AMRAPALI SCAM 

(Author: Ananya Singh, A Student at Babu Banarasi Das University)

ABSTRACT

Real estate is a critical sector in any economy, including India. Still, it has faced challenges due to the lack of a proper regulatory body to maintain a code of conduct. This has led to numerous real estate scams, such as the infamous Amrapali case, causing chaos in the sector. Real estate fraud has been a persistent issue since the 1990s, with insufficient regulatory authority to punish developers involved in these scams. Limited legislation meant buyers had to seek recourse through the National Consumer Dispute Redressal Commission, which had limited powers to address real estate fraud. While the Consumer Protection Act of 1986 aimed to protect consumers in general, it was not specifically designed to address real estate fraud, unlike the Real Estate Regulation Act (RERA) of 2016. RERA was created to protect homebuyers from unscrupulous promoters, builders, and real estate agents. A comparative study between the Consumer Protection Act and RERA focuses on the allotment of flats and other commercial properties, highlighting the benefits of RERA over the earlier legislation when dealing with property developer issues. The powers, functions, and jurisdiction of the regulatory authorities under these acts are also detailed, underscoring the advantages of RERA over the Consumer Protection Act.

BIKRAM CHATTERJI & ORS. V. UNION OF INDIA& ORS.

MANU/SC/0947/2019

COURT: SUPREME COURT OF INDIA.

BENCH: Hon’ble Mr Justice Arun Mishra and Hon’ble Mr Justice Uday Umesh Lalit. 

DATE OF JUDGMENT: August 21st, 2018

PETITIONER: Bikram Chatterjee and Ors.

RESPONDENT: Union of India and Ors.

OLD CASE REFERENCE: Bikram Chatterji & Ors. Vs. Union Of India & Ors. W.P. (C) No. 940-2017.

FACTS OF THE CASE:

The recent ruling by the Hon’ble Supreme Court is a significant development for India’s real estate sector, addressing long-awaited solutions to the challenges faced by home buyers across the country.

The facts of the recent case is summarised below:

1. In a Company Petition (NO. (IB)-121(PB)/2017) filed by the Bank of Baroda against M/s Amrapali Silicon City Private Limited, home buyers of various projects filed a writ petition. They were upset by the start of the Corporate Insolvency Resolution Process by the National Company Law Tribunal (NCLT).
2. In 2011, several housing projects were initiated in Noida and Greater Noida. The Amrapali group of companies planned to build approximately 42,00 flats within these projects. Brochures were circulated, promising possession within 36 months along with world-class facilities. Many home buyers booked apartments between 2010-2014, signing the Standard Form of Allotment-cum-Flat Buyers Agreement. Despite paying 40 to 100% of the total amount. Most buyers invested their life savings, while some obtained bank loans. Many have made substantial payments, ranging from 50 to 100%, as per the payment schedule. As per Clause 14 of the authority to secure loans from financial institutions by mortgaging/ charging the securitization of the land and flat receivables, the allottees have consented to this.
3. Clause 15 granted the builder full authority over the flat, regardless of payment, denying allotees any lien or interest. Meanwhile, under Clause 19(c) outlined a meagre compensation of Rs. 5 per square foot super area per month for any delays, encompassing damages, compensation, and claims for delayed possession. Buyers’ hopes of obtaining houses were shattered when the builder was found in serious breach of the obligation to deliver within 36 months. The builder failed to make payments to the Noida or Greater Noida Authority and banks, and despite multiple revised possession dates, the flats were not delivered. The Amrapali Group also failed to comply with its obligation under the approved subvention scheme.
4. The builder failed to comply with a scheme, leading to homebuyers facing double losses due to making payments to banks. 107 homebuyers filed Consumer Complaint no. 213 of 2017 under Section 12(1)(c) of the Consumer Protection Act, 1986, seeking enforcement of their fundamental rights affected by the Insolvency and Bankruptcy Code violated their fundamental rights to equality and life guaranteed under Article 14 and 21 of the Constitution and requested to quash the NCLT’s order appointing an Insolvency Resolution Professional to take over the company and granting a stay on all court proceedings. They have also requested a directive to prevent the Insolvency Resolution Professional (IRP) from establishing any third-party interests in the projects.
5. The Bank of Baroda filed the Company Law Tribunal, citing Section 7(4) of the Insolvency and Bankruptcy Code, 2016 to initiate the Corporate Insolvency Resolution Process for Ms Amrapali Silicon City Private Limited, Respondent No. 3. Homebuyers from various projects filed a writ petition expressing their discontent with he Corporate Insolvency Resolution Process initiated by the National Company Law Tribunal in response to the Company Petition (No. (IB)-121(PB)/2017) filed by the Bank of Baroda against Ms Amrapali Silicon City Private Limited.

ISSUES:

The Supreme Court, after hearing from the parties involved in the dispute, was concerned with the following issues:

1. The claim made by the Authorities regarding the validity of charges against the projects being undertaken by Amrapali Group (referred to as “Issue-A” hereinafter) needs to be remembered.
2. The legitimacy of the claim made by the Banks regarding the projects being constructed by the Amrapali Group (referred to as “Issue – B” hereafter).
3. Whether the registration (“RERA Registration”) obtained by the Amrapali Group under the Real Estate (Regulation and Development Act, 2016 (“RERA Act”) was liable to be cancelled (hereinafter referred to as “Issue – C”).
4. What relief can the home buyers provide in light of the present facts and circumstances?

