By: Advocate Vaibhav Choudhary & Prakhar Bharadwaj, Research Associate

After years of struggle home buyers from Amarapali projects smiling with hope because their dream of having house will soon be a reality. The division bench of J. Arun Mishra and J. U.U. Lalit of the Supreme Court in W.P. 940 of 2017 has given directions to safeguard the interest of home buyers. The Court has held that interest of thousands of home buyers is paramount and will take precedence over dues to be recovered by Noida and Greater Noida authority along with financial institutions. The real estate giant has been hammered by the Supreme Court by cancelling their RERA registration for all projects and has also been  directed to hand over all incomplete projects to NBCC for completion with further direction to raise fund after attaching and auctioning all movable and immovable properties of the group. The Supreme Court has shattered the walls of Amrapali group once and for all. Once the entire exercise is over, the group will be out of real estate business and their owners will remain in jail for time to come with no property and finances.

Home Buyers Knocking the Doors of the Apex Court

One of the most fascinating part of the entire issue is how the Apex Court has used its original writ jurisdiction to rescue thousands of home buyers from drowning in an ocean of debt and never ending misery. After the enactment of RERA Act , the appropriate forum for adjudication of buyers-builders dispute has been Real Estate Regulatory Authority (for short, ‘RERA’) in each State but prior to this, home buyers used to knock the door of the consumer forum i.e. NCDRC for refund and possession which used to take more than a half decade to complete. After introduction of Insolvency and Bankruptcy Code (for short, ‘the IBC’) and amendment, home buyers added within the definition of financial creditor and given right to seek insolvency proceeding against Builders for pending debt, which added one more forum for home buyers to seek redressal of their grievances with limited relief. In this case the homebuyers filed various writ petitions after Bank of Baroda filed Company Petition No. (IB)- 121(PB)/2017 before the National Company Law Tribunal (for short, ‘the NCLT’) under Section 7 of the IBC for triggering the Corporate Insolvency Resolution Process. The NCLT appointed the Interim Resolution Professional (in short, the ‘I.R.P'). Moratorium was also declared thereby restricting the institution of any suits against the corporate debtor including execution of any judgment, decree or order; transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal interest therein; and any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property. This action of the NCLT triggered home buyers to approach the Apex Court to safeguard their interest. The proceeding before NCLT was not stayed by the Apex Court. The home buyers while invoking the Apex Court’s original writ jurisdiction argued that, they cannot be categorized as ordinary financial creditors to be ranked pretty low in the order of priority under Section 53. Corporate builders heavily count upon the home buyers as stakeholders to sustain in the market. Section 53 of the IBC is irrational and violates the rights of the home buyers guaranteed under Article 21 as by subjecting the home buyers to the liquidation proceedings of discriminatory nature. They further argued that there is no equal protection under the IBC. The moratorium imposed by NCLT directly affecting not only the home buyers of Amrapali groups but also similarly situated lakhs of home buyers in various other projects. They cannot be deprived of their legal right. The Apex Court consider larger public interest and decided to hear all writ petitions along with hundreds of impleadment/intervention applications to serve justice to all. By accepting the motion to hear home buyers in larger interest the Apex Court has opened a window for all similarly placed home buyers to knock the doors of the Court directly bypassing NCLT, RERA and NCDRC against other real estate groups to serve justice in larger interest.

Lies, Fraud, Delay Tactics, Non-Cooperation, Manipulation, Forgery and Contempt

Initially, the Apex Court was not aware of the extent of frauds, manipulations, financial embezzlements done by the Amrapali group. The Court wanted to hear the matter on merit and gave ample opportunity to Amrapali to follow the Court orders and pay the amount in a phased out manner to Authorities and complete the projects in a time bound manner. However, the dirty delay tactics, manipulation of financial records, intentionally ignoring Court orders, submitting forged financial documents and refusal to cooperate with Court angered the Judges which lead to forensic audit of the entire group and projects along with contempt proceedings initiated against the directors. Once the report of forensic audit started coming, the Court was shocked and was in disbelief by the amount of illegal fund diversions undertaken and collusion of state officials and bank officials with the directors of the group to cheat thousands of home buyers to generate personal wealth. The Court observed that the Amrapali Group used unfair means to promote themselves. It made false promises to lure the public to invest in its projects, purposefully delayed construction, cheated home-buyers for the title of flats and trapped home-buyers in rental returns. The Amrapali Group floated several companies. The public invested their hard earned money in Amrapali projects and the shareholders used these funds to infuse capital in other companies/entities. Home buyers were cheated by making false promises/claims; For example, selling of flats which were not even a part of the master plan of projects or unapproved in the master plan, double booking of the same flat by different customers etc. The homebuyers’ funds were diverted to other companies/directors through payment of professional fees by way of forging of bogus bills amounting to Rs.837 crores, by selling flats as undervalued prices in books and collecting differential market value in cash, by paying commission and brokerage on bogus booking of flats and by way of granting inter-corporate deposits to the tune of Rs.3,000 crores to related entities and Rs.500 crores to unrelated entities/trusted partners for ultimately diverting funds illegally.

