‘Riches to Rags’- The Rise and Fall of Amrapali Group

INTRODUCTION

The Amrapali Group is a classic example of what we call ‘From riches to rags’! The group that was once ranked No. 1 in our country’s real estate giants is now fraught to pay its dues.

The Amrapali group was at its peak in 2015 when it claimed to have 50 projects around 24 cities and Mahendra Singh Dhoni was its brand ambassador. They quickly expanded from real estate to producing films like ‘Gandhi to Hitler’ and ‘I Don’t Love You’.

But life had its own plans. It seemed like all its grandeur was only on paper. Its assets increased from around Rs 30.4 crore (304,274,099) in 2011 to around Rs 299 crore (2,991,156,994) in 2015, which was intriguing since the group had not done any construction from 2011 to 2015.

The bubble burst in 2016 when around 2,500 clients of the group demanded their constructions to be completed at Sapphire project in Noida after MS Dhoni backed down from his ambassadorship and in 2017 the Yogi Government led an inquiry into the Group’s operations which led to the arrest of the CEO Ritik Sinha, and director, Nishant Mukul for pending labour cess dues.

All the 2,500 clients approached the Supreme Court in April, 2018 against the Amrapali Group to get their pending constructions completed.

BACKGROUND OF THE CASE

The Amrapali Group had various construction projects for which it offered brochures to the general public. It promised to build around 42,000 flats in total with a delivery of possession in 36 months for which the buyers paid 50 to 100% of the consideration in the beginning. But the Amrapali Group failed to make good their promise due to which loss was caused to the homebuyers.

Some of them approached the National Consumer Dispute Redressal Commission (NCDRC). The Bank of Baroda approached the National Company Law Tribunal (NCLT) to apply for insolvency proceedings against M/S. Amrapali Silicon City Private Limited but the NCLT declared a moratorium thereby restricting any institution of suits against the company.

Thereafter, the petitioner, Bikram Chatterji approached the Supreme Court. The Supreme Court heard the pleas of all the homebuyers who alleged the siphoning of funds by the Amrapali Group and ordered the conduct of a Forensic Audit of all the activities of the Group.

In addition to the appeals of the Amrapali Group and Noida and Greater Noida authorities (Authorities) against the plea of the homebuyers, the banks who loaned money to the Group claimed their right of repayment as superior to those of any of the homebuyers against their loan and mortgage deeds.

The Hon’ble Court decided to hear the petition and has passed 60+ orders till date and its judgment was given by Justices Arun Mishra and Uday Umesh Lalit on 23 July, 2019.

TIMELINE OF THE CASE

2011- In Noida and Greater Noida various real estate projects started and Amrapali Group published brochures proposing to build around 42,000 flats within 36 months. Various homebuyers availed the option and booked flats from 2011-2014.

2013- Raids were conducted and it was revealed that Amrapali Group had not completed any constructions from 2009 to 2015.

2015- 900 families living in the Sapphire housing project claimed that they were not getting any water and electricity connections due to non-issuance of the Occupation/ Completion certificates.

2016- MS Dhoni stepped down from his ambassadorship of the Amrapali Group after the ruckus of homebuyers for non-completion of their houses. Two years later, Dhoni himself sued the Amrapali Group for pending Rs.150 Crores.

In the same year, some consumers approached the National Consumer Dispute Redressal Commission (NCDRC). The Bank of Baroda filed a suit in the National Company Law Tribunal (NCLT) against the Group for initiating insolvency proceedings against them.

But the Tribunal issued a moratorium barring any institution of suits against the Group.

2017- Homebuyers approached the Supreme Court against the decision of the NCLT and the hearings of the case started.

2018- In February, the Group claimed that it would complete the 19 towers of Leisure Park project within 15 months.

In August, the SC attached properties and accounts of the Group and a month later, ordered the balance sheets of the 46 companies of the Group to the forensic auditors.

In October, the SC ordered police custody and refused bails of the directors of Amrapali Group- Anil Sharma, Shiv Priya and Ajay Kumar, for non-compliance of SC order to hand over the balance sheets.

