The months of August and September 2018 turned out to be a crucial time for three real estate giants – namely Unitech, Amrapali and Jaypee – as the Supreme Court passed orders against them in three different cases. That notwithstanding, the question remains: are homebuyers protected from errant builders? The answer is still not clear as these three cases tell us.
This case was triggered by orders of the national consumer court as well as a cheating case against the promoters of the company. The promoters were also imprisoned for some time. Now, some relief is in sight for homebuyers with the apex court ordering for the auction of a property in Kolkata to recover money to complete the residential towers. The property was auctioned for Rs 116.95 crore and the buyer deposited a draft of Rs 28.89 crore with the Supreme Court registry. The court has appointed a committee to oversee the construction of 514 flats in five projects: namely Vistas (Gurgaon), Unihome (Mohali), Horizon and Verve (Greater Noida) and Unihomes (Sector 117, Noida). Unitech remains an operating company and there is hope that these towers will be completed in due course.
After it failed to come up with a viable plan for completing a host of unfinished projects, the Supreme Court held hearings on 1 and 2 August 2018 and thereafter passed an order for seizing all its assets and freezing the bank accounts of 40 companies belonging to Amrapali Group. The personal bank accounts of all directors of these 40 companies, too, were ordered to be frozen. There was an admitted diversion of over Rs 2,765 crores from six projects to other projects. The court also approved a proposal by NBCC Ltd, a public sector company, offering to complete the unfinished projects of Amrapali. Further, it was decided that independent auditors would be appointed to conduct forensic audit.
Jaypee Associates Ltd (JAL), the holding company, and JaypeeInfratech Ltd (JIL), its subsidiary, were both before the Supreme Court. Homebuyers had approached the top court after the subsidiary company was taken for insolvency proceedings by its creditor IDBI Bank Ltd under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC), for a default of Rs 526.11 crore. Upon such proceedings, an order under Section 14 imposing a moratorium on all pending suits and proceedings was passed. This meant that all pending cases by homebuyers against the company came to a standstill. Under Section 238, this law prevails over other laws like Consumer Protection Act, 1986, and Real Estate Regulatory Authority (RERA) Act, under which homebuyers were seeking relief. The homebuyers filed a writ petition in Supreme Court in 2017 (Chitra Sharma vsUoI and Ors), following which the court stayed the insolvency proceedings. It resumed these proceeding vide an order only after including representatives of homebuyers in the process. The holding company JAL was ordered to deposit Rs 2,000 crore by 27 October 2017, which was later extended to 5 November 2017. By an order dated 30 November, the Supreme Court asked the amicus curiae to open a website to seek applications for refund of money deposited by homebuyers. By 21 March 2018, it was found that only eight per cent of homebuyers were interested in refunds of their money; the rest wanted their flats. By this time the refund claimed amounted to Rs 1,300 crore of principal amount, while only Rs 750 crore was deposited in the court. Meanwhile, on 10 January 2018, the RBI moved an application to commence insolvency proceedings against JAL.
JAL appeared to be seeking favour of the court to be considered to bid to regain control of its subsidiary JIL in the insolvency resolution process. The court allowed it to bid. However, its bid was rejected as being ineligible along with four other bids. The resolution process got four eligible bidders but none of the proposals was accepted as the resolution bid failed by the 270-day deadline of 12 May 2018. The total debts owed to creditors stood at Rs 9,984.7 crore. Under Section 33 of IBC, if the resolution plan fails the company goes in for liquidation. The Supreme Court noted that liquidation of JIL would not be in the interest of homebuyers.
Ordinance: The Supreme Court noted that the Insolvency and Bankruptcy (Amendment) Ordinance, 2018, which came into force on 6 June 2018, provided that an amount paid by an allottee of a real estate project would amount to a borrowing. This gave them the status of financial creditors in the insolvency process, with rights under Section 7 of IBC. They would be represented in the committee of creditors and have a voting right in proportion to their financial debts payable by the company.
JAL was unable to give possession to 21,532 homebuyers. Under the guise of helping homebuyers, it was seeking to stay the resolution process against itself but the same was rejected by the court. The Supreme Court noted that JAL was seeking to stay insolvency proceedings against itself and also to regain control of JIL to frustrate the RBI’s insolvency application. The court further observed that JAL had diverted Rs 10,000 crore from JIL. Not only that, JAL was a defaulter of about Rs 30,000 crore due to more than 30 banks. The court ordered a fresh resumption of the process of resolution of JIL instead of allowing it to be liquidated.
Finally, the Supreme Court declined to refund money to homebuyers out of the money deposited in court on the grounds that it would be unfair to the bulk of homebuyers who had opted for getting possession of homes instead of refunds. It also ordered resumption of the insolvency process against JAL. The amount of Rs 750 crore deposited in court would be transferred to National Company Law Tribunal (NCLT) to apply under the insolvency process.
As for the stranded homebuyers, they are still staring at uncertainty as both JIL and JAL are in insolvency and there is no assurance that the homes promised to them will be completed and handed over to them.