Review of the infamous Amrapali Judgment — Bikram Chatterji v. UOI — Supreme Court of India — WP (C ) №940/2017

The present case is a landmark decision by the Hon’ble Supreme Court concerning the real estate industry in India and probably the most awaited one in light of the various difficulties being faced by the home-buyers all over India.

Before the case: The trouble started in April 2013 when raids revealed that Amrapali had completed zero projects from 2009 to 2015. In 2015, 900 families staying in Amrapali housing society claimed that they were not getting water and electricity. In the year 2013, there were Income tax raids on Amrapali group (more than 70 premises) for tax evasion. Even cricketer MS Dhoni quit as brand ambassador in 2016 after people apprised him about incomplete projects on social media.

Case Highlights: The case also dealt with -> Diversion of Rs 2765 cr — violation of Building Norms — Illegal/Unauthorized Development — Real Estate Fraud — Demolition — Lis Pendens.

Background of the multiple cases filed against Amrapali group:

• Project has been undergoing various stages of construction since 2008 which were supposed to be completed within 3 years, are not completed even as on 2019. The Builder said that within 30 months from the date of commencement of excavation/signing of the agreement, plus 6 months grace period.
• Of the 48,000 flats almost 10,000 are complete and buyers have been residing there but common amenities such as clubs, convenient shopping area, parks etc are not ready.
• In 2017, Bank of Baroda, one of the prime lenders to the company, filed an insolvency petition in the National Company Law Tribunal (NCLT) against Amrapali Infrastructure as the company defaulted bank’s loan.
• The Amrapali Group had to pay Rs 3000 cr to development authorities as lease rent for land and Rs. 1000 cr to 10 banks.
• Some of the customers also approached Consumer forum for the delay. Homebuyers ultimately initiated the Corporate Insolvency Resolution Process.
• Meanwhile a writ petition was also filed before the Supreme Court. The Supreme Court after hearing the grievances decided to take cognizance of the petition. Along with the homebuyers, the Banks who had financed the project claimed that their right over the project took precedence over the homebuyers.

Issues:

• Validity of the charge claimed by Authorities, Banks, Homebuyers and Development Authorities
• RERA Registration obtained by Amarapali group is liable to be cancelled.
• Type of Relief that can be provided to homebuyers

Law and Legal Principles applied: Breach of Public Trust Doctrine — This Doctrine under Article 21 of Constitution of India — for Authorities and duty is cast upon them to act fairly and reasonably in order to promote public good and public interest. Application of RERA, Consumer Protection Act, Companies Act etc.

Contention by Home-buyers:

• Money paid by the homebuyers treated at highest priority.
• Authorities are liable to issue OC/CC for various buildings that have been completed or presently been inhabited.
• Authorities have been liberal towards Amrapali group despite violations including non-payment of installations to be paid in the Lease Deeds, despite the fact that all amounts have been realized from the Amrapali Group.
• That not only the Authorities, but the Banks were also very negligent on their part as they gave loans to the Amrapali Group inspite of the facts that no development of the projects had taken place and no diligence of any sort was conducted by the Banks before sanctioning loans to Amrapali Group;
• The Banks after sanctioning of the loans forego all their responsibilities and acted in connivance with the Amrapali Group by turning a blind eye to the illegal diversion of funds being committed by the Amrapali Group;
• The Mortgage Deeds issued between the Banks and Amrapali Group have no sanction under law, because of the fact that they were premised upon conditional NOC’s by the Authorities, which clearly stated that the NOC is valid only if payment of premium and lease rent has been done.
• The RERA Registration of the Amrapali Group over the various projects is liable to be cancelled because of the continuous and persisting delay by the Amrapali Group in completing the projects.

It was contended on behalf of the Banks that:

