SUPREME COURT RULES IN FAVOUR OF HOMEBUYERS IN LANDMARK AMRAPALI CASE
- Chadha & Chadha, Law Firm
- Jun 12, 2020
- 6 min read
The Supreme Court in Bikram Chatterji & Ors. v. Union of India & Ors. on June 10, 2020 ordered the banks and financial institutions to restructure loans of the homebuyers despite their accounts being declared as NPA. Additionally, the Noida and Greater Noida Authorities cannot charge exorbitant rate of interest from builders/developers for the delay in lease payment while putting a cap of 8% to the same.
Background
The write petitions pertain to the projects of various companies of Amrapali Group (hereinafter, “the Group”) in Noida and Greater Noida. In 2011 in Noida and Greater Noida various real estate projects for housing had started and the Group proposed to construct approximately 42000 flats. According to the various brochures that were published, it was assured that the delivery of possession shall be made in 36 months among other things. Various buyers booked their apartment between 2010-2014 and signed the Standard Form of Allotment-cum-Flat Buyers Agreement and even after payment of 40-100% consideration, they were faced with the threat of forfeiture of huge booking amounts. Under clause 14 of the agreement, the builder authorized itself to finance loan from any financial institution by way of mortgage/charge/securitization of receivable of the land and flats and the allottees will have no objection in this regard. Clause 15 also authorized the builder to keep full authority over the flat depriving the allottees of any lien or interest despite payment of entire amount thereof. [1]
The Group was taken to court by more than 2500 homebuyers for defaulting on delivering homes. Since then, there has been a long-drawn litigation between homebuyers as well as the Group. During the process, a number of parties were also impleaded, most of them banks or financial institutions as and when the mater required as such.
The court directed for the forensic audit[2] of its accounts. In 2018, it directed the Debt Recovery Tribunal to sell the unencumbered commercial properties of the real estate firm. The proceeds would go to the government-run National Buildings Construction Corporation Ltd (NBCC) that would take over and complete the company’s stalled projects.
Since then, over a passage of two years and multiple Court hearings, involving all necessary parties, the Supreme Court on June 10, 2020 released an order. [3] The Highlights of the same are mentioned below:
I. In the matter of NBCC
The NBCC was also a party by different homebuyers to seek reliefs such as refund of amounts they have paid to the Amrapali Group or for grant of possession of flats, etc.
Court - The NBCC was asked by the Court to complete the incomplete projects. It is not liable for any legal action. They are granted immunity to be sued in any other court or commission, and they are answerable to this Court only in the pending proceedings. Thus, they cannot be dragged in litigation filed by existing homebuyers, previous contractors, co-developers, landowners, banks, financial institutions, other lenders and creditors, and any Government authorities before any Court/Commission or Authority.
II. Application by Royal Golf Link City Projects Pvt Ltd.
In an earlier order, the Court had ordered that a sum of INR 48.52 Crore (USD 64,95,838), which was the principal amount received by Royal golf Link City Projects Private Limited from the Amrapali Group to be repaid along with 12% interest by January 1, 2020 and the attachment of 30 villas was to continue unless otherwise ordered. This Court directed that 25% of the amount be paid by 30.10.2019, 30% by 30.11.2019, and the remaining amount on or before January 1, 2020.
The present application has been filed to modify the earlier order, in the sense that the sum of INR 48.52 Crore (USD 64,95,838) has been deposited, however the deposit of 12% interest is difficult.
This is also because due to litigation, the goodwill of the project has been severely affected and construction work slowed due to lack of funds.
Court - It has ordered a reasonable interest rate of 12%, since the diverted money belonged to the homebuyers, they must get a refund with a reasonable rate of interest. That the hardships by the company are commercial by nature. Additionally, the company is bound to disgorge the advantage it received out of huge money of INR 48.52 Crore (64,95,838 USD), which remained with it for a substantial period, else it would be a case of unjust enrichment.
Interest to be deposited in 6 weeks, failing which appropriate action would be taken for violation of undertaking furnished by the Chief Financial Officer and the Directors and for violation of the order passed by this Court.
III. Release of FAR to the Noida and Greater Noida Authorities
The Noida and Greater Noida Authorities filed applications for issuance of direction for return of unused FAR (Floor Area Ration). Both authorities have pled for the release of FAR of about 98,445/77 sq. mtrs.
Court – Find no justification in the prayer made by the 2 authorities to release the FAR which was available to the erstwhile Amrapali Group of Companies, and all the rights of the builders are now vesting in the Receiver who is now allowed sale of balance FAR to generate more funds that can be used to complete projects. Thus, the two applications are rejected.
IV. Financing of Home Buyers by Banks
The Court appointed Receiver submitted that the Reserve Bank of India may be directed to advise all banks and financial institutions such as insurance companies, and employers of the establishments which have sanctioned home loans to home buyers to disburse all balance loan amounts to the home buyers whose accounts are regular and they will abide by instructions issued by Receiver in this regard.
It was clearly stated that RBI instructions do not come in the way of releasing home buyers’ loans whose accounts are NPAs. It would be for the banks and other financial institutions to release the loan. Once directions are issued by this Court, the RBI guidelines would not come in the way in the facts of the case. However, it would be in a phased manner and as per the stage of construction, they would be releasing the loan to the particular home buyer.
Court - Direct the banks and financial institutions to release loans to home buyers, whose loans have been sanctions, notwithstanding the fact that their accounts are declared as NPAs. It may be released under the current norms of the RBI for releasing loans and the rates fixed by the RBI therefor. The disbursement of further loans may be based on the present rate of interest fixed by RBI. It may be released stage-wise and long-term restructuring of the loans may be done so that construction is completed and buyers are able to repay the loan.
V. Interest to be realized on the outstanding dues by Noida and Greater Noida Authorities
The real estate sector has borne the brunt following economic recession in the last decade leading to acute financial crunch. It is submitted that the developers and the home buyers both are adversely affected due to non-delivery of booked flats in the regions of Noida and Greater Noida and the current lockdown situation due to coronavirus is worsening the situation.
It was prayed before the Court that there should be a complete waiver of interest component in the repayment of land dues of Noida and Greater Noida Authorities, and payment schedule towards lease rent and premium may be extended. In light of the COVID-19 crisis and the problems in procuring material and displacement of labourers, the timeline for completion of projects may be deferred by one more year.
Court - Direct that rate of interest on the outstanding premium and other dues to be realized in all such cases at the rate of 8% per annum and for Noida and Greater Noida Authorities to do a restructuring of the repayment schedule so that amount is paid and the authorities are able to realize the same. In case of failure to pay, the concession granted shall stand withdrawn. However, at the same time, the Authorities shall also ensure that not only instalments/money are deposited, but also all such projects are completed within the stipulated time.
Conclusion
The latest order by the Court comes in as a huge relief to the homebuyers who have been fighting the case for a long time to no avail. The judgment is a landmark in the real estate sector with litigation spanning over half a decade. The Court stressed on “homebuyers not able to obtain fruits of the investment and are deprived of legal title of the flats” while delivering a favorable judgment. Additionally, by fixing the interest rate at 8%, it saved the builders and developers from paying huge amounts to authorities for delay in lease payments. It will go a long way in the real estate market.
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