The homebuyers’ proposal also calls for ring fencing the project against any old legal liabilities. It has been proposed that to make the projects viable for participation from new private sector developers RERA and other delay liabilities for default of the builder to the buyers be extinguished and timelines for delivery be reset.
Unitech homebuyers have proposed a few options for resolving the crisis facing the embattled firm, including a plan similar to the resolution framework previously implemented for Satyam Computers and being put in place for IL&FS. However, they have emphasised that the process should focus on the delivery of their homes.
The first option revolves around the government calling for a bid, the same way Satyam was acquired by Mahindra Group. This could be done by way of fresh issuance of shares. The promoter shareholding could also be attached to ensure that the benefit of the realty company’s revival does not benefit the current promoters, buyers said in a plan submitted to the attorney general for consideration by the government.
The resolution plan provides for two more options in the event no new bidder comes forward to take over Unitech.
The second option is to implement an asset-by-asset solution like IL&FS. The resolution framework proposes the categorisation of projects based on the yet-to-be-collected construction-linked receivables in under-construction projects from sold and unsold apartments.
The plan proposes that the viable projects be sold on an as is- where is basis wherein the incoming developer would have to take on all liabilities relating to the project. These liabilities include all land dues and urban development charges the developer owes to the Greater Noida Authority and Haryana Urban Development Authority. It also includes the liability to construct and deliver houses to buyers as per the allotment letters and the liability to lends for which the project land may have been mortgaged.
Buyers have proposed that in projects where the value is positive after adjusting all liabilities to construct and deliver homes to buyers, dues to authorities and lenders, there may be an upfront surplus after the e-auction and that could be utilised to create stressed assets fund. This amount could be used to fund projects where the net value of projects is not adequate to meet the liability of construction and project delivery to buyers.
They have proposed that for such projects, the successful auction purchaser could be called upon to quote the shortfall funding or viability gap funding required to complete the projects. NBCC may also be called upon to construct and complete such projects subject to receiving the viability gap funding.
Homebuyers have proposed that for improving the valuation of projects where the net value is inadequate, the land authority could consider accepting staggered payment of dues and an escrow account could be set up as a sub-account of the RERA escrow. The proceeds from the sub-account could be used to pay up the principal dues of the authority.
For meeting the requirement of the viability gap funding, the local authority could consider granting higher FSI on a purchasable basis and where higher FSI is not possible, deficit funding could be made from the stressed asset fund set up from the extra upfront proceeds of e-auctioning viable projects.
They have also proposed that in situations where the builder has taken most of the money and a funding gap persists notwithstanding the above measures, the resolution plan should have the option to impose a cost increase on a pro-rata basis on homebuyers for ensuring that there is last mile funding available for completing the project. This would ensure that projects, where there is a deficit and homebuyers have paid 90 percent of the amount, are completed with another 5 or 10 percent contribution from homebuyers.
The third option could be the appointment by the government of a development manager that could include established real estate players who could take over the projects on a DM model as part of the asset-light strategy, the proposal says, adding the DM manager could be appointed by Unitech Limited or its project-level SPV for a fee.
The development manager would have to be a brand that would attract future sales, has the ability to bring working capital completion funding and have construction experience. It would be responsible for the construction and delivery of the project and even have the right to market, book, allot and sell the unsold inventory.
To make the projects viable the resolution plan proposes a transparent haircut formula that states that no financial creditor, operational or any other creditor to be entitled to any interest, default interest or penal interest, the dates of delivery of the projects would have to be reset and the liabilities under RERA and to other statutory liabilities such as Noida Authority and Greater Noida Authority for default of the builder would also have to be extinguished. This way the principal amount of all stakeholders will be protected.
Homebuyers have proposed that the resolution plan should also be given legal protection. This may be sought by way of approval from the Supreme Court in pending proceedings.
The resolution plan would also have to account for those people who hold refund decrees. The amount for a refund should be limited to the principal amount actually paid. The repayment to stakeholders should be in a structured manner that sufficient cash flows are available for the purpose of construction since prioritizing construction would generate significant cash flows, buyers have proposed.
On July 5, the Supreme Court directed the Centre to come up with a proposal for construction of stalled projects of embattled real estate major Unitech within 10 days, so that over 16,000 homebuyers are not left in the lurch. The top court said the Centre should suggest the modalities and name of the third-party agency like the National Buildings Construction Corporation (NBCC) which could construct the pending projects of Unitech in a time-bound manner.
A bench of Justices DY Chandrachud and MR Shah was told by Attorney General KK Venugopal that a third party could be involved in the construction of pending projects and a high-powered committee headed by a retired high court judge could oversee the construction.
Venugopal said after consulting with the officials concerned, he can suggest the modalities which can be approved by the court accordingly.
The court also rejected the application of Unitech in which they sought court's permission to continue with the construction of the pending projects.
On May 9, the apex court, irked over the non-cooperation of Unitech in the forensic audit, had withdrawn all the facilities given to its promoters, Sanjay Chandra and his brother Ajay Chandra who are lodged in Tihar jail for allegedly siphoning off homebuyers' money. The top court had said the Chandra brothers should be treated as ordinary prisoners as per the prison manual of Tihar jail here where they have been lodged since 2017.
The apex court had on January 23 refused to grant bail to the Chandra brothers. It said they had not complied with the October 30, 2017 order which asked them to deposit Rs 750 crore with the court registry by December 31, 2017. The Chandra's sought bail on the ground that they were complying with the apex court order and had deposited around Rs 481 crore till now.
On December 7, 2018, the apex court has directed a forensic audit of Unitech Ltd and its sister concerns and subsidiaries by Samir Paranjpe, Partner, Forensic and Investigation Services in M/s Grant Thornton India.
The Supreme Court had earlier stayed the December 8, 2017 order of the NCLT allowing the Centre to take over the management of the realty firm Unitech Ltd. NCLT on December 8 had suspended all the eight directors of the realty firm over allegations of mismanagement and siphoning of funds and had authorised the Centre to appoint its 10 nominees on the board.
In its petition filed under section 241 of the Companies Act, 2013, the government had requested the tribunal to remove the eight directors and said that the company has over Rs 6,000 crore debt and over 16,000 undelivered units from a total of nearly 70 projects.The matter pertains to a criminal case lodged in 2015 by 158 home buyers of Unitech projects' -- 'Wild Flower Country' and 'Anthea Project' -- situated in Gurugram.