Amrapali case | Piecemeal approach to justice is fraught with risks

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Rajesh Sivaswamy

With no end in sight to real estate bankruptcies, the Supreme Court is perhaps the only beacon of light for home buyers, who have been caught in a quagmire of litigations and are desperate to see light at the end of the tunnel.

A case in point is the recent judgment of the apex court on July 23, 2019, when it cancelled the registration of the Amrapali Group of Companies (Amrapali) under the Real Estate Registration Act (RERA) and has appointed National Building Construction Corporation Limited (NBCC) to supervise and complete unfinished projects of the said group and hand over possession to the buyers at a fixed 8 percent as commission.

The court through an order dated August 26, 2019, transferred an amount equivalent to nearly Rs 7.16 crore as project management fees into the account of NBCC.  While this order may come as a breath of fresh air to home buyers, it throws up several questions that require careful deliberation.

The Supreme Court has taken a clear stand in favour of home buyers and has shown a degree of disdain for developers who have been tardy with timely completion of projects. We should expect more of such judgments on similar lines involving other realty firms.

The top court has already demonstrated this intent in another matter where it dismissed a plea by a number of real estate firms that challenged the elevated pedestal accorded to home buyers designating them as 'secured creditors' under the Insolvency and Bankruptcy Code (IBC).

Though the task of completion of pending projects of Amrapali has been given to NBCC with the noblest of intentions, the latter by itself may not be the white knight that can salvage the systemic rot that has crept into the real estate sector.

NBCC is a Government of India enterprise which was established in 1960 under the erstwhile Ministry of Housing and Urban Affairs and primarily deals in construction projects. To its credit, NBCC has posted substantial growth since its inception and revenue in 2018-19 crossed the Rs 10,000 crore mark, from less than Rs 500 crore in 2002-03.

Despite these accomplishments, the task before NBCC is daunting. Close to 42,000 homes are to be handed over to ultimate buyers after completion of the project by NBCC. The overall value of the stalled units is estimated to be more than Rs 1.77 lakh crore. With a few more projects like Jaypee on the horizon, one feels that the challenges NBCC faces will go up incrementally.

On a purely legal evaluation, there is no legal recourse to the home buyer in the event of further delays to the projects on account of the procedures and the sheer enormity of the task. The home buyer also has limited legal remedies in terms of the agreements which have been executed with the developer. Questions surrounding the overall quality of the construction as well as the delays remain unanswered and it is quite obvious that the home buyer is taking a haircut here.

To assuage concerns surrounding financial viability, the Supreme Court of India has ordered Noida and Greater Noida authorities that any dues proposed to be recovered from Amrapali shall be undertaken through the attachment of other properties belonging to the promoters.

It is not clear if these properties will in any way suffice the amount to be recovered. It is also contemplated that a tripartite agreement would be executed post completion of the project among home buyers, Noida or Greater Noida authorities and NBCC.

The Supreme Court has assured home buyers that it will personally supervise compliance of this order and directed them to deposit their balance sale consideration and all the money owed to the Amrapali Group to be submitted to the Court and maintained in an escrow account, which shall be utilised by NBCC for completion of the projects.

Despite these measures, treating NBCC as a panacea for all evils that plague the real estate sector may not be the right view. The RERA, which has been hailed as a revolutionary step in augmenting the real estate space providing guiding principles of governance, has been rendered as a toothless tiger in many states with multiple state amendments and ineffective implementation.

It is high time the legislature of states took a re-look at the changes made to the RERA with the intent to bring back the efficacy that the legislation was originally intended to bring. With the deteriorating health of the real estate industry, banks have become averse to lending to a sector which, till a few years ago, was the hot cake of the financial world.

It is necessary to bring back some semblance of normalcy by ushering in reforms in the lending process and adopting procedural safeguards that will balance the interests of lenders and real estate firms. A holistic view of reforms in the real estate sector requires, among others, transparency in (i) land records making it available digitally, (ii) land procurement process and (iii) reform in procuring registrations and permits.

Unless such a holistic process is adopted and implemented by state legislatures, along with the banking and finance industry, the average home buyer will have to be content with a piecemeal approach to justice.

Rajesh Sivaswamy is a Senior Partner, King Stubb & Kasiva, Advocates and Attorneys. Views expressed are personal.