The Supreme Court on 9 October 2018 warmed the cockles of home buyers in general and buyers from Amrapali group in particular. It ordered the arrest of three of its directors for playing hide-and-seek with it and not cooperating in forensic audit of its accounts as well as those of its directors.
Apparently, the apex court suspects huge diversion of funds and hence it is looking beyond the companies themselves to retrieve the money to the extent possible for the beleaguered and hapless home buyers. It is common knowledge that crooked promoters float labyrinthine subsidiaries to funnel off funds belonging to the holding company which is why the presence of numerous subsidiaries always invites fear and revulsion in equal measure.
The commendable action of the apex court has envisioned and kindled hopes of it mounting a Skipper-type retrieval operation some three decades ago. The only difference is it was then for the benefit of those booking commercial flats in what is today Videocon towers in the heart of Delhi whereas it is now taking up cudgels for the humble and less endowed hoi polloi -- home buyers, many of them first-time buyers sinking their precious savings into the bottomless coffers of the unscrupulous promoters.
The corporate veil indeed needs to be pierced and lifted when promoters indulge in defrauding other stakeholders, be they the taxman or retail shareholders or homebuyers as in this case. And when labyrinthine subsidiaries are used to salt away the parent company’s funds, hundreds of such veils may have to be pierced and lifted.
The sanctity of limited liability of promoters has perforce to be violated willy-nilly if they abuse this protection. In Skipper, it was a rich haul that came handy for either paying back the bookers of commercial flats or getting them what they had paid for namely a flat. One hopes the SC’s initiative in Amrapali culminates in the same reliefs for the wannabe homebuyers.
The SC initiative in Amrapali is in a way a disavowal of its own verdict in Jaypee Infrastructure Ltd case as recently as on 9th August 2018. The home buyers in general and those in Jaypee were disconcerted when the SC vide that order remitted the matter back to the Allahabad Bench of the National Company Law Tribunal (NCLT) when Jaypee’s wannabe homebuyers were waiting with bated breath for a Skipper-like rescue operation.
It is not as if Amrapali is not before the NCLT under the Insolvency and Bankruptcy Code (IBC). It is. Yet the SC has chosen to read the riot act to it and start its own parallel proceedings against its directors.
One wonders why the apex court did not take up similar action against Jaypee and its directors. Maybe it did not suspect such brazen diversion of funds as in Amrapali. The group chairman and managing director of Amrapali had come under the apex court scrutiny and incurred its wrath after he declared a wealth of Rs. 67 crore -- against Rs. 847 crore in his affidavit filed during the 2014 Lok Sabha polls when he had unsuccessfully contested as a Janata Dal (United) candidate from Bihar's Jehanabad constituency.
It must, however, be conceded that the SC cannot be expected to don the robes of the knight in shining armor in each and every case. That it did so in Skipper has no doubt aroused tremendous expectations from it.
But we need to put a legal and judicial mechanism in place for recovering such loot amassed through diversion of funds down the labyrinthine subsidiary route.
Builders have always exposed themselves to the charge of diversion in the face of the reality that while other sectors can complain of and take shelter behind the vicissitudes-of-business alibi for their defaults, the construction industry especially those who build with funds already supplied by the homebuyers, cannot.
(The author is a senior columnist and tweets @smurlidharan)
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Updated Date: Oct 10, 2018 10:45:03 IST