The Supreme Court has ordered reversion to the National Company Law Tribunal (NCLT) of the Jaypee Infratech Ltd (JIL) resolution process, through which one major infirmity of the Insolvency and Bankruptcy Code (IBC), of its incapacity to address the concerns of homebuyers when the corporate debtor being resolved is a real estate developer, became manifest. This is welcome.
The Supreme Court is an adjudicator of the law, its implementation is not its remit. The NCLT is the right body to resolve corporate insolvency and the court did the right thing to let go of a resolution process that it had taken up on account of the homebuyers’ interest, now that Parliament has amended the law to incorporate homebuyers as financial creditors.
It is to be hoped that the court would apply the same yardstick to other matters that come up before it, and stick to its function of clarifying the legal principle underlying a dispute, instead of entering into the remit of other organs of the state.
The court has used its power under Article 142 to start the Jaypee resolution process afresh, to give the process another 270 days before liquidation is resorted to.
It has asked that fresh bids be invited but barred promoters of the Jaypee group from taking part, because of their ineligibility under Section 29A of the IBC.
The court has further granted the RBI’s plea that bankruptcy proceedings be initiated against Jaiprakash Associates Ltd, the main promoter company of which JIL is a subsidiary.
Since IBC empowers lenders to initiate bankruptcy proceedings, it is strange that the RBI should be the one to seek insolvency. Further, the Section 29A bar on promoters taking part in the bidding serves a political objective, to shield the government from charges of favoring company bosses, rather than the goal of maximising recovery.
The bids that the committee of creditors had rejected had grossly undervalued JIL. Homebuyers’ hopes of getting their homes built depend on maximum recovery. It would be wise to bar no one, including the promoters, from the bidding process.