The Beginning of the End and Larger Public Interest

After hearing matters for months and studying forensic audit report running into eight volumes, the Apex Court came to rescue every single home buyer and passed various directions which shocked the Amrapali Group, Govt. officials and bank officials. The Court hammered the foundation of Amrapali group once and for all. The Court held that it is a shocking and surprising state of affairs that such largescale cheating has taken place and the general public at large being home buyers have been duped and deprived of their hard-earned money and lifetime savings. The Court categorically cautioned all real estate giants and stated that if the real estate business has to survive in India, it has to be answerable to the public and has to mandatorily uphold the trust reposed in builders/promoters. The builders have to be accountable to public/home buyers as well as the authorities and bankers. The Court came down heavily on Noida and Greater Noida authority for their negligence and fail to uphold public trust and stated that it is apparent that there are colossal dues of Noida and Greater Noida Authorities. The dues of Noida Authorities as on 30.4.2019 are Rs.2191.38 crores and dues of Greater Noida authority are stated to be Rs.3234.71 crores as on 15.1.2019. Thus, the total dues of Noida and Greater Noida authorities amount to more than Rs.5426.09 crores. The officials of the authorities have acted in clear breach of public trust. They have permitted the defaulting leaseholders to earn the amount by sub-leasing its lands whose dues had not been cleared. Thus, evidently, the officials of the authorities acted clearly in collusion with the builders and overlooked the interest of the Authorities and home buyers while permitting the sub-leases of plots of land to be granted. The officials of the Noida and Greater Noida authorities have acted clearly in a breach of public trust and apart from that they have failed to act as per the statutory mandate, the regulations and the terms of the lease deed. Right under their nose and to their knowledge serious kind of fraud had been taking place and officials have clearly connived with the builders. The Court did not spare banks also and categorically stated that not only the banks have failed to ensure that mortgage was effected in accordance with the law, but also have failed to check whether money was in fact, required for the projects and was used for purpose it was lent.
The Court while interpreting various provisions of RERA and apparent conflict with other Acts, the Court gave priority to the interest of home buyers and held that that the RERA recognizes and protects interests of the lenders and does not in any manner take away rights under any of the existing statutes such as T.P. Act, Debt Recovery Tribunal Act, SARFAESI Act. It is apparent from a perusal of RERA, which is a special Act, that certain rights have been created in favor of the buyers. The provisions of RERA have to prevail. However, there is no dispute that the bankers would have the right to recover their dues. The provisions of RERA are beneficial to the home buyers and are intended to insulate them from fraudulent action, ensures completion of the building and it is the duty of the court to protect and ensure the home buyers’ interest and at the same time to hold them responsible for the duties enjoined upon them under the said statute.
Thus, the Court has now opened a Pandora box for similarly placed home buyers to knock the door of the Apex Court directly without exhausting the already available remedy under various statutes and invoke Court’s extraordinary jurisdiction citing larger public interest to serve justice.

Court Directions

The registration of Amrapali Group of Companies under RERA shall stand cancelled;
 The various lease deeds granted in favor of Amrapali Group of Companies by Noida and Greater Noida Authorities for projects in question stand cancelled and rights henceforth, to vest in Court Receiver;
 Authorities dues shall have to be recovered from the sale of other properties which have been attached. The direction holds good for the recovery of the dues of the various Banks also.
 The home buyers are directed to deposit the outstanding amount under the Agreement entered with the promoters within 3 months from today in the Bank account opened in UCO Bank in the Branch of this Court. The amount deposited by them shall be invested in the fixed deposit to be disbursed under the order of this Court on phase-wise completion of the projects/work by the NBCC.
 In view of the finding recorded by the Forensic Auditors and fraud unearthed, indicating prima facie violation of the FEMA and other fraudulent activities, money laundering, we direct Enforcement Directorate and concerned authorities to investigate and fix liability on persons responsible for such violation and submit the progress report in the Court and let the police also submit the report of the investigation made by them so far.
 Court direct various Companies/ Directors and other incumbents in whose hands money of the home buyers is available as per the report of Forensic Auditors, to deposit the same in the Court within one month from today and to do the needful in the manner as observed. The last opportunity of one month is granted to deposit the amount and to do the needful failing which appropriate action shall be taken against them.
 Concerned Ministry of Central Government, as well as the State Government and the Secretary of Housing and Urban Development, are directed to ensure that appropriate action is taken as against leaseholders concerning such similar projects at Noida and Greater Noida and other places in various States, where projects have not been completed. They are further directed to ensure that projects are completed in a time-bound manner as contemplated in RERA and home buyers are not defrauded.

The Hon’ble Supreme Court of India appointed Shri R. Venkataramani, learned Senior Advocate, as the Court Receiver. The right of the lessee shall vest in the Court Receiver and he shall execute through authorized person on his behalf, the tripartite agreement and do all other acts as may be necessary and shall also ensure that title is passed on to home buyers and possession is handed over to them.