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Despite the long wait, the insolvency process has made a difference to 1,400 buyers of SARE Homes in Gurgaon

After work on the project stopped in two phases in 2017 and in the entire project two years later, the buyers knocked on the doors of every legal forum – the National Consumer Disputes Redressal Commission of India (NCDRC), the Haryana RERA, and the NCLT.

The initiation of insolvency proceeding against the developer appears to be the only recourse that has come to the rescue of the SARE HOMES homebuyers.

The initiation of insolvency proceeding against the developer appears to be the only recourse that has come to the rescue of the SARE HOMES homebuyers.

Praveen Malik, president of the resident welfare association of SARE Homes in Gurgaon who now takes care of the facilities and day-to-day operations, was among those who had booked an apartment in the project back in 2009.

When he finally received possession of his flat in 2014, after a delay of almost two years, it was far from ready – the common utilities were yet to be completed.

“We took possession of our flats in 2014. While the possession was slightly delayed, we were confident that the entire project would be delivered on time as it was a foreign direct investment-backed project,” Malik told Moneycontrol.

About eight years since then, the homebuyers have some clarity: the insolvency proceedings initiated against the developer have given them the hope that their homes will finally be completed by a third-party developer.

Colonel More, a retired defence officer, bought an apartment on the 11th floor in the resale market in 2013 and paid about Rs 70 lakh, of which Rs 45 lakh was through a home loan. The apartment was in a tower that was about 96 percent complete. However, work stopped in 2017.

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In 2018, the realtor offered to give possession to More on the basis of a fit-out certificate, which he accepted. More was hoping the builder would keep his promise of providing functional lifts, water connection and other common facilities. But that was not to be. More continues to pay both EMI and rent.

“We could not shift into the apartment because the unit was located on the 11th floor and the lifts were not functional,” he said.

His hope now rests on the consortium that is set to take over the project and get the lifts and other infrastructure into place in the next few months so that he can finally shift into his apartment.

Today, common amenities such as the boundary walls, gates, and club facilities are yet to be provided, but the buyers are no longer in the dark. They are confident that the housing complex will finally be completed because the  National Company Law Tribunal (NCLT) is set to approve the name of the successful applicant to take over the project from SARE Gurugram, the developer.

A consortium of KGK Realty and Dhoot Infrastructure Projects got the most votes from SARE Gurugram’s financial creditors, under the Insolvency and Bankruptcy Code in December 2021.

Assets Care and Reconstruction Enterprise (ACRE), Alchemist Asset Reconstruction Company and Bank of India are the financial creditors. Ajit Gyanchand Jain is the resolution professional of SARE Gurugram, overseeing the company’s affairs during the proceedings.

The next NCLT hearing is scheduled on September 23, 2022.

The project

The SARE Homes project started in 2009. It was to comprise apartments ranging in size from 1,200 to 1,500 square feet, priced from Rs 30 lakh to Rs 50 lakh for phase 1 and 2. The rest were priced at about Rs 70 lakh to Rs 1.5 crore each.

Original equity funding for the company, which was to develop the 65-acre township, came from SARE Cyprus. The company later raised debt from KKR and Altico Capital, which subsequently sold their loans.

There are 800 apartments in Phase 1 and 2 (Royal Park Floors) for which occupation certificates have been received and more than 750 families currently live there.

Phase 3 comprises 825 units spread across 13 towers, of which only towers 1 to 5 have received occupation certificates. About 275 families currently reside in this phase. As many as 511 units have not yet received possession certificates.

Phase 4 has 597 units spread across eight towers. Buyers are yet to receive possession of these apartments. Phase 5 comprises 275 units spread across three towers. While the structures of all these towers are ready, some finishing work/refurbishments are pending. Phase 6 is still a greenfield plot.

Among the first tasks for the new developer that comes in to complete the project will be the renewal of the group housing licence.

“The moment the licence is renewed, these units will be delivered and then the occupancy formalities can start,” says Malik.

Licences for group housing projects are renewed in Haryana every two years. The initial licence was given in 2008 and it has been renewed several times.

The new developer will simultaneously seek renewal of the environmental clearance and the consent of the pollution board. After these approvals have been received, the new developer will have to apply to the Real Estate Regulatory Authority for a fresh registration number. The first two phases of the project were delivered before the RERA came into being.

