Thousands of homebuyers who had bought apartments and plots in projects by Jaypee Infratech against which the National Company Law Tribunal has started insolvency proceedings are seeking the status of secured creditors like banks as well as being made party to the insolvency proceedings.
They do not think that stopping equated monthly installments (EMIs) to banks is a solution as the legal process for reviving the company has just taken off and there may be hope for a turnaround.
“Most of the companies in the NCLTs defaulters list are either power or steel companies. Jaypee Infratech’s case should not be treated at par with them as thousands of homebuyers have invested their life-long earnings in it. Interests of homebuyers have to be protected,” says a homebuyer.
The NCLT has to consider homebuyers as stakeholders in the insolvency proceedings. Homebuyers have financed Jaypee Infratech for the construction of these projects and should be considered as a financial creditor at par with banks, they say.
“Our rights should be secured just as that of banks. We should also be considered a stakeholder in the insolvency proceedings,” they say.
They are worried that in case there is no resolution after nine months, the first right of sale proceeds may go to banks and homebuyers may get nothing. “We have to make sure that we are treated at par with banks and get back the amount we have invested in the company, including interest,” they say.
In case the turnaround doesn’t happen, the company’s assets as per rules will be liquidated and sold to recover the money. The amount will first be distributed among secured creditors such as banks and the remaining amount will be passed on to the unsecured creditors who are the homebuyers.
“We will approach the NCLT’s resolution partners and ask them to include us as financial creditors and make sure that the insolvency proceedings are as per our requirements. As of date there are around 8-10 homebuyers associations. The total number of homebuyers invested in projects is around 35,000,” says another homebuyer.
Is stopping EMIs a solution? If buyers stop servicing their home loans (as they are not sure if they will get a house), it may impact their credit rating. If that happens, banks will get effected and their NPAs will increase manifold.
“Right now only a case under Insolvency and Bankruptcy Code has been admitted and an Interim Resolution professional has been appointed. He will first take stock of company’s finances, assets and liabilities and try to work out a restructuring package in consultation with all stakeholders. For that he has 180 (plus 90 days). If all efforts fail only then the company will go into liquidation,” says Arvind Jain, President of Developers Township Property Owners Welfare Society.
“Banks should restructure loans of Jaypee Infratech (JIL) otherwise to resolve one big NPA they will get 20,000 small NPAs as all homebuyers will stop paying EMIs after bankruptcy and the government may face a big political and social problem. Buyers should send notices to their banks that they will stop paying EMIs if JIL is declared bankrupt. Stopping EMIs is not a solution as right now we are not sure about not getting our units, there is still hope of a turnaround,” Jain says, adding “I am hopeful that the case will be resolved and we will get our flats.”
This is probably the first time a builder with such scale of operation is going for insolvency, this sets a clear example of huge debt loaded companies ends like this. Think about the homebuyers who bought flats in these projects, who are paying EMI to Banks with interest, staying in a rented home with hope of getting their dream house on day; such incident can create social unrest. Builder like JP or Unitech etc fall in the same category.