SC judgment in Amrapali Group case a welcome step, but opacity of Noida’s real estate market remains a problem

Over 2,500 home buyers had recently taken the Amrapali Group to the Supreme Court. The real estate giant had at one point claimed to have 50 properties across 24 cities. On Tuesday, the Supreme Court observed that there was “gross violation” by the Amrapali group, and said that homebuyers’ money was diverted in contravention of the Foreign Exchange Management Act (FEMA) and foreign direct investment (FDI) norms. The court has asked the Centre and Uttar Pradesh government to take action against the builder, and also observed that Noida authorities and banks violated the doctrine of public trust by closing their eyes towards illegal activities of the group and its officials in siphoning off money paid for homes. Earlier, Noida and Greater Noida authorities had said they didn’t have the resources and expertise to construct the stalled projects of the Amrapali group. The court had in February allowed the Delhi Police to arrest the Amrapali Group chairman and managing director Anil Sharma, and directors Shiv Priya and Ajay Kumar. The three, then in judicial custody at the time, were moved to the custody of the Delhi Police. Reacting to the apex court’s judgment on Tuesday, Annu Khan, president of Noida Real Estate Flat Owners Main Association (NEFOMA), said, “We are happy with the judgment, as it acknowledges that the banks and local authorities were party to the illegal acts committed by the developer. But the rot in the real estate sector in Noida runs deep. There are instances of funds being sanctioned from banks and put in bogus companies.” [caption id=“attachment_7043151” align=“alignleft” width=“380”]  Homebuyers during a protest. Image procured by Pallavi Rebbapragada/Firstspost[/caption] The NEFOMA had submitted a list of suggestions to Real Estate Regulation and Registration Authorities in February. The organisation had contended that builders are only the promoters and not the owners, and on receiving 33 percent bookings, become only the “custodians” of the property. The NEFOMA argued that therefore, builders have to maintain transparent communication with the buyers. Individual cases such as the one involving Amrapali Group are reaching the Supreme Court because at the local level, the mechanism of checks and balances is not there. Satdev Tyagi, a Ghaziabad-based advocate who deals with real estate cases, said that the problem dates back to Mayawati’s government, when her brother Anand had allegedly got a gazette notification passed for sub-division of land. Tyagi said, “If the existing land is sub-divided, then it opens the doors for multiple mortgages and multi-financing, and it is becomes harder to monitor finances.” He added that this is also an expensive process, and builders siphon off buyers’ money and create bogus companies to transfer the funds there. In the case of Amrapali, bogus companies were created for fund transfers. Tyagi said that while the judgment comes as a relief, there will be legal hurdles around the validity of the sanctions the company has acquired, because Amrapali’s own validity has been dissolved. According to Tyagi, thousands of litigations of farmers whose lands have been taken over by developers are pending in court, but construction on these lands is still going on. He said that some banks in Noida finance nearly Rs 2,000 crore worth of projects, and it is quite possible that builders show ownership of the property, keep it as a mortgage and take a loan, while simultaneously selling off homes on the same piece of land. The state government, he feels, should conduct inspections and ask all developers to submit NOCs issued from these banks. Ravi Shankar is a home buyer who has an account with Canara Bank in Noida. He had booked a flat in Amrapali’s Dream Valley in Noida Extension in 2008. The flat was supposed to be ready by 2012 at the latest. Shankar had opted for a construction-linked payment plan, in which the bank releases the loan amount to the developers when they complete certain construction milestones. “The developers share pictures of towers and convince the bank that the construction is well underway. However, photographic evidence can be fabricated,” he said, adding that he continues to pay an EMI of Rs 14,000 every month. Amrapali Group is a big name. Cricketer Mahendra Singh Dhoni was the brand ambassador for the real estate giant, which owned properties like Amrapali Sapphire and Amrapali Platinum in Noida, the Amrapali Empire in Ghaziabad, a commercial hub in Greater Noida, a township in Jaipur, a multiplex mall in Bihar and an IT hub-cum-five star hotel. However, there are plenty of smaller developers that declare themselves bankrupt and escape the fury of the higher courts. The Real Estate (Regulation and Development) Act, 2016 gave India’s real estate sector its first regulator. RERA seeks to bring about transparency in the real estate sector and protect the interests of the buyers, while imposing severe penalties on errant builders. Prior to the Act coming into force, the usual practice for developers to raise initial capital was that various private investors would pay advance money to them to book multiple units in the proposed project at a price way below the ongoing market rates. As a result, developers would launch offers and schemes such as the 20:80 scheme (20 percent payment to be made at the time of booking and 80 percent at the time of possession) to get the sale units allotted. One of the major implications of RERA is that the developer now has to deposit 70 percent of the proceeds received from a project in a separate account, which can only be used for the earmarked project. The builders’ argument is that this greatly affects their short-term liquidity and that it makes it tougher to raise initial capital. In June 2018, an ordinance making crucial amendments to the existing Insolvency and Bankruptcy Act, 2016 was promulgated. Through it, the government placed flat buyers in the bracket of “financial creditor” as defined under the Insolvency Code, meaning that they are to be treated as persons to whom a “debt” is owed under the Insolvency Code. However, the constitutional validity of this ordinance was challenged by a group of real estate developers through a writ petition in the Supreme Court. The lack of transparency in funding structure continues to fuel the ongoing tug of war between home-buyers and developers. Despite the central government’s efforts to bring in transparency, not all is well in Noida’s urban sprawl.