MC Explains: What the NCLT order means for homebuyers at Lavasa Hill Station?

The NCLT has approved three options in the resolution plan of Lavasa Hill Station for the homebuyers including paying future construction cost, exiting or self constructing.

The National Company Law Tribunal (NCLT) has approved the sale of Lavasa, India's first private hill station, for around Rs 1,800 crore to Darwin Platform Infrastructure Ltd (DPIL), resolving the concerns of hundreds of purchasers and lenders.

However, homebuyers will have to either take a haircut of as much as 60 percent of what is due to them or pay for future construction costs, according to the two option offered under the resolution plan.

The company taking over the project has given total three options to homebuyers for ensuring their concerns are dealt with, including that of self-construction.

Background

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Special Correspondent|Moneycontrol

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In August 2018, the NCLT had admitted a plea filed by operational credtors who initiated the corporate insolvency resolution process against Lavasa Corporation under the Insolvency and Bankruptcy Code.

Lavasa Corporation was promoted by Hindustan Construction Company (HCC) as the entity to develop a large township spread over 10,000 hectares at the Mulshi valley in the Western Ghats near Pune in Maharashtra.

Lavasa was initiated as per Maharashtra's government policy and regulations for new hill stations as India's first privately built smart city.

In August 2018, HCC had said the project was severely affected by an environment ministry notification to stop work for jurisdictional reasons and not for environmental infractions. This had a cascading effect and the company eventually defaulted on payments to lenders. One of its creditors, Raj Infrastructure Development (India) Pvt. Ltd, then moved the NCLT.

Following the insolvency proceedings, the committee of creditors in December 2021 approved the takeover of Lavasa Corporation by Mumbai-based DPIL. The resolution plan submitted by DPIL received 97 percent of CoC votes, where 60 percent would have been enough.

Also read: Explained | The Lavasa Township case, issues plaguing the project, and more

Resolution plan  

The NCLT in its order dated July 21, 2023, approved a resolution plan of Rs 1,814 crore that will be paid to the lenders and claims of homebuyers to be settled thereon.

The NCLT has approved the resolution plan to return the money to lenders in tranches and in context of homebuyers, the NCLT order has stated that resolution plan envisages the delivery of fully-constructed properties to financial creditors (homebuyers) within a period of five (5) years from the receipt of the Environmental Clearance on an actual cost basis.

"It is proposed that the Homebuyers shall pay actual future construction costs to the resolution applicant towards obtaining constructed properties in the project," the NCLT order said.

Apart from proposing actual delivery of constructed apartments, the resolution plan also has provided the homebuyers with the alternatives of exiting the project or self-construction.

What is the exit clause?

According to the NCLT order, the exit clause approved is such that for homebuyers who do not wish to continue and wait for delivery for the fully-constructed property as proposed, the resolution plan envisages a full and final settlement by payment of 40 percent of their entire admitted claims within 24 months of the receipt of the environmental clearance for Phase 1.

Further, the NCLT has said that homebuyers can undertake self construction of their properties entirely at their own responsibility/accountability, costs and expenses.

What about claims due to MahaRERA order?

"Further, for homebuyers who have terminated contracts under RERA (cumulating to Rs 9.33 crore), the resolution plan proposes a resolution of the amounts ordered by the MahaRERA (Maharashtra Real Estate Regulatory Authority) under individual cases by way of payment of Rs 4.037 crore within 24 months from the effective date," the NCLT order said.

RERA stands for Real Estate (Regulation and Development) Act.

Also read: Delayed possession: 1,015 recovery warrants worth Rs 623 crore issued by MahaRERA against real estate developers

What homebuyers say

Though the NCLT has approved the resolution plan for Lavasa hill station, homebuyers are not entirely pleased. According to some of them, they are being asked to pay more or take a haircut after waiting for 10 to 12 years for possession of their dream homes.

"There are around 1,068 homebuyers who have been waiting for their possession for 10 to 12 years, and the project got delayed for whatever reasons. The money was taken, and principal was not returned. Forget the interest, we are being asked to pay more for the possession. On an average, homebuyers have invested between Rs 40 lakh and Rs 50 lakh. If they would have invested this money in fixed deposits or just kept in saving bank accounts, the money would have appreciated," said Vinay Kulkarni, a non-resident Indian homebuyer in Lavasa.

"Many people here had invested money for their retirement and many have died today or have lost their relatives. There are many homebuyers who need money for treatment of their loved ones but are not able to do so because their investment is stuck. We are taking appropriate legal action to challenge this order," Kulkarni added.

Also read: Here is the list of India's most delayed real estate projects

In a statement issued to Moneycontrol by a group of homebuyers who recognise themselves as the non-possession homebuyers (NPHB), it said that most NPHB’s invested in Lavasa between 2008 and 2014.

“Construction has stopped in 2015 or so and interest calculation on our investment has been frozen as on August 2018. Yet we are being asked to wait for another 5 years to get a 40 percent refund, which is totally unfair. Our money continues to remain interest-free for 10 long years with Lavasa and its new incumbent. Interest calculation was frozen 5 years ago in August 2018 when the NCLT case was admitted, another further 5 years interest holiday is approved by NCLT,” the statement read.

“In name of haircut, we are being given tonsure to our hair, scalp, pocket. The homebuyers have had sufferings due to medical ailments like cancer and Covid and have had to deal with stressed conditions as money is stuck in Lavasa. We are going to contest and challenge this order for our rights to exit with full refund and interest till date,” the statement added.

In a email response to Moneycontrol, DPIL said, “Above all homebuyers had voted for our resolution plan in majority. Our advisory team had met the homebuyers and after discussing in detail had incorporated their feedback in the final resolution plan. Homebuyers and CoC approved our plan with 96 percent vote. Few homebuyers had filed application against the plan in the NCLT court. The honourable NCLT bench passed order in favour of our plan and rejected their application.”