The company collected Rs 2,000 crore from prospective buyers who invested their own money and took loans, which they continue to repay. For more than 1,400 buyers, the wait has been long.

Legal route

After work on the project stopped in two phases in 2017 and in the entire project two years later, the buyers knocked on the doors of every legal forum – the National Consumer Disputes Redressal Commission of India (NCDRC), the Haryana RERA, and the NCLT.

The phase 3 buyers approached the NCDRC, seeking compensation for the delayed possession of their flats and got a ruling in their favour. However, the compensation was not paid because there were no directors in the company at that time and a case had been filed before the NCLT.

HARERA issued a preliminary injunction allowing the homebuyers under the Association of Allottees (AOA) to take over the SARE Homes project in Sector 92. The regulator passed the order based on a mitigation plan submitted by the project’s monitoring consultant, Vineet Relia, a former managing director of SARE Homes Project Services, a project management company.

The monitoring consultant was appointed by the Authority in January 2020 to assist it in the absence of any directors from the parent company.

According to the HARERA order, the AOA has to approve the plan and directly supervise the construction and completion of the project. It indicated that all future claims and financing would first be used to complete the project and that creditors will have a right to recover their money only after the completion of the project.

However, the association is said to have rejected the plan because they did not want any member of the former management to represent them.

Current status

The initiation of an insolvency proceedings against the developer appears to be the only recourse that has come to the rescue of the homebuyers.

The potential new owners of the development, the consortium of KGK Realty and Dhoot Infrastructure, outbid five other contenders – realty companies Alpha Corp and Signature Global and high net worth individual investors Nikhil Jain, Sunil Kumar Jain and Summer Nanda.

The consortium committed Rs 20 crore as working capital and for the remaining Rs 150 crore needed, it is exploring tapping the SWAMIH Fund, set up by the Central government to help complete over 1,500 stalled housing projects, including those that have been declared non-performing assets or have been admitted for insolvency proceedings.

Additionally, receivables from homebuyers are due, people in the know said, adding that unallotted inventory will be sold.

The consortium is in the process of renewing the Directorate of Town and Country Planning (DTCP) licence and getting fresh environmental clearances. A sum of more than Rs 3 crore has already been deposited, a person aware of the matter said.

“We’ve deposited the requisite fees for the renewal of licences with DTCP, Haryana, and are expecting renewal of licences shortly,” said Piyush Dhoot, CEO of the Dhoot Group. “We’ve started work on phase-3 and phase-4 units where handing over of flats has already begun and more flats are scheduled to be handed over every week.”

He said the company is in touch with HARERA and will be applying for registration once the licences are renewed.

“We’ve already brought in the required money as per work requirement and discussion on construction finance from SWAMIH fund is in progress,” he said.

Problems plaguing the project and case progress

According to executives from the former management who spoke to Moneycontrol on condition of anonymity, the main reason for the delay in the project was the increase in SARE Gurugram’s outstanding liabilities to Rs 103.30 crore in 2016 from about Rs. 86 crore in 2015.

In order to accelerate construction and deliver the apartments on time, SARE Gurugram borrowed Rs 100 crore from Altico and KKR India Asset Finance.

However, around this time, the real estate market took a downturn and several allottees allegedly stopped making payments that were linked to construction milestones, they said.

“Work stopped in 2017. The main reason was that allottees stopped making payments. Most of them had booked units way back in 2013 at a price of around Rs 6,200-7,000 per sq. ft. The market started declining and in 2015, prices of these units in the secondary market dropped to Rs 3,000 per sq. ft., due to which buyers stopped paying and the outstanding from customers touched Rs 89 crore in 2014-2015,” the executives said.

The other factor that led to the financial crunch for the company was a court injunction that restrained the SARE Group from raising fresh capital or taking on a new loan from a financial institution, hindering its ability to bring in additional funding for completing the project.

Timeline

2009 – Project starts

2017 – Work on phases 3  stops

2017 – Some buyers approach consumer court

2019 – Work on the entire project stops

2019 – Some buyers approach real estate regulator

2020 – Financial creditors initiate insolvency proceedings against SARE

2021 – Company admitted into insolvency

2021 – Creditors approve bid by KGK Realty-Dhoot Infrastructure Consortium

2022 – Insolvency court set to approve successful bidder; next hearing Sept. 23
Vandana Ramnani
first published: Aug 4, 2022 04:59 pm
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