Supreme Court Directs Restructuring of Dues and Loan Disbursements in Amrapali Case (10 June 2020)

Date of the Judgment: 10 June 2020

Citation: Not Available

Judges: Arun Mishra J. and Uday Umesh Lalit J.

Can a project management consultant be held liable for the past actions of a real estate company? The Supreme Court of India addressed this question, among others, in a significant judgment concerning the Amrapali Group’s stalled housing projects. This case deals with multiple issues concerning the liabilities of the National Buildings Construction Corporation (NBCC), the interest rates imposed on entities that received funds from Amrapali, the release of Floor Area Ratio (FAR) to authorities, and the disbursement of loans to home buyers. The judgment was delivered by a two-judge bench consisting of Justice Arun Mishra and Justice Uday Umesh Lalit.

Case Background

The case revolves around the incomplete housing projects of the Amrapali Group. The Supreme Court has been monitoring this case to protect the interests of home buyers who have invested in these projects. Several applications were filed concerning various aspects of the project’s completion and financial liabilities. The key parties involved are the home buyers, the NBCC (appointed as Project Management Consultant), Royalgolf Link City Projects Private Limited, Noida and Greater Noida Authorities, Vansh Consultants Private Limited, and various banks and financial institutions. The relief sought includes directions for the completion of projects, resolution of financial disputes, and protection of home buyers’ interests.

Timeline

Legal Framework

The judgment does not explicitly mention specific sections of any statute. However, it refers to the order dated 23.7.2019 wherein the court had cancelled the leases granted to the Amrapali Group of Companies and vested the rights in the Court Receiver. The court also refers to the previous directions regarding the recovery of dues from the sale of other properties of Amrapali Group.

Arguments

The arguments presented before the Supreme Court can be summarized as follows:

• NBCC:
  • NBCC argued that it should not be held responsible for any existing disputes, past or present liabilities, or any disputes arising from contracts entered into by the Amrapali Group.
  • NBCC sought immunity from being impleaded in cases before other courts or commissions, stating it is only answerable to the Supreme Court.
  • NBCC requested that it should not be responsible for answering queries from home buyers and instead submit monthly project reports to the Court Receiver.
• Royalgolf Link City Projects Private Limited:
  • Royalgolf sought modification of the order to pay 12% interest on Rs.48.52 crores, citing financial hardships due to litigation and lack of funds.
  • They argued that their project has been severely affected, with reduced sales and loan disbursements, and that they had to take a high-interest loan of 21% to deposit the amount.
  • They contended that other entities in the judgment dated 23.7.2019 were not ordered to pay interest.
• Noida and Greater Noida Authorities:
  • They requested the return of unused FAR to recover outstanding dues from the Amrapali Group.
  • They argued that the builder was entitled to FAR at 2.75, and the unused FAR should be returned to them.
  • They stated that the recovery of dues is necessary as it is public money.
• Court Receiver:
  • The Receiver sought permission to sell or transfer unused FAR to generate funds for completing the projects.
  • The Receiver argued that the sale of FAR is necessary to complete the projects and that the home buyers have already paid for the dues of the authorities.
• Vansh Consultants Private Limited:
  • Vansh Consultants sought the deletion of its name from the list of debtors in the Forensic Auditors’ report, arguing that it had invested Rs.10 crores in Amrapali Leisure Valley Private Limited and was not a debtor.
  • They contended that the Forensic Auditors did not consider the return of Rs.8 crores and the pending cheque bouncing cases.
  • They argued that the Forensic Auditors’ report violated the principles of natural justice.
• Banks and Financial Institutions:
  • Banks stated that they are ready to release loans to home buyers in a phased manner and as per the stage of construction.
• Ace Group of Companies:
  • They pointed out the precarious condition of the real estate sector in Noida and Greater Noida, citing economic recession and excessive interest rates charged by the authorities.
  • They requested a complete waiver of interest on land dues and an extension of payment schedules.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in this order. However, the court addressed the following key matters:

• Whether NBCC should be held liable for the disputes and liabilities of the Amrapali Group.
• Whether the interest rate of 12% imposed on Royalgolf Link City Projects Private Limited was justified.
• Whether the FAR should be returned to the Noida and Greater Noida Authorities.
• Whether Vansh Consultants Private Limited was a debtor of the Amrapali Group.
• Whether banks should release loans to home buyers whose accounts are declared as NPAs.
• Whether the interest rates on outstanding dues of Noida and Greater Noida Authorities should be reduced.

