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Chitra Sharma & Ors. v. Union of India & Ors. (Jaypee Infratech Home Buyers Case)

Writ Petition (Civil) · 2018 INSC 681Decided 9 Aug 2018
Writ Petition (Civil) No. 744 of 2017
Chief Justice Dipak Misra · Justice A.M. Khanwilkar · Dr. Justice D.Y. Chandrachud

Background

Home buyers in housing projects developed by Jaypee Infratech Ltd. (JIL), a subsidiary of Jaiprakash Associates Ltd. (JAL), approached the Supreme Court under Article 32 after JIL was pushed into the Corporate Insolvency Resolution Process (CIRP) following a default of over Rs. 526 crores owed to IDBI Bank. The buyers feared losing both their invested money and their partially-built homes once insolvency proceedings froze the company's affairs, and several connected writ petitions and special leave petitions on the same issue were tagged together.

Decision Breakdown

The Court declined home buyers' request for an immediate pro-rata refund from the Rs. 750 crores deposited in court, holding that preferential payment to one class of creditors during a pending CIRP would be legally improper and unfair to secured creditors, especially since 92% of home buyers actually wanted possession of their homes rather than a refund. It allowed the RBI's application to direct banks to initiate insolvency proceedings against the parent company JAL as well, given its sustained non-performing-asset status, while firmly barring JIL, JAL, and their former promoters from bidding to take back control of the company under Section 29A of the IBC. The Court used its Article 142 powers to restart the 180-day CIRP clock for JIL from the date of this order, directed a fresh Committee of Creditors reflecting an amended definition of "financial creditors" (to include home buyers), and permitted fresh resolution-plan bids alongside the existing three. The Rs. 750 crore corpus plus accrued interest was ordered transferred to the NCLT to abide by its further directions, and the proceedings were disposed of with liberty to approach courts again if needed.

Lesson Learnt

In corporate insolvency, courts will protect a vulnerable class of stakeholders (like home buyers) procedurally, e.g., reconstituting the creditors' committee to give them a voice and barring defaulting promoters from re-bidding, but will not let any single class jump the queue for a cash payout once the structured insolvency process has begun.

Official source (sci.gov.in)View Judgment (PDF)

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