5 June 2019: The National Company Law Tribunal (NCLT) has rejected a plea by a group of homebuyers to treat them as a separate sub-class of creditors at committee of creditors (CoC) meetings for the insolvency resolution of Jaypee Infratech. The plea sought this classification so that absentee homebuyers’ votes can be factored in as ‘yes’ votes.
The decision will lead to further uncertainty in the resolution process of Jaypee Infratech, the real estate company behind ambitious projects like Wish Town that has fallen into bankruptcy, because it has not been able to garner the vote share from creditors that is required for the resolution to pass.
In his judgment, NCLT’s Delhi bench (member, judicial) R Varadharajan said, “The CoC, taking into consideration Section 21(2) of IBC (Insolvency and Bankruptcy Code), 2016, shall comprise all financial creditors, and must be construed as one and cannot be segmented class-wise particularly for the purpose of computation of voting share.” The bench also refused to lower the requirement of vote share for adoption of a resolution.
According to provisions of the IBC, a minimum of 66% of the total votes of creditors at a CoC is required to adopt state-owned construction company NBCC’s offer to take over Jaypee Infratech. In the present circumstances, it seems improbable. Though homebuyers have a 58.2% vote share in the CoC, at meetings for the resolution of Jaypee Infratech, maximum voting by homebuyers has only reached 31% of the total votes. This happens because not all homebuyers turn up at the meetings. Banks and other financial institutions have a 41% share, and the remaining is held by depositors.
To shore up the vote share, homebuyers need the absentee votes to be counted as a ‘yes’ rather than a ‘no’, as is the rule now. But under the IBC, this cannot happen till homebuyers are recognised as a separate sub-class of creditors under financial creditors.
If all homebuyers who have participated and voted so far vote in favour of the NBCC bid along with other institutional creditors who are in favour, the total vote would reach around 60%, which would still fall well short of the legal requirement of 66%. This is why the demand for a ‘yes’ vote of absentee homebuyers. If the resolution process does not go through, there are fears that the company could go into liquidation, which will hurt homebuyers the most.
The ministry of corporate affairs, in its opinion given on May 7 to the NCLT, had favoured categorising homebuyers as a separate sub-class within the ambit of financial creditors. It was an outcome-based approach that would facilitate the resolution process of Jaypee Infratech. In its opinion, the ministry had quoted an NCLT judgment in the case of AMR Infrastructure in which it held that where the CoC consists of only one class of creditors — ‘Real Estate’ in this case — the majority vote has to be taken into consideration. The order had also noted that following the principle of “first past the post”, it was recommended that once the majority threshold was crossed, it should be treated as the voting preference of the whole.
Jaypee Infratech’s biggest financial creditor IDBI, which has a vote share of 18.01% in the CoC, has asked permission from NCLT to vote against the NBCC’s bid to take over the company. But other smaller creditors like Life Insurance Corporation with a vote share of 3.15% and some other banks, it is learnt, are supporting the resolution through NBCC’s takeover. A majority of homebuyers favourS NBCC’s takeover. If the majority’s view is taken as that of the entire class as in the case of AMR, the Jaypee Infratech resolution can be reached.