Amrapali case: SC directs banks to restructure loans given to homebuyers despite accounts being declared NPA

Supreme Court of India

To ensure that substantial funds are generated and construction of unfinished housing projects by the embattled Amrapali group is expedited by NBCC, the Supreme Court on June 10 directed banks and financial institutions to restructure the loans given to homebuyers. It also ordered that the Noida Authority cannot charge an exorbitant rate of interest from builders for the delay in lease payment, capping the same at 8 percent.

The SC court bench headed by Justice Arun Mishra bench also granted National Buildings Construction Corporation (NBCC) immunity from any legal actions and being made a party in litigations saying it has been asked by the top court to complete the incomplete projects of Amrapali Group.

The apex court directed banks and financial institutions that had declared home loans taken by buyers as non-performing assets (NPAs), to release and restructure the outstanding amount due to the Amrapali homebuyers as per RBI’s guidelines. The amount would then be used to complete the construction of stuck housing units.

“…as projects have been stalled for the last several years, the home buyers have obtained loans but cannot enjoy the fruits of their investment. At the same time, if projects are not completed and homebuyers are not sure of handing over of flats, it would be difficult for them to pay bank dues till eternity and it is in the interest of home buyers as well as banks and financial institutions as they can recover the money when projects are completed in an effective manner,” the bench said in its order.

“We direct the banks and financial institutions to release loans to home buyers, whose loans have been sanctioned, notwithstanding the fact that their accounts are declared as NPAs. Let there be restructuring of the loan amount. It may be released under the current norms of the RBI for releasing loans and the rates fixed by the RBI therefore,” the order said.

The bench said that the disbursement of further loans may be based on the present rate of interest fixed by the RBI. “This we order in the peculiar facts of the case. 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,” it said.

The top court's order came on an application filed by court receiver senior advocate R Venkataramani, who has been appointed as a custodian of properties of the Amrapali Group after its registration was cancelled by the Supreme Court last year for siphoning of homebuyers’ money. The RBI had informed the court earlier that its instructions do not come in the way of releasing homebuyers' loans whose accounts are NPA and it was for the banks and other financial institutions to release the loan.

“The sanctioned loans to Amrapali homebuyers were not being released as no demand was being raised by the builder as construction had come to a grinding halt. Homebuyers too had stopped paying due to which these accounts had since been declared NPAs. The court has ordered that banks release these sanctioned loans to Amrapali homebuyers,” Kumar Mihir, advocate, told Moneycontrol.

More than 40,000 homebuyers who had invested in various Amrapali projects more than eight years ago and are yet to receive possession of their homes.

NBCC granted immunity from any legal action

The bench made it clear that NBCC is not responsible for attending to queries made by the home buyers and the government-owned company has to report the progress to the court receiver, and it is he who would put progress reports of projects on the blog/website.

“NBCC is asked by this Court to complete the incomplete projects. It is not liable for any legal action. In view of the order that has been passed by this Court, the NBCC is immune from any such actions, and we request the Courts/ Consumer Redressal Commission and other authorities not to permit impleadment of NBCC as respondent and not to issue summons to NBCC as they are doing the work under the supervision of this Court and are not answerable to any other court, tribunal, authorities,” the order said.

Rate of interest for delay in payment by builders capped at 8 percent

In a major relief to builders and the sector as a whole, the Supreme Court also said that the Noida Authority cannot charge a high rate of penal interest from builders for the delay in payment and capped the rate of interest at 8 percent.

The court has also capped the penal interest being charged by Noida Authority at 8 percent. It was earlier charging almost 16 percent as interest and penal interest on the lease amount from builders.

“Considering the current state of real estate, the projects are standstill, and in order to give impetus to such housing projects and mainly considering the plight of home buyers and as pointed out by Noida and Greater Noida Authorities that 114 plots were allotted from 2005 onwards, most of the projects are incomplete; we 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 let the Noida and Greater Noida Authorities do a restructuring of the repayment schedule so that amount is paid and Noida and Greater Noida Authorities are able to realize the same,” the court order said.

In case of failure to pay, the concession granted shall stand withdrawn. However, at the same time, the Noida and Greater Noida Authorities shall also ensure that not only installments/money are deposited, but also all such projects are completed within the stipulated time, the order said.

The SC court bench headed by Justice Arun Mishra, also said that the Noida and Greater Noida authorities would have to submit a schedule in court on the amount they would require at one go.

"Homebuyers cannot enjoy the fruits of their investment," he said.
Court receiver allowed to sell unused Floor Area Ratio (FAR)

The apex court also allowed the sale of balance floor area ratio (FAR) through the court receiver. Permission to deal with the sale of FAR and other properties of Amrapali was sought by the court. This is to garner funds for the construction of stalled projects.

The court said that the unused floor area ratio shall be 2.75 and not 3.5 and added that if there is an increase in FAR, it shall be decided by the authorities, namely Noida and Greater Noida.

The top court said that if a surplus amount of money remains after completion of stalled Amrapali projects, then appropriate orders can be passed to release the outstanding amount to Noida and Greater Noida authorities.

The top court also refused to grant relief to Royal Golf Link Project Pvt Limited, which was given Rs 48.52 Crore by Amrapali Group after diverting homebuyers' money for the construction of 30 premier villas and asked the firm to deposit 12 percent interest, failing which appropriate action will be taken.

The next date of hearing is on June 17.

On June 3, SBICAP Ventures that manages the government-sponsored Rs 25,000 stressed asset fund, had informed the Supreme Court that it would create a Special Purpose Vehicle (SPV) with the court receiver and would appoint a Chief Executive Officer (CEO) to take over the construction of seven stalled projects in Noida and Greater Noida.

The court receiver, senior advocate R Venkataramani, had also informed the court on June 3 about UCO Banks’s inclination to be part of arrangement proposed by SBI Caps and enter into joint funding. UCO Bank has expressed interest to finance Rs 2000 crore in lieu of the unsold inventory of around 5000 units as a mortgage.

The Supreme Court had also directed multi-national firm JP Morgan to deposit Rs 140 crore. The money was paid for by the homebuyers and was allegedly siphoned off as per the forensic auditors' report and last year's order in the case.

Cracking its whip on Amrapali Group, the Supreme Court in July last year had ordered the cancellation of Amrapali Group's registration under real estate law RERA and ousted it from its prime properties in the NCR by nixing the land leases. It had ordered a probe by the ED into allegations of money laundering and to look into the charge of FEMA violation by JP Morgan.

The top court had also termed the sequence of events in the Amrapali group a "shocking and surprising state of affairs" where such large-scale cheating has taken place and middle and poor class home buyers were duped and deprived of their hard-earned money.

It had directed the state-run NBCC to complete the stalled projects of the Amrapali Group, whose directors Anil Kumar Sharma, Shiv Priya and Ajay Kumar are behind bars on the top court's order.