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?
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 (read more here).
After the initial proceedings in the Jaypee Infratech case, the resolution professional failed to outline a resolution plan and suggested liquidation of the company. However, homebuyers were against such liquidation and after the apex court’s interference, bidders were asked to submit their offers for the completion of Jaypee Infratech projects.
The final bids
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.
While NBCC is backed by the government, JSW Group has expressed it technical and operational support to Suraksha Realty for the completion of pending housing projects of Jaypee Infratech. “To its advantage, NBCC is a public sector unit with the backing of the government. Also, its previous track records indicate that it not only has the required expertise but also the manpower to undertake the massive task at hand. On the other hand, JSW Infrastructure has committed to provide both financial and technical support for project completion within the timeline. Thus, the financials of both bidders seem fairly sound, which is a paramount consideration in this case," said Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd, a real estate consultancy firm.
The CoC have to vote and decide who they want to go with for construction and completion of the projects. As many as 13 banks and financial institutions along with about 22,000 homebuyers and 900 fixed deposit holders have voting rights in the CoC. The voting share of a homebuyer is in proportion to her financial debt as a percentage of the total financial debt of the company. Buyers have nearly 60% voting share. For a bid to be approved, 66% votes are required. Homebuyers can cast their votes online on Jaypee Infratech’s website, www.jaypeeinfratech.com, between 10 and 16 December.
Once the bidding process is completed, NCLT will have 45 days to set and streamline the process of construction.
Ray of Hope
Jaypee Infratech is not the only developer to have faced insolvency proceedings, and the current resolution process for the company has come as a ray of hope for many homebuyers stuck in other such delayed or stalled projects.
But should homebuyers of other such projects expect a similar resolution plan? Experts doubt that. “It may not be possible to have a similar solution for other projects because one of the major advantages for this instance is that Jaypee Group has a lot of underlying assets. This may not necessarily be true for other companies. Jaypee Group spans across various sectors like infrastructure, power and cement and is not limited only to real estate," said Puri.
While all projects may not see a similar resolution plan, a few of them may. “The Amrapali and the Jaypee Infratech cases are among the biggest projects facings insolvency. If a resolution can be crafted for these projects, there must be ways to complete other projects to give relief to homebuyers," said Samantak Das, chief economist and head of research, JLL India, a real estate consultancy firm.
Experts also believe that last month’s announcement by the government, where it decided to extend last-mile funding even for projects against which insolvency cases have been filed under NCLT, will help many projects and, in turn, give respite to lakhs of homebuyers stuck in stalled projects (read more here). The government’s proposed alternative investment fund (AIF), worth ₹25,000 crore, is expected to provide last-mile funding to stalled projects across the country. According to the government, there are about 1,600 stalled housing projects, consisting of about 458,000 units, across the country.
If homebuyers in stalled projects of developers that are as big as Amrapali and Jaypee Infratech are indeed able to get their houses, as per the new timelines, it will certainly restore confidence among homebuyers. Watch this space for more updates.