In December, the Court ordered the Debts Recovery Tribunal to attach and auction the properties as well as the luxury cars of the Group.

2019- On 23 July, Justices Arun Kumar and Uday Umesh Lalit passed the Judgment against the Amrapali Group holding the Authorities and the Banks liable for acting in collusion with the Group to divert funds of the homebuyers. The Court handed the pending projects of the Group to the NBCC.

CONTENTIONS OF THE PARTIES

PETITIONERS (Homebuyers)

1. The Petitioners contended that they had put their life savings for the purchase of the flats and as such they cannot be ranked so low as ‘ordinary financial creditor’ in repayment of their money according to Section 53 of the Insolvency and Bankruptcy Code. Further they challenged the validity of the said Section as violative of Article 21.
2. Also, they said that such builders take majority of the money for their constructions from the buyers only and as such the buyers have the right to possession of the properties they paid for. Even the Noida and Greater Noida authorities did not take any stringent action against the Group for violation of their obligations towards them.
3. They also urged the Court to impose necessary conditions on the builders to ensure executability of the projects and the appointment of a committee to submit periodical reports of the status of the constructions.
4. For the completed flats which are being inhabited by the homebuyers, the Occupation/ Completion certificate must be issued by the Authorities.
5. They averred that Public Trust Doctrine under Article 21 of the Constitution is applicable here and the Authorities should act fairly and in public interest. Also, that by not taking actions againt the Group, the Authorities have acted in collusion with them and thereofore, their lease deeds should stand cancelled.
6. They also argued the banks as irresponsible for granting loans to the Amrapali group even though no actual developments could be seen in the completion of the projects. They let go of their responsibilities after sanctioning them the loans and turned a blind eye towards the Group’s illegal activities and diversion of the funds.
7. Stating that the transaction of mortgage deeds between the banks and the Group were based on NOC’s which were valid only if premium payment and lease rent had been made, the homebuyers argued that these deeds had no sanction in law at all.
8. Lastly, they urged that the registration of the Amrapali Group under the RERA is liable to be cancelled because of inexplicable delay on their part to complete the projects they had undertaken.

• AMRAPALI GROUP

The Group averred that at least an additional Rs.87.28 crores was required by them to complete the construction of the flats. And an additional 13 builders have collaborated with them to complete the projects. Also, there were force majeure conditions i.e. war, flood, draught, etc. due to which they were unable to complete the constructions.

They were ordered by the Court to give the details of all the pending constructions and their current status, and the time it would take to complete them to be ready for possession, which was complied with by the Group.

The Court further asked them to sell inconsequential commercial properties to generate funds for constructions and open an Escrow account with the UCO Bank.

NOIDA AND GREATER NOIDA AUTHORITIES

1. The Authorities argued that by virtue of the lease deeds, they have the primary charge over the dues and the public trust doctrine does not apply to this case since there is no breach of trust. Also, the decision of transferring the lease at 10% was a carefully thought out policy of the Noida authorities which was approved by the State Government also.
2. They further submitted that the Authorities had paid due diligence in their approach towards the Amrapali Group and had sent notices with regard to payment of the premium instalments. Also, if they had cancelled the lease deeds it would have resulted into the drastic step of demolishment of all the contruction sites which would have caused further agony to the homebuyers.
3. Also, they made it clear that no Occupation/ Completion certificate can be issued until payment of all their dues.

BANKS

The banks submitted that they had taken all due care while sanctioning the loans to the Amrapali Group and the mortgage deeds executed between them were valid and subsisting. Therefore, they have the primary charge over the repayment of their money.

They further argued that the homebuyers are not secured creditors through their agreement for buying flats with the Amrapali Group as the agreement was unregistered. Therefore, no right is created in the immovable property in their favor. Their right only stands to receive compensation from the promoters and nothing else.

DECISION OF THE SUPREME COURT

Acknowledging the diversion of funds by the Amrapali Group (on the basis of the forensic audits) and leaving the homebuyers in the lurch, the Supreme Court said that a large-scale cheating had taken place wherein hard-earned money of poor and middle-class families had been usurped by the Group.