CONTENTION OF THE PARTIES:

Contended on the behalf of the Homebuyers that:

1. The dues of Authorities cannot be treated at par with the dues of home buyers and the charge of the money paid by the home buyers must be treated as the highest priority;
2. The Authorities are liable to issue an Occupation/Completion Certificate (“OC/CC”) for the various buildings that have been completed and are being inhabited by the home buyers, even though the Amrapali Group has not paid land dues of the Authorities.
3. The Authorities have been very liberal in their approach and did not take any stringent action against the Amrapali Group despite the continuance of various infractions to date, including non-payment of premium instalments stipulated under the Lease Deeds, although nearly all amount has been realised from the home buyers by the Amrapali Group;
4. The Public Trust Doctrine enshrined under Article 21 of the Constitution of India is very much applicable to the Authorities and a duty is cast upon them to act fairly and reasonably to promote the public good and public interest;
5. That by not taking corrective actions against the Amrapali Group, the Authorities have acted in connivance with the Amrapali Group and thus breached the Public Trust Doctrine and accordingly the Lease Deeds executed by the Authorities need to be cancelled;
6. The authorities and banks were very negligent as they provided loans to the Amrapali Group without conducting proper due diligence on the projects’ development.
7. The Banks after sanctioning the loans forewent all their responsibilities and acted in connivance with the Amrapali Group by turning a blind eye to the illegal diversion of funds being committed by the Amrapali Group;
8. The mortgage deeds issued between the banks and Amrapali Group are not legally sanctioned because they were based on the authorities’ conditional No Objection Certificates (NOCs). These NOCs clearly stated that they are valid only if the premium and lease rent payments have been made.
9. The RERA Registration of the Amrapali Group’s projects is at risk of being cancelled due to ongoing delays in project completion.

It was contended on behalf of the Authorities that:

1. The Lease Deeds by the Amrapali Group gave the Authorities first charge over the projects, taking precedence over charges created in favour of banks and other financial institutions.
2. That Public Trust Doctrine is not attracted in the present case as there is no breach of trust and the decision of the Authorities to transfer the lease after receipt of 10% of the premium was a carefully thought-out policy approved by the State Government.
3. The authorities have diligently approached the Amrapali Group and sent notices to the group to pay premium instalments. They did not want to cancel the lease deeds because it would require demolishing all the structures on the land.
4. No OC/CC can be issued until the dues of the Authorities have been paid.

It was argued by the Banks that:

1. They were diligent in their conduct viz-a-viz the sanctioning of loan and all suitable methods were deployed to monitor the utilisation of funds post their sanctioning;
2. The Mortgage Deed executed between the Banks and Amrapali Group is valid and subsisting and according to the terms thereof, the Banks have charge over the projects till the time the loan amount is repaid;
3. The homebuyers are not secured creditors and thus do not have any right, title or interest based on allotment through a flat buyer agreement.
4. The Public Trust Doctrine applies to the Authorities in the present circumstances and it was the duty of the Authorities to take affirmative action for effective management of the Lease Deeds granted in favour of the Amrapali Group, and the homebuyers are empowered to question its effectiveness;
5. The fact that the land of the farmers had been acquired for housing and infrastructure needs by the State Government, the Authorities were bound to ensure that builders act per the objective behind the acquisition of land and the conditions on which allotment had been made;
6. The Authorities were very negligent in their conduct and did not take any corrective steps against the Amrapali Group even though there were repeated infractions by them. The Authorities failed to observe the terms of the Lease Deeds and keep track of the projects. Amrapali Group was also permitted to sub-lease the projects and earn a significant amount without settling their dues.
7. The authorities, banks, and Amrapali Group have allowed the diversion of home buyers’ funds, potentially committing fraud against the buyers.
8. The conditional NOC issued by the Authorities to Amrapali Group makes it evident that the said NOC is only valid in cases where the full payment of premium has been made and up-to-date annual lease rent had been paid, however, considering that the Amrapali Group made no such payments, no mortgage was created in favour of the Banks over the project properties;
9. That not only the Authorities, but the Banks were negligent in their conduct and decided to sanction the loans to Amrapali Group without verifying the conditions of the NOCs being issued by the Authorities;
10. In light of the present circumstances the principle “fraud vitiates” is attracted and the Court has to not only save the home buyers but also ensure that they are not cheated.
11. The Amrapali Group has contravened the stipulations of the RERA Act. The reliance placed by the Amrapali Group on the force majeure provision of the RERA Act is unfounded, as the scenarios cited by the Amrapali Group fall within the scope of force majeure.

DIRECTIONS BY THE SUPREME COURT:

1. The RERA registration of Amrapali Group under the RERA Act is hereby cancelled, and NBCC (India) Ltd will now take over the completion of the various projects. 
2. The Lease deed granted to Amrapali Group Authority for questioned projects are now cancelled, and all rights will belong to the Court Receiver (Senior Advocate, Shri R. Venkataramani).
3.  The Authorities and Banks cannot sell the flats or leased land of home buyers to recover their dues from the sale of other attached properties of Amrapali Group.
4. The lease’s right will now belong to the Court Receiver, previously associated with the Amrapali Group. The Court Receiver, or an authorised person on their behalf, will execute the tripartite agreement and perform any other necessary actions to transfer the title to the home buyers and ensure that possession is handed over to them.

CONCLUSION

The submission may seem compelling at first glance, but lacks a valid base. The intervention applications (IAs) were filed by various companies, including Ace Group of Companies, that are not involved with the homebuyers’ situation in the Amrapali Group of Companies, which this Court has recognized. Therefore, the filing of IAs by unrelated companies to the Amrapali Group should not be considered in the current proceedings.

FAQs

1. What is section 12(1)(c) of the consumer protection act, 1986?

Section 12(1)(c) Consumer Protection Act of,1986 pertains to the rights of consumers to have their grievances redressed by consumer dispute redressal agencies.

30157_2017_33_1501_28164_Judgement_29-Jun-2021.pdf (sci.gov.in)