Supreme Court on Amrapali – Perils of a Piecemeal Approach to Justice

Posted On - 28 August, 2019 • By - Rajesh Sivaswamy

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With no end in sight to the number of real
estate bankruptcies in the country, the Hon’ble Supreme Court has been perhaps
the only beacon of light to home buyers who have been embroiled in a quagmire
of litigations desperate to see light at the end of the tunnel.

A case on point is the recent judgment of the Hon’ble Supreme Court of India on July 23, 2019 in Amrapali case, where the court has cancelled the registration of the Amrapali Group of Companies (Amrapali) under the Real Estate Registration Act (RERA) and has anointed the National Building Construction Corporation Limited (NBCC) to supervise and complete unfinished projects of Amrapali and hand over possession to the buyers at a fixed rate of 8% as commission. The Court through an order dated August 26, 2019 transferred an amount equivalent to INR 7.16 crores approx. as project management fees into the account of the NBCC.  While this order may come as a breath of fresh air to home buyers, it throws up several questions that require careful deliberation. 

The Supreme Court has taken a clear stand
in favour of home buyers and has shown contempt and disdain to real estate
firms who have been tardy with timely completion of projects. We should expect
more of such judgments on similar lines involving other realty firms. The
Supreme Court has already demonstrated this intent in another matter where it
dismissed a plea by a number of real estate firms who challenged the elevated
pedestal that has been accorded to home buyers designating them as ‘secured
creditors’ under the Insolvency and Bankruptcy Code.

Though the task of completion of pending
projects of Amrapali has been given to the NBCC with the noblest of intentions,
NBCC by itself may not be the white knight that can salvage the systemic rot
that has crept into the real estate sector. NBCC is a Government of India
enterprise which was established in 1960 under the erstwhile of the Ministry of
Housing and Urban Affairs, Government of India and primarily deals with
construction projects. To its credit, the NBCC has posted substantial growth
since its inception and its revenue in the financial year 2018-2019 crossed the
INR 10,000 crores mark contrasted with the revenue in the financial year
2002-2003 which was less than INR 500 crores.

Despite these accomplishments, the task
before the NBCC is daunting. Approximately 42000 homes are to be handed over to
ultimate buyers after the completion of the project by NBCC. The overall value
of the stalled units is estimated to be more than INR 1.77 trillion. With a few
more projects like Jaypee on the horizon, one feels that the challenges that
the NBCC faces will go up incrementally.

On a purely legal evaluation, there is no
legal recourse to the home buyer in the event of further delays to the projects
on account of the procedures and the sheer enormity of the tasks. The home
buyer also has limited legal remedies in terms of the agreements which have
been executed with the developer. Questions surrounding the overall quality of
the construction as well as the delays remain unanswered and it is quite
obvious that the home buyer is taking a haircut here.

To assuage concerns surrounding financial
viability, the Hon’ble Supreme Court of India has ordered the Noida and Greater
Noida authorities that any dues proposed to be recovered from Amrapali shall be
undertaken through the attachment of other properties belonging to the
promoters.  It is not clear if these properties will in any way suffice
the amounts to be recovered. It is also contemplated that a tripartite
agreement would be executed post completion of the project between the home
buyer, Noida or Greater authorities and NBCC. The Supreme Court has assured
home buyers that it will personally supervise compliance of this order and
directed them to deposit their balance sale consideration and all the money
owed to the Amrapali Group to be submitted to the Court and to be maintained in
an escrow account, which shall be utilized by the NBCC for completion of the

Despite these measures, treating the NBCC
as a panacea for all evils that plague the real estate sector may not be the
right view. The RERA which was heralded as a revolutionary step in augmenting
the real estate space providing guiding principles for governance has been
rendered as a toothless tiger in many states with multiple state amendments and
ineffective implementation. It is high time that the legislature of states also
takes a re-look at the changes made to the RERA with the intent to bring back
the efficacy that the legislation was originally intended. With the
deteriorating health of the real estate industry, banks have become averse to
lending to a sector which was, till a few years back, the hot cake of the
financial world.  It is necessary to
bring back some semblance of normalcy by ushering reforms in the lending
process and adopting procedural safeguards which will balance the interests of
lenders and real estate firms. A holistic view of reforms in the real estate
sector requires amongst others transparency in (I) land records making it
available digitally, (II) land procurement process, (iii) reform in procuring
registrations and permits. Unless such a holistic process is adopted and
implemented by the state legislatures along with the banking and finance
industry, the average home buyer will have to be satisfied with a piecemeal
approach for justice.

Contributed By – Rajesh Sivaswamy
Designation – Senior Partner

King Stubb & Kasiva,
Advocates & Attorneys

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