INTRODUCTION
The real estate sector attracts huge investments into the Indian market. This sector, which contributes between 6.5 and 7% of India’s GDP, is one of the most lucrative ones and is expected to generate a large number of jobs. However, the non-compliance of some recent real estate housing projects such as Supertech, Ajnara Ambrosia Housing Project, Jaypee Infratech and Amrapali India is raising concerns among investors and home-buyers. According to the 2016 Insolvency and Bankruptcy Code, the National Company Law Tribunal (NCLT) has begun insolvency proceedings against the aforementioned projects. These projects, not only created doubt regarding the execution capabilities but additionally the flexibility to sustain severe money burden was created owing to massive losses. All it all resulted in severe losses to the businesses and even the investors lost their confidence.
INSOLVENCY PROCEEDINGS
Disputes related to insolvency are registered under insolvency laws of the Corporate Insolvency Resolution Process (CIRP) by the government. The Centralised Public Grievance Redress and Monitoring System (CPGRAM) and other government entities submit complaints and grievances to the Insolvency and Bankruptcy Board of India (IBBI). The Insolvency and Bankruptcy Code governs the resolution procedure for creditors and corporate debtors. This law was challenged in the legal precedent of Pioneer Urban Land and Infrastructure Limited vs. Union of India[1]. The case validated the constitutional validity of the Insolvency and Bankruptcy Code Amendment Act, 2018 which provided for the inclusion of ‘Real estate allottees’ within the meaning of ‘Financial creditors’ under Section 5(8) (f) of the Insolvency and Bankruptcy Code. The Hon’ble Supreme Court thus disposed of the writ petition by the petitioner, PULI Limited citing the act as constitutionally valid.
SUPERTECH LIMITED
The twin tower project was recently in the news once it got razed on the orders of the Supreme Court. NCLT directed CIRP to the concerned housing project only that is, the “Eco Village II Project” in Greater Noida (West) instead of the entire company. The highest residential structures, Apex and Ceyane towers were part of the Emerald Project of Supertech, illegally constructed without complying with building regulations and safety norms. Insolvency proceedings against the project were started when Union Bank of India filed a petition in the bankruptcy court for non-payment of around 432 crores worth of dues.
JAYPEE INFRATECH LIMITED
The long-awaited homebuyers of Jaypee Infratech have to date gotten no respite since the day the CIRP resolution process commenced. As part of the Integrated Wish Town Project, Noida’s Jaypee Infratech Limited Company (JIL), which is led by Jaiprakash Associates, plans to develop 32,000 flats and sell some plots in 2007. However, the company barely completed 20,000 homes in Wish Town and Jaypee Aman Projects and only delivered about 12,000 flats and a few hundred plots. A group of banks’ loans to the company were also in arrears. This led to IDBI filing a petition in the National Company Law Tribunal (NCLT) to begin insolvency procedures against JIL for 526 crores in unpaid loans. Later some buyers also reached SC with a writ petition and impleaded the matter. After years of the resolution process and intervention of the Supreme Court, the case is still pending in the Hon’ble Tribunal for approval and the buyers of the property have got comfort.
AMPRAPALI INFRASTRUCTURE
One of the biggest real estate companies, Amrapali Group is facing insolvency proceedings by its lenders. Bank of Baroda one of them approached the tribunal after the Amrapali Group defaulted on a loan of 9,735 crores. Many house buyers were not given the promised units by the corporation. In this case, the SC mandated that NBCC, a government-owned corporation, complete the ongoing flat construction so that the banks may pursue collections against the projects where the funds were transferred. Even though SC accepted the proposals of the homebuyers, the latter are still hassled.
AJNARA AMBROSIA HOUSING PROJECT
Insolvency proceedings have begun against another Noida-located project, Ajnara Ambrosia led by Ajnara India. [2]113 buyers complained to the NCLT about a delay in the delivery of homes by the project’s deadline. A professional for interim resolution has been assigned to the petition as per Section 7 of the Insolvency and Bankruptcy Code of 2016. Insolvency petitions are also pending against Ajnara India associate companies, namely Ajnara Realtech and Sequel Buildcon Pvt Ltd.
WHAT DROVE THEM INTO INSOLVENCY?
Several factors contribute to a real estate company’s insolvency. The improper drafting of the budget can cause expenses and rising costs of vendors and raw materials. Often customers switch their investments elsewhere due to such unforeseen costs. [3]Expenses exceed revenue and bills stay unpaid. When developers lose customers, it additionally leads to losing potential income to pay the creditors. The delay in possession makes customers file lawsuits resulting in insolvency. Such was the defence taken by a builder within the case of Jitendra Balani v. Unitech[4], where the builder claimed that they were an unavailability of raw materials and labour that raised the costs of the project which further led to delay in possession.
SUGGESTIONS
The real estate sector is witnessing far more insolvencies than any other sector. With this in mind, several resolutions have been laid before the homebuyers. The Real Estate (Regulation and Development) Act