It held that:

1. The public trust doctrine is a part of the law of the land enshrined under Article 21 of the Constitution. The Authorities are duty-bound to ensure the compliance with the lease deeds and the citizens are empowered to question its effectiveness.
2. Further, the land of farmers had been acquired by the Authorities to be handed over to the Amrapali Group for the purpose of construction of the houses and it is the Authorities’ duty to make sure that the builders act in accordance with the said objective.
3. The Court iterated that the Authorities are guilty of breach of trust as they knew that there had been default on the part of the Amrapali group for the payment of their dues and they should not have been allotted land any further without payment of prior dues. They have acted in collusion with the builders by allowing sub-lease of the allotted land without following the statutory requirements which further allowed the Group to divert funds without repayment right under their noses, clearly indicating the dereliction of the duty cast upon them.
4. The banks and Authorities acted in connivance with the builders as it was pertinent from the day to day banking transactions that money was being siphoned by the Group for other purposes and not what it was meant for. The banks failed to make sure that the mortgage took effect as it was supposed to. All of them helped in perpetrating the fraud upon the homebuyers.
5. The Court further held that the Authorities have to issue Occupancy/ Completion Certificates to the homebuyers who have been forced to live in a dilapidated state without the basic amenities such as electricity and water connections and without insisting payment of their dues.
6. There was a blatant violation of the provisions of Real Estate (Regulation and Development) Act, 2016 (RERA) by the Amrapali Group since Section 5 requires timely completion of the projects once the registration is acquired by the builders and extension of time by virtue of Section 6 is granted only in case of force majeure and the homebuyers are protected by the RERA provisions.

DIRECTIONS OF THE COURT

Apart from the above decision, the Hon’ble Court made the following orders:

1. For the process of completion of the pending constructions, the Court assigned the task to the NBCC with a profit of 8% and opened an escrow account with the UCO Bank for holding the pending payments made by the homebuyers.
2. The Court also directed the Central and State Governments to take all necessary steps to ensure completion of pending constructions and make sure that the homebuyers get their houses and do not suffer at the hands of the authorities.
3. The Court cancelled the Group’s registration under the RERA and ordered all lease deeds executed between the Noida and Greater Noida Authorities and the Amrapali Group to be revoked. Also, the amounts recoverable under the lease deeds and by the banks cannot be recovered from the homebuyers at all.
4. The Court also ordered registration of criminal cases by the police for violation of Foreign Exchange Management Act (FEMA) and Foreign Direct Investment (FDI) norms and ordered the Enforcement Directorate to conduct requisite investigation and fix liability on the responsible persons.
5. Institute of Chartered Accountants of India was ordered to take stringent disciplinary steps against Mr. Anil Mittal, CA for his part in the fraudulent transactions.
6. All the companies/ directors who fraudulently held the money paid by the homebuyers were ordered to deposit the same in the Court within one month of the passing of the judgment.
7. The Court appointed Shri R. Venkataramani, learned Senior Advocate as the Court Receiver and all the rights of the lessee shall vest in him (earlier- Amrapali Group) to make sure that all requisite acts are done in relation to the matter.

CURRENT STATUS OF THE CASE

Even after the passing of the final judgment in 2019, the Supreme Court has been passing daily orders in the Amrapali Case till date. The Court ordered the NBCC to complete all the pending projects of the Group within a stipulated time period.

However, the NBCC informed the Court that it does not have sufficient funds to complete all the projects.

Recently, the Court ordered the banks to fund the projects and the SBI Caps gave its willingness to do so. On September 2, 2020 the Court ordered the SBI Caps to issue Rs.625 Crores for the constructions from SWAMIH funds and asked the Government also to consider funding the projects.

CONCLUSION

Although the Hon’ble Court ordered the Centre and Uttar Pradesh Government to take action against the Amrapali Group, unless and until there is transparency in the system no possible solution can be expected from anyone.

What is required is a proper system of checks and balances so that no authority can take advantage of the general public.

The Supreme Court’s decision might bring some light in the future as to how to deal with such cases and to ensure that homebuyers who have paid full amount for their houses get them within the prescribed time.