Builders may have to pay land dues to Noida, Greater Noida Authorities at a higher rate

The Supreme Court of India. (File image)

In a setback to real estate developers in Noida and Greater Noida, the Supreme Court on November 7 recalled its June 2020 order that had directed the authorities to cap the rate of interest at 8 percent for the delay in payment of land dues by real estate firms to authorities.

The Authorities have termed the order as a ‘big victory’ while developers have expressed their disappointment over the order. Homebuyers said that they want registration of their homes to begin.

This means that the builders would have to pay dues at an increased rate set by the Authorities.

The earlier SC orders had capped the interest rate at 8 percent. The Supreme Court also made it clear that the Authorities would have to recalculate the dues of all the builders except that of the Amrapali case.

The November 7 order is awaited.

It should be noted that the apex court had capped the rate of interest for delayed payment by builders to the authority at 8 percent and linked it to the SBI MCLR (Marginal Cost of Funds based Lending Rate) in June 2020 but according to the terms of agreements between the builder and the Authority, the rate of interest for delayed payment was pegged at 15-23 percent.

According to Kumar Mihir, Supreme Court lawyer, following this order, the authorities will have to rework in terms of the communication dated June 9, 2020. The June order had said that prospectively the authority will charge 1 percent more than the MCLR rate and in case of any default an additional 3 percent penal interest every six months. This means that if a builder’s liability stood at Rs 14 crore considering that the 2020 orders continued, the same will now go up to Rs 25 crore after the November 7 order.

The Supreme Court bench on November 7 also said that the issue of Floor Area Ratio (FAR) will be heard by the new bench since CJI U U Lalit, who is heading the bench, will be demitting office tomorrow.

Noida Authority terms it a ‘big victory’

It should be noted that the interest rate order is in response to the review petition filed by Noida and Greater Noida Authorities three years ago.

Ritu Maheshwari, CEO, Noida Authority who also holds the additional portfolio of Greater Noida CEO, told Moneycontrol that it is a ‘big victory.’ “The apex court has accepted our plea and vindicated the stand taken by authorities that the dues are correct and that they should be paid. It is a big victory. Almost Rs 10,000 crore is due from developers, if we exclude matters in the Supreme Court and around Rs 19,000 crore if we include Amrapali and Unitech cases. These would have been lost had the review been rejected,” she added.

The authorities were awaiting this order for the last two years and could not ask for dues as per their calculation. “Henceforth, stringent action will be taken against developers who do not pay up their dues. We also have the authority to cancel their lease. Registries were not stopped per say, they are linked to the payment of dues and construction and adherence to norms. Wherever total dues or flat wise dues are being paid, registries are taking place,” she said.

She pointed out that if the developer still does not pay, “we can reschedule, we can ask them to pay in installments within two years. All these schemes are available. A builder can also pay dues flat wise against which proportionate occupancy certificates can be issued. Builders were not coming forward for the past two years saying that the dues cited by us were incorrect but now they have to pay up.”

Asked what the Authority will do in case there were a spate of insolvencies going forward, she said that “we will be taking coercive action cancellation. Having said that, we cannot close the doors of the court for them but we need to make our enforcement mechanism stronger.”

Builders express disappointment over the order

Today’s order of the Supreme Court on the Review Petition filed by Noida Authority is disappointing. Developers were hoping a favourable order from the Apex Court confirming its earlier order directing interest rate at SBI MCLR on delayed payments by Real Estate Developers, said R K Arora, chairman, Supertech Group and president, NAREDCO.

State governments like Haryana and Rajasthan have voluntarily reduced interest rate upto 75 percent in order to revive stalled real estate projects and U.P. Government should also consider allowing similar relief keeping in view various interruptions in construction like stay order due to land acquisition disputes, suspension of construction by NGT as also the impact of COVID-19, he added.

We want registries to begin: Homebuyers

Homebuyers said that their main concern was getting their homes registered. “All buyers have paid up their dues. In case of delay in payment, builders charge us 18-24 percent as delay penalty. They have imposed levies such as farmers’ compensation, escalation charges. “Builders should also similarly be made to pay up. Authorities should cancel their lease if they do not pay up,” he said.

The back story

The bench of CJI Lalit and Justice Trivedi had on November 2 reserved its verdict on the issue of the sale of unused FAR of Amrapali Group to generate funds for its stalled projects. The bench has been hearing an application for the sale of unused available space in Amrapali projects to fetch funds of around Rs 1,500 crore.

In its order in June 2020, the apex court had said there was a need to "give impetus" to the real estate sector and relief should be granted to builders as many of them were struggling to survive due to the slowdown in the economy and the Covid-19 pandemic. The court had said that charging a reasonable rate of 8 percent would enable builders to complete their projects. The court had passed the order on a plea of Ace Group of companies, which had alleged that several of its projects had been stalled on account of the high lease rent, penalty and interest charged by the authorities.

Both the Noida and Greater Noida Authorities had claimed that they would lose around Rs 7,500 crore due to a cap on the rate of interest. They had submitted that they would be "ruined" financially if the order is not recalled and it would lead to "unjust enrichment" of builders. As per their responses in the court, Greater Noida Authority would lose around Rs 4,279 crore and Noida Authority would have to forgo Rs 3,266 crore. The court had in November last year reserved its order on a recall plea of the authorities.

ALSO READ: Amrapali case: Authorities say they would suffer losses of over Rs 7,500 crore if SC does not recall interest rate cap order

More than 2 lakh apartments in Noida, Greater Noida and the Yamuna Expressway regions have been handed over to homebuyers but are yet to be registered on account of this issue.

NBCC has been given approximately Rs 3,000 crore and it has completed around 11,000 Amrapali flats, out of which 5,000 flats have been handed over and around 26,000 are yet to be constructed.

During the hearing held on November 2, senior advocate Sidhartha Dave, appearing for NBCC, said, “When the project was entrusted to us, we had over 46,000 flats to complete. So far we have handed over possession of 4,981 units and 6,877 more flats are complete but require external services, such as electricity, water, etc.”