• They were diligent in their conduct viz-a-viz the sanctioning of loan and all suitable methods were deployed to monitor the utilization of funds post their sanctioning;
• The Mortgage Deed executed between the Banks and Amrapali Group is valid and subsisting and according to the terms thereof, the Banks have charge over the projects till the time the loan amount is repaid;
• The homebuyers are not secured creditors and thus do not have any right, title or interest on the basis of allotment through flat buyer agreement.
• The Public Trust Doctrine is applicable upon the Authorities in the present circumstances and it was the duty of the Authorities to take affirmative action for effective management of the Lease Deeds granted in favor of the Amrapali Group, and the homebuyers are empowered to question its effectiveness;
• The fact that the land of the farmers had been acquired for the purpose of housing and infrastructure needs by the State Government, the Authorities were bound to ensure that builders act in accordance with the objective behind the acquisition of land and the conditions on which allotment had been made;
• The Authorities were very negligent in their conduct and did not take any corrective step against the Amrapali Group even though there were repeated infractions by them. The Authorities not only failed to observe the terms of the Lease Deeds and keep track of the projects, but also permitted the Amrapali Group to execute sub-lease of the projects, thereby allowing Amrapali Group to earn a huge amount without making payment of the amount due to them;
• The Authorities have in collusion with the Banks and Amrapali Group permitted diversion of funds of homebuyers and if contention of the Authorities/Banks with regard to their charge over the projects is accepted, fraud would be committed upon the homebuyers who have been taken on ride for no fault of theirs.
• The conditional NOC issued by the Authorities to Amrapali Group make it evident that the said NOC is only valid in case where full payment of premium has been made and upto date annual lease rent had been paid, however, considering that no such payments were made by the Amrapali Group, no mortgage was created in favour of the Banks over the project properties;
• That not only the Authorities, but the Banks were negligent in their conduct and decided to sanction the loans to Amrapali Group without verifying the conditions of the NOC’s being issued by the Authorities;
• That in light of the present circumstances the principle “fraud vitiates” is clearly attracted and it is the duty of the Court to not only save the homebuyers but also ensure that they are not cheated.
• The provisions of RERA Act have been violated by the Amrapali Group and the reliance by the Amrapali Group on the force majeure provision of the RERA Act is misconceived as the scenarios enumerated by the Amrapali Group is covered under the ambit of force majeure

Actions taken against promoter during the case:

• Coercive directions passed including attachment of bank accounts and immovable properties of developer group of companies and individual bank accounts and properties of Directors/Promoters.
• Accounts of 40 companies of Amrapali frozen.
• In October 2018, the court sent three Amrapali directors, Anil Sharma, Shiv Priya and Ajay Kumar, to police custody after Amrapali failed to hand over balance sheets of 46 companies to auditors.
• AMRAPALI GROUP MD ARRESTED — On February 28, the apex court had allowed the Delhi police to arrest Amrapali group CMD Anil Sharma and two directors on a complaint that home-buyers of their various housing projects were cheated and duped of their funds. The SC had also ordered attachment of personal properties of the CMD as also its directors — Shiv Priya and Ajay Kumar. Amrapali Group committed a “first degree crime” by cheating thousands of home buyers and no matter how powerful the people behind this mess they will be booked and prosecuted, the Supreme Court had said. “Fate is written on the wall” for the group and its directors, the SC had said while declining to hear their claims of no wrong doing.
• FINANCIAL IRREGULARITIES FOUND — The court appointed forensic auditors, Pawan Aggarwal and Ravinder Bhatia, found wide scale irregularities in the financial affairs of Amrapali group and their initial report has suggested that over Rs 3,000 crore of home buyers money. On May 8, the apex court had said it would throw Amrapali out from its properties and transfer its lock, stock and barrel to Noida and Greater Noida. Court has observed that money to the extent of 2765 cr out of the 6 projects in question had been transmitted to other projects and also directed that an escrow amount be opened to deposit Rs. 250 cr

Supreme Court held that:

• Cancelled RERA registration of the project. The RERA Registration of Amrapali Group under RERA Act shall stand cancelled and the various projects shall now henceforth be completed by NBCC (India) Ltd;
• Cancellation of land-lease agreement of Amrapali Group, SC has vested the land rights to the Court Receiver who is authorized to sell, lease out or take all decisions to raise fund to completed the projects The Court Receiver will pay money raised through the aforementioned means to National Building Construction Corporation (NBCC) which will then complete the project with 8% profit margin. The various lease deeds granted in favour of Amrapali Group Authorities for projects in question stand cancelled and all rights shall henceforth vest in Court Receiver (Senior Advocate, Shri R. Venkataramani);
• The Authorities and Banks shall have no right to sell the flats of the home buyers or the land leased out for the realization of their dues and all their dues shall have to be recovered from the sale of other properties of Amrapali Group which have been attached;
• The right of the lessee shall vest in the Court Receiver (earlier with the Amrapali Group) and he shall execute through authorized person on his behalf, the tripartite agreement and do all other acts as may be necessary and also to ensure that title is passed on to home-buyers and possession is handed over to them;

Aftermath to the SC judgement: Raising funds has been tough. The Court Receiver is calling out all the buyers to pay their dues. No deadline given, Court Receiver’s priority was on raising the money first. Regarding siphoning large amounts of money, the court has ordered the ED to register money laundering cases against the MD and chairman.