The Supreme Court delivered a historical decision, on July 23, 2019, in the case of Amrapali Group of Companies, which has wider ramifications for home buyers across the country. Let us discuss the decision in its entirely and its implications.
Amrapali crisis: Facts of the case
During the period 2010-2014 the Amrapali Group proposed to construct around 42,000 residential flats, in the Noida and Greater Noida area. The Group took advances from buyers, ranging from 40% to 100% of the value of the flats. An allotment-cum-flat buyer agreement was executed, which was not registered. The Group had promised to complete the construction and hand over the possession of the apartments, within a period of 36 months. Amrapali Group had entered into a lease agreement of 90 years for the land, to construct the flats, with the Noida Authority and Greater Noida Authority (Authorities). As per the lease agreement, the lease premium was to be paid to the Authorities in a staggered manner, which was ultimately extended to 10 years. Amrapali Group had only paid 10% of the entire consideration, to the Authorities. Some of the flat buyers had taken possession of the flats, without the tripartite agreement that was required to be entered into, between the buyer, Amrapali Group and the Authority concerned.
Amrapali Group also borrowed from a consortium of banks, for the projects and the banks advanced the money to the Group, under a perceived second charge on the land and the proposed project. While issuing the no-objection certificate (NOC) for creating the second charge on the land, the Authorities had put a condition that the second charge of the banks could be created, subject to the condition that Amrapali Group pays all the dues of the Authorities, which never happened. The banks, who had lent money for the projects, were supposed to monitor the actual use of the money.
However, Amrapali Group failed to deliver the promised flats to the home buyers. Meanwhile, a lender – Bank of Baroda – filed a case with the National Company Law Tribunal (NCLT), against Amrapali Group, which ordered an injunction against instituting of any suit against the Group, as well as on disposal of any of the assets of the Group. A writ petition under Article 32 of the constitution of India, was filed with the Supreme Court of India, against the order of NCLT, with many home buyers filing intervention applications later on.
In the course of hearing and in order to find out the facts, the Supreme Court ordered a forensic audit of the affairs and accounts of the Amrapali Group.
The forensic audit revealed many irregularities in the conduct of the Group, the Authorities and the bankers. There was negligence on the part of the banks, in monitoring the utilisation of funds, as the Group diverted the money borrowed from the banks. The Authorities were also hand-in-glove with the Group and overlooked the violation of the terms and conditions of the lease agreement.
Amrapali Group had received substantial money from the home buyers. The dues of the Group included the lease premium to be paid to the Authorities for the land lease, as well as the dues to the banks. The Authorities and the banks claimed priority over the claims of the home buyers, for payment of their outstanding.
See also: Amrapali crisis: SC directs state-owned MSTC Ltd to auction attached properties
Decision of the Supreme Court in the Amrapali case
After hearing all the parties involved, the Supreme Court came to the conclusion that the banks and the Authorities had not acted in good faith and had been negligent in their function and the matter included issues of larger public interest. In the opinion of the Supreme Court, the banks and the Authorities had acted against the doctrine of ‘Public Interest’, as both were public institutions and were supposed to protect the trust of the public. The court observed that the Authorities and the banks had failed to discharge their duties. It further observed that the real estate business mainly survived on the money invested by the buyers, for the purchase of their houses. Hence, they had the right to obtain their houses. The SC further observed that when the conditional permission granted by the Authorities was furnished to the banks, by the Amrapali Group for obtaining the loan, it was incumbent upon the bank officials to ascertain from the concerned Authorities, whether the premium due under the leases had been paid and the lease rent due up to date had also been paid.
The court ordered that the pending construction of the flats should be completed by the NBCC – a government company. The SC also held that the Noida Authority and Greater Noida Authority, would not have any charge on the incomplete projects, which, in the opinion of the court, rightfully belonged to the home buyers. The banks and the Authorities can only recover their dues from the firms and projects, where the funds had been diverted. The dues of the Noida Authority and Greater Noida Authority, could not be treated at par with the dues of home buyers.
The SC heavily relied on the provisions of the Real Estate (Regulation and Development) Act (RERA), while deciding the case and referred to various provisions regarding cancellation of the RERA registration, remedy for home buyers in case of failure of the developer to complete the construction within the stipulated time limit, as well as completion of half completed projects. The SC directed the Authorities to grant the Occupancy Certificates (OCs) to the buildings, where flat buyers had already been staying and that the Authorities could not refuse such certificate, on the pretext that their outstanding had not been paid. It further directed the Authorities to issue the OCs to the other buildings, as and when they were completed. The SC also directed the utility providers in the area, to provide the water and electricity connection and other utilities to the residents of the buildings that were already occupied.
The Supreme Court summed up its logic for giving priority to the claims of home buyers, with the following observation:
“It was incumbent upon the Authorities, as well as the banks, to prevent the fraud. Now, if banks, as well as the Authorities, are permitted to recover the amount from the home buyers’ investment, in that case, it would be equally unjust and would be against the conscience of the law and nothing would be left for the buyers, not even a brick and the structures have come up by investing their money.”
Impact of the SC’s decision on incomplete projects elsewhere in India
The Supreme Court, under Para 141 of the order, said:
“We direct the central government and the state government to take appropriate steps, on the time-bound basis to do the needful, all other such cases where the projects have remained incomplete and home buyers have been cheated in an aforesaid manner, it should be ensured that they are provided houses.”
From the above directions, it becomes evidently clear that ‘acche din’ may be ahead, for other home buyers in incomplete projects. The central and state governments have to take necessary steps, to ensure that buyers, who have booked and paid for houses, are provided the houses. As the Supreme Court will monitor all the directions, within a time-bound schedule, this decision will help all home buyers in the country and has set a precedent for all incomplete projects in India.
(The author is a tax and investment expert, with 35 years’ experience)
Balwant Jain is a tax and investment expert. He is a rank holder CA, CS of 1983 batch and a Certified Financial Planner (CFP). He has varied experience in providing his own consultancy, as well as working as the chief financial officer, as well as a company secretary. He has been regularly contributing articles to leading business and mainline dailies, as well as electronic media. He regularly appears on business channels like Zee Business and CNBC Awaaz, as a personal finance and taxation expert. He has also been a visiting faculty of NMIMS (Narsee Monjee Institute of Management Studies), Mumbai. He also regularly conducts workshops on various subjects of investments and taxation.
Twitter: https://twitter.com/Jainbalwant
Email: [email protected]
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