Chitra Sharma v Union of India

{Supreme Court of India; August 09, 2018}

FACTS: The case was filed for protecting the home-buyers of Jaypee Infratech Limited (“JIL”) which is a holding company of Jaiprakash Associates Limited (“JAL”). CIRP was initiated against JIL by its FC, the IDBI Bank. The petition under Article 32 of the Constitution was filed by the home-buyers demanding remedy against JIL as due to do the moratorium, the home buyers were left remediless. JIL owed around 8000 cr. to its lenders.

There were four Resolution Applicants however none of the plans was approved and the period of 270 days came to an end on May 12, 2018. The NCLT was required to pass a liquidation order. Meanwhile, on June 6, 2018 amendment was made to the Code that clarified home buyers as financial creditors. JAL had been classified as an SMA (Special Mention Account) category II in 2014 and as an NPA in 2015. On the basis of these facts, RBI expressed its concern that resolution of JAL and JIL needs to be done without delay before it becomes unviable.

CONTENTIONS: The home buyers made the following contentions:

  1. JAL is ineligible under Section 29A(b)&(g)
  2. JAL has made the proposal to avoid insolvency proceedings that RBI seeks to initiate against it and regain control of JIL.
  3. The NCDRC has refused to excuse JIL or JAL for the non-completion of its housing project.
  4. JAL made a false and baseless argument that the construction was hindered due to a stay imposed by NGT as the stay was not regarding construction but was for handing over possession.
  5. JAL’s claim that flats have been delivered is ‘a fractured claim’ as the flooring was not done, doors and windows were missing.
  6. JAL is in a severe financial crisis having defaulted around 30 banks and jointly with JIL have defaulted 22000 home buyers.

OBSERVATIONS: The court discussed the need to protect the home-buyers and their inclusion in the definition of home buyers. The home buyers also opposed the proposal of JAL. The court also noted the important role played by RBI as an exert body in economic and financial matters and the credibility of its opinions.

JUDGEMENT: The Court directed that the CIRP was to recommence from the date of this judgement In exercise of powers under Article 142 of the Constitution of India and the new CoC that would be constituted would also consist of home-buyers in light of the Amendment Ordinance of 2018. JAL and its promoters were held to be ineligible under Section 29A. The Court also allowed RBI that it may direct the concerned banks to initiate insolvency proceedings against JAL if need be. The amount of 750 crores that was deposited was transferred to the NCLT and NCLT was directed to retain it and pass appropriate directions.

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