Supreme Court Orders Completion of Amrapali Group Projects, Protecting Homebuyers: Bikram Chatterji & Ors. vs. Union of India & Ors. (2019)

LEGAL ISSUE: Protection of homebuyers’ rights and completion of stalled real estate projects. CASE TYPE: Real Estate/Consumer Law. Case Name: Bikram Chatterji & Ors. vs. Union of India & Ors. [Judgment Date]: 23 July 2019

Date of the Judgment: 23 July 2019
Citation: Not Available
Judges: Arun Mishra, J., Uday Umesh Lalit, J.

Can homebuyers, who have invested their life savings in real estate projects, be left without homes and recourse when builders fail to deliver? The Supreme Court of India addressed this critical question in a landmark judgment concerning the Amrapali Group, a major real estate developer that defaulted on its commitments to thousands of homebuyers. The Court, taking a strong stance against fraudulent practices in the real estate sector, directed the completion of stalled projects and protected the rights of homebuyers. This judgment is a significant step towards ensuring accountability and transparency in the real estate industry.

Case Background

The Amrapali Group launched numerous housing projects in Noida and Greater Noida between 2010 and 2014, promising possession within 36 months. Homebuyers, after paying a substantial portion of the total consideration (40% to 100%), were left in the lurch as the builder failed to deliver the flats and also defaulted on payments to the Noida and Greater Noida Authorities and banks. The builder also unilaterally revised the dates of possession multiple times. Standard allotment agreements contained clauses that heavily favored the builder, authorizing them to mortgage properties and keep full authority over flats despite full payment by the allottees. The builder also fixed a paltry sum of Rs.5 per square feet super area per month for the period of delay.

Timeline

Course of Proceedings

The Bank of Baroda initiated the Corporate Insolvency Resolution Process (CIRP) against M/s. Amrapali Silicon City Private Limited before the National Company Law Tribunal (NCLT). The NCLT appointed an Interim Resolution Professional (IRP) and declared a moratorium, restricting legal actions against the company. This order directly affected homebuyers of M/s. Amrapali Centurian Park Private Limited. Consequently, homebuyers filed intervention applications in the Supreme Court.

The Supreme Court, in its initial orders, directed the builder to deposit a portion of the dues to the Noida Authorities and allowed flat owners to complete finishing work. The Court also requested the builder to submit a proposal for the completion of all incomplete projects. However, the builder failed to comply with these orders. The Court then directed the freezing of bank accounts of 40 companies of the Amrapali Group and attached properties of the Directors. The Court also recalled the order dated 17.5.2018 and entrusted the project to NBCC for completion.

Legal Framework

The judgment references the following key legal provisions:

• Section 12(1)(c) of the Consumer Protection Act, 1986: This section allows for consumer complaints to be filed before the National Consumer Disputes Redressal Commission (NCDRC).
• Section 7 of the Insolvency and Bankruptcy Code, 2016: This section deals with the initiation of the Corporate Insolvency Resolution Process (CIRP) by a financial creditor.
• Section 53 of the Insolvency and Bankruptcy Code, 2016: This section deals with the order of priority in distribution of assets during liquidation.
• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act): This Act provides a framework for the enforcement of security interests.
• Article 32 of the Constitution of India: This article grants the right to constitutional remedies, allowing individuals to approach the Supreme Court for the enforcement of their fundamental rights.
• Article 21 of the Constitution of India: This article guarantees the right to life and personal liberty.
• Section 8 of the Real Estate (Regulation and Development) Act, 2016 (RERA): This section deals with the obligations of the Authority upon lapse or revocation of registration.
• Sections 13 and 14 of the U.P. Industrial Area Development Act, 1976: These sections deal with the recovery of dues and resumption of land by the Authority.
• Section 4(5) of the U.P. Apartments (Promotion of Construction, Ownership, and Maintenance) Act, 2010: This section deals with the issuance of completion certificates.
• Sections 4(2)(1)(D), 11(4), 19(4)(1), 19(10) of the Real Estate (Regulation and Development) Act, 2016 (RERA): These sections deals with the obligations of promoters, rights of allottees etc.
• Section 49 of the Registration Act, 1908: This section deals with the effect of non-registration of documents.

