortium seeking action under the Insolvency and Bankruptcy Code (IBC).

After the creditors rejected NBCC’s bid to acquire Jaypee Infratech, the NCLAT had directed representatives of banks, allottees and other stakeholders to appear before it on July 17 to consider how the bid could be tweaked for the homebuyers’ benefit.

The bid to acquire the insolvent Jaypee Infratech Ltd (JIL) was put to vote from May 31, 2019 to June 10, 2019 and a majority of the lenders, led by IDBI Bank, voted against the bid on the grounds that it was conditional. However, home buyers were in favour of the bid.

It may be noted that the NBCC’s bid seeks the cancellation of an estimated income tax liability of Rs 33,000 crore due over a period of 30 years under the concession agreement for the transfer of land from the Yamuna Expressway Industrial Development Authority to JIL.

On June 20, in the committee of creditors’ (CoC) meeting, the offer was discussed and it was decided that resolution professional (RP) Anuj Jain would inquire from AIDPL about the completion timeline.

The Times of India reported

BQ: IBC: Axis Bank Joins SBI To Protest NCLAT Order On Essar Steel

11 July 2019: Private sector lender Axis Bank Ltd. also joined State Bank of India by going public with its displeasure on the recent National Company Law Appellate Tribunal judgement putting secured creditors at par with the operational creditors.

SBI chairman Rajnish Kumar had Wednesday gone public with his anguish on the same order of the NCLAT awarding higher payout to Essar Steel’s operational creditors and treating them on par with secured lenders and said the banks would challenge the order at the Supreme Court.

“The NCLAT order does beg the question if this is how the proceeds will be shared, then secured creditors will ask why is the need to go to the IBC and not wait for liquidation,” Axis Banks managing director and chief Amitabh Chaudhry told reporters.

He said it is still unclear on what is the formula which was adopted by the NCLAT while approving ArcelorMittal’s Rs 42,000-crore bid for the bankrupt flagship company of the Ruias-led Essar Group, which gave operational creditors equal status as the secured lenders.

Chaudhry said the banks will exercise their right of taking the matter to the Supreme Court and hoped clarity can emerge in the matter from the apex court.

The appellate tribunal said secured creditors would get only 60.7 percent of their Rs 49,473 crore claims as it ordered the rest of the money to be paid to operational creditors, treating them at par with the financial creditors.

“What has happened here is that secured, unsecured and operational creditors have been ranked equal,” Axis Bank’s chief of corporate lending Rajiv Anand said.

Drawing from the statutes, including the provisions in the Companies Act, SBI’s Kumar had pointed out that there was a distinction between secured and operational creditors, and that the former had a greater right on an asset at par with the employees of company facing bankruptcy resolution.

“If secured creditors are given the same treatment as operational creditors, then it is a huge disincentive for secured creditors and an incentive for operational creditors,” Kumar had said.

He also warned that with this ruling, bankers would be hesitant to use the IBC provisions for resolving bad assets till such a time that the principles of the law were clearly laid out and hoped that the Supreme Court would clarify the same once they challenge the Essar Steel order by the NCLAT.

BloombergQuint reported

FE: Jaypee homebuyers matter: SC asks Centre to come out with uniform proposal

9 July 2019: The Supreme Court on Tuesday asked the Centre to come out with a “uniform” proposal for all cases to resolve the difficulties being faced by lakhs of homebuyers who have not yet got possession of flats despite paying huge amounts of money to real estate builders. The apex court, which was hearing a homebuyers matter related to Jaypee Infratech Ltd, said the issue concerns lakhs of flat buyers and the Centre should give a proposal to resolve it.

“We want suggestions from the Union of India which could be uniform for all such cases,” a bench comprising justices A M Khanwilkar and Dinesh Maheshwari said. “This issue will be bothering lakhs of homebuyers. Within the IBC (Insolvency and Bankruptcy Code), we cannot do anything. But outside it, you (Centre) can suggest something. We can consider that,” the bench told Additional Solicitor General (ASG+) Madhavi Divan, who was appearing for the Centre.

The bench made the observation while hearing a plea which has sought that Jaypee Infratech Ltd (JIL) be not sent into liquidation, although the deadline for the corporate inlpsolvency resolution process is over, as it would cause “irreparable loss” to thousands of home buyers. The ASG told the court that proper authority to respond to the plea would be the resolution professional or the bank concerned.

“Can some other arrangement be suggested by the Union of India without disturbing the ongoing process?,” the bench asked, adding, “We are keen to know whether you have something to suggest”. “Policy issue has to be resolved by the Union of India,” the bench said and posted the matter for hearing on July 11.

The apex court had on August 9 last year ordered re-commencement of the resolution process against JIL and barred the firm, its holding company and promoters from participating in the fresh bidding process. It had also allowed the Reserve Bank of India to direct banks to initiate corporate insolvency resolution proceedings (CIRP) against Jaiprakash Associates Ltd (JAL), the holding company of JIL, under the IBC.

It had said there was “no manner of doubt” that JAL and JIL lacked financial capacity and resources to complete unfinished housing projects in which over 21,000 home buyers had not been given the possession of their flats till then.

The fresh plea filed in the top court has sought a direction that an “independent and thorough forensic audit” of JIL should be conducted from the date of its incorporation.

Referring to the apex court’s last year order, the plea has said, “The court had made a conscious effort to avoid liquidation of Jaypee Infratech Limited. However, the events as have unfolded subsequent to the passing of the judgment have frustrated the efforts as made by the court.” As per apex court’s direction, the 270 days for completion of CIRP have concluded on May 6, it has said.

“Till date only two serious bids have been received by the Committee of Creditors. One bid has been submitted by National Buildings Construction Corporation Limited, whereas the other has been submitted by Suraksha ARC. None of the said bids have been accepted by the Committee of Creditors till date,” the plea has said, claiming that “threat” of JIL going into liquidation is “turning into a reality with each passing day”.

It said if no resolution plan is accepted till May 6, JIL would “automatically go into liquidation”, leaving thousands of home buyers without any remedy. Seeking forensic audit of JIL, the plea alleged that “diversion of funds in the present case is on an even larger scale than that of projects developed by Amrapali Group of Companies”.

The Financial Express reported