Jaypee case raises hopes of buyers in other projects

New Delhi: Homebuyers in various projects of Jaypee Infratech Ltd, a real estate arm of Jaiprakash Associates Ltd, can now see the light at the end of the tunnel. The insolvency case filed against the company in August 2017 for default in repayment of borrowings has now reached it final stage of resolution. According to reports, state-owned NBCC (India) Ltd and Suraksha Realty, a Mumbai-based real estate developer, have submitted their final bids to complete several under-construction projects of Jaypee Infratech in Noida, as part of the resolution. A voting process, which commenced on 10 December, by the committee of creditors (CoC), including banks and homebuyers, will now choose between NBCC and Suraksha Realty. Once that is done, the construction process may start in a couple of months.

This also comes as a ray of hope for homebuyers of other real estate projects whose developers have insolvency cases filed against them for non-delivery of apartments. So will the resolution of projects from Jaypee Infratech set a precedent for other projects as well?

The backdrop

Jaypee Infratech was established as a special purpose company to develop, operate and maintain the Yamuna Expressway in Uttar Pradesh, connecting Noida and Agra. The company also had the right to develop more than 6,000 acres of land along the Expressway for residential, commercial, amusement, industrial and institutional purposes. The company commenced the development of the Noida land parcel and launched various residential and commercial projects in 2008 and 2009; most of these projects were scheduled to be completed by 2012. In total, more than 35,000 apartments were launched under various projects. All of them witnessed substantial demand and were sold out. However, the company failed to deliver projects as per the promised scheduled, and also started defaulting on repayment of bank borrowings.

Four years later, in May 2016, the Insolvency and Bankruptcy Code (IBC) was enacted. In 2017, an IDBI Bank-led consortium filed an insolvency case against Jaypee Infratech in the National Company Law Tribunal (NCLT) for default in the repayment of loan. Until then, the company had offered only about 20% of its projects for possession.

Jaypee Infratech was among the first few developers against whom insolvency cases were first filed. However, it was the Jaypee Infratech case that led to a major amendment in IBC—by way of Insolvency and Bankruptcy (Amendment) Ordinance, 2018 issued on 6 June 2018, homebuyers were given rights as financial creditors.

Thereafter, a large number of insolvency cases were filed against real estate developers. “Since June 2018 (after getting the financial creditor status), a total 1,821 cases have been filed by homebuyers against builders under the Code," said minister of state for corporate affairs Anurag Singh Thakur in Parliament November

After several round of offers, NBCC and Suraksha Realty have made the final bidding offer to complete the project.

NBCC in its final bid has offered 1,526 acres of land to the lenders (banks and financial institutions), as against the earlier proposal of 1,426 acres, to settle their dues. Besides, NBCC has promised to deliver the 20,000 pending apartments within three and half years, which is six months short of the previous timeline it proposed.

On the other hand, Suraksha Realty is now offering 2,220 acres of land compared to its earlier offer of 1,934 acres, besides increasing upfront cash payment to lenders to ₹175 crore from ₹25 crore earlier. Suraksha Realty is also offering land worth ₹250 crore to homebuyers, for the construction cost; it had earlier offered land worth ₹100 crore for this purpose. It has also promised to provide additional land parcels worth ₹250 crore to homebuyers, on the condition that 858 acres of land, pledged by Jaiprakash Associates, comes back to Jaypee Infratech.

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