Arguments

Petitioners (Homebuyers)

• Homebuyers argued that they should not be categorized as ordinary financial creditors under Section 53 of the Insolvency and Bankruptcy Code, 2016, as they are stakeholders who have invested their life savings.
• They contended that Section 53 of the Insolvency and Bankruptcy Code, 2016, is irrational and violates their rights under Article 21 of the Constitution.
• They argued that the moratorium imposed by NCLT directly affects their legal rights.
• They emphasized that real estate businesses survive on the money invested by buyers and that they have a right to obtain houses.
• Homebuyers argued that the Noida and Greater Noida Authorities failed to take action against builders for violations.
• They relied on provisions of section 8 of the Real Estate Regulation and Development Act, 2016 (RERA) and sections 13 and 14 of the U.P. Industrial Area Development Act, 1976 (the Industrial Development Act) for cancellation of lease deeds.
• They also argued that banks have failed to monitor utilization of borrowed funds and acted as mute spectators to the diversion of funds by Amrapali Group.
• They also relied upon the Master Circulars issued by RBI since 2014 regarding the obligations of the banks.
• Homebuyers contended that the authorities cannot seek to recover any additional amount from them.
• They also argued that the land dues of Authorities cannot be treated at par with the dues of homebuyers.
• They also argued that they have paid towards dues of Authorities also which amount has been diverted.
• They argued that banks and authorities have failed to discharge their duties.

Respondents (Amrapali Group)

• The Amrapali Group submitted that they started their activities in 2003 and had delivered over 15,000 flats across various projects.
• They claimed that the delay in projects was due to litigation, land acquisition issues, and force majeure conditions.
• They argued that the Allahabad High Court’s order regarding higher compensation and the National Green Tribunal’s order regarding the Okhla Bird Sanctuary hindered their work.
• They also argued that the authorities were required to give electricity, sewer and water connections.
• They submitted that the projects are viable in case some relief is granted towards land dues of authorities and dues of the banks.
• They also stated that their calculations based on FAR of 3.50 was correct.
• They also contended that the valuation of flats depended upon the situation, etc. as the flats were booked at different times, they have different prices as per the prevailing market.

Noida and Greater Noida Authorities

• The authorities submitted that they had allotted plots to builders by charging a sum of approximately 10% of the premium.
• They contended that they have been diligent in pursuing Amrapali Group.
• They stated that they did not cancel the leases as that would entail demolition of existing structures.
• They submitted that home buyers have no title or legal rights to possession of the flats they are occupying.
• They also stated that the physical possession of flats can be given to home buyers only after execution of sub-lease deed.
• They submitted that their dues to Amrapali group exceeds Rs.2191.38 crores and Rs.3,234.71 crores respectively.
• They also submitted that they had the first charge including those created in favour of banks and financial institutions.

Bank of Baroda

• The bank submitted that they had deployed suitable methods to monitor the utilization of funds and no diversion of funds was permitted.
• They also stated that they had obtained NOC of Noida for mortgaging the project site.
• They contended that home buyers are not secured creditors and have no right, title or interest or lien on the basis of allotment from flat buyer agreement.
• They also stated that the agreement does not create any rights in praesenti with a promise to enter into a future agreement.
• They also submitted that RERA is restricted to protect the rights and interests of the allottees from the promoters and developers.

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the homebuyers could be categorized as ordinary financial creditors?
2. Whether the actions of the Noida and Greater Noida Authorities were in accordance with the law?
3. Whether the banks had followed due diligence in granting loans to the Amrapali Group?
4. Whether the homebuyers should be given possession of their flats?

Treatment of the Issue by the Court

Authorities

Cases Relied Upon

Legal Provisions Considered

Judgment

Treatment of Submissions

Treatment of Authorities

The Court observed that:

• The Court held that the case projects serious kind of fraud.
• The authorities have failed to act as per statutory mandate.
• The authorities have acted in collusion with the builders.
• The authorities have failed to protect the rights of the homebuyers.
• The authorities have illegally permitted the sub-leases of plot of land.
• The authorities have permitted the builders to usurp the money of the homebuyers.