Treatment of the Issue by the Court

Authorities

The Court referred to its previous judgment and order dated 23.7.2019 in this matter. In this judgment, the Court had:

• Cancelled the registration of Amrapali Group of Companies under RERA.
• Cancelled the lease deeds granted to Amrapali Group by Noida and Greater Noida Authorities.
• Held that Noida and Greater Noida Authorities cannot sell the flats of home buyers or the land for realization of their dues.
• Appointed NBCC to complete the projects.
• Directed home buyers to deposit outstanding amounts.
• Directed investigation into FEMA violations and fraudulent activities.
• Appointed Shri R. Venkataramani as the Court Receiver.
• Directed Noida and Greater Noida Authorities to execute tripartite agreements and issue completion certificates.

Authorities Considered by the Court

Judgment

What Weighed in the Mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect the interests of home buyers and ensure the completion of stalled projects. The Court emphasized the following points:

• Protection of Home Buyers: The Court consistently prioritized the rights and interests of home buyers, who had invested their hard-earned money in the projects. The Court’s decisions were aimed at ensuring that they receive their flats and are not further defrauded.

• Completion of Projects: The Court’s directions were geared towards the completion of the stalled projects. The appointment of NBCC, the sale of FAR, and the release of loans were all aimed at ensuring that the projects are completed and handed over to the home buyers.

• Financial Prudence: The Court considered the financial implications of its decisions, ensuring that no party is unjustly enriched. The interest rate of 12% imposed on Royalgolf and the reduction of interest rates for the authorities were all based on principles of financial prudence.

• Accountability: The Court held the authorities and financial institutions accountable for their actions and inactions. The Court emphasized that the authorities should not impose exorbitant interest rates and that banks should release loans to home buyers.

• Fairness and Equity: The Court’s decisions were based on principles of fairness and equity. The Court ensured that all parties are treated fairly and that no one is unduly burdened by the consequences of the Amrapali Group’s actions.

The Court considered alternative interpretations but rejected them in favor of protecting home buyers and ensuring project completion. For instance, the Court rejected the Noida and Greater Noida Authorities’ request for the return of FAR, stating that the home buyers had already paid for it. The Court also rejected Vansh Consultants’ plea, finding their transactions to be dubious.

Key Takeaways

• NBCC’s Immunity: NBCC, as a project management consultant, is immune from legal actions in other courts/commissions related to Amrapali projects and is only answerable to the Supreme Court.
• Interest Rate: The 12% interest rate imposed on Royalgolf Link City Projects Private Limited was upheld, emphasizing the principle of disgorgement of unjust enrichment.
• FAR: The unused FAR will not be returned to Noida and Greater Noida Authorities but will be sold by the Court Receiver to fund project completion.
• Vansh Consultants: The Court upheld the Forensic Auditors’ report, and Vansh Consultants’ name remains on the list of debtors.
• Loan Disbursements: Banks and financial institutions are directed to release loans to home buyers, even those with NPA accounts, and to restructure the loan amounts.
• Interest Rate Reduction: The interest rate on outstanding dues to Noida and Greater Noida Authorities is reduced to 8% per annum, with a restructuring of the repayment schedule.

Directions

The Supreme Court issued the following directions:

• NBCC is immune from being sued in any other court or commission and is only answerable to the Supreme Court.
• Royalgolf Link City Projects Private Limited must deposit the 12% interest within six weeks.
• The unused FAR will be sold by the Court Receiver and the Committee.
• Noida and Greater Noida Authorities are directed to facilitate the sale of FAR.
• Banks and financial institutions are directed to release loans to home buyers, including those with NPA accounts.
• Banks and financial institutions are directed to restructure loan amounts.
• The interest rate on outstanding dues to Noida and Greater Noida Authorities is reduced to 8% per annum, with a restructuring of the repayment schedule.

Development of Law

This judgment clarifies the responsibilities and liabilities of various stakeholders involved in stalled real estate projects. The ratio decidendi of the case is that the interests of home buyers must be protected, and all necessary steps must be taken to ensure the completion of projects. The judgment also emphasizes that project management consultants cannot be held liable for the past actions of the real estate company. This judgment also sets a precedent for the reduction of interest rates on dues to authorities and the restructuring of loan amounts, particularly in cases where the real estate sector is facing a crisis.

Conclusion

The Supreme Court’s judgment in the Amrapali case addresses multiple issues related to the completion of stalled projects, financial liabilities, and the protection of home buyers’ interests. The Court granted immunity to NBCC, upheld the interest rate for Royalgolf, directed the sale of FAR by the Receiver, rejected Vansh Consultants’ plea, directed banks to release loans, and reduced interest rates for authorities. The judgment emphasizes the need for a balanced approach to ensure project completion and protect all stakeholders, particularly the home buyers.