Treatment of Authorities

The Court observed that:

• The Court held that the banks failed to monitor the utilization of funds.
• The Court held that the banks acted as mute spectators to the diversion of funds.
• The Court held that the banks did not obtain clear NOC before creating mortgages.
• The Court held that the banks have failed to ensure that the money was used in the projects.

How each authority was viewed by the Court?

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

Fact:Law Ratio

The Court’s reasoning was based on a combination of factual findings, legal interpretations, and a commitment to protect the rights of homebuyers. The Court was deeply concerned about the large-scale fraud perpetrated by the Amrapali Group, the failure of authorities to act diligently, and the negligence of banks in monitoring funds. The Court emphasized the importance of the public trust doctrine and the need for accountability in the real estate sector. The RERA provisions were also considered to protect the interests of the homebuyers.

Logical Reasoning

The Court considered alternative interpretations but rejected them, emphasizing the need to protect homebuyers and ensure the completion of stalled projects.

The Court’s decision was based on the following reasons:

• The Amrapali Group’s fraudulent practices and diversion of funds.
• The failure of Noida and Greater Noida Authorities to protect homebuyers’ interests.
• The negligence of banks in monitoring the utilization of funds.
• The need to uphold the public trust doctrine.
• The need to ensure that the home buyers are not cheated and deprived of their houses.

The Court quoted the following from the judgment:

“It is a shocking and surprising state of affairs that such large-scale cheating has taken place and middle and poor class home buyers have been duped and deprived of their hard-earned money and lifetime savings…”

“The real estate business has developed and it mainly survived by the money invested by the buyer for the purchase of the house. They have the right to obtain houses.”

“The facts which are projected in the Forensic Auditor Report speaks for itself.”

There was no minority opinion in this case.

Key Takeaways

• Homebuyers are not ordinary financial creditors and are entitled to special protection.
• Public authorities must act as trustees and protect the interests of citizens.
• Banks must ensure that funds are utilized for the purpose they are lent.
• The RERA has to be implemented in its true spirit.
• Fraudulent practices in the real estate sector will not be tolerated.
• The homes must be completed and handed over to the homebuyers.

Directions

The Supreme Court issued the following directions:

• The registration of Amrapali Group of Companies under RERA is cancelled.
• The lease deeds granted to Amrapali Group by Noida and Greater Noida Authorities stand cancelled, and rights vest in the Court Receiver.
• Noida and Greater Noida Authorities shall have no right to sell the flats of homebuyers or the land.
• NBCC is appointed to complete the projects with a commission of 8 percent.
• Homebuyers are directed to deposit outstanding amounts in the UCO Bank account opened by the Court.
• Enforcement Directorate and concerned authorities are directed to investigate and fix liability on persons responsible for fraudulent activities.
• Institute of Chartered Accountants of India is directed to initiate disciplinary action against Mr. Anil Mittal, CA.
• Various Companies/ Directors and other incumbents are directed to deposit the money of home buyers in the Court within one month.
• Central Government and State Government are directed to ensure that appropriate action is taken for similar projects in other States.
• Shri R. Venkataramani, learned Senior Advocate, is appointed as the Court Receiver.
• Noida and Greater Noida Authorities are directed to execute the tripartite agreement and issue completion certificates.
• Water Works Department and the Electricity Supplier are directed to provide connections to homebuyers forthwith.

Development of Law

The ratio decidendi of this case is that the homebuyers are not ordinary financial creditors and are entitled to special protection. This case also highlights that the authorities and the banks are under a duty to ensure that the money of the homebuyers is not diverted and that the projects are completed in a time-bound manner. This case is a significant step towards ensuring accountability and transparency in the real estate sector.

Conclusion

The Supreme Court’s judgment in the Amrapali Group case is a strong message to builders and authorities that fraudulent practices and dereliction of duty will not be tolerated. The Court has taken a proactive approach to protect the rights of homebuyers and ensure the completion of stalled projects. This judgment will have a lasting impact on the real estate sector and is a step towards a more transparent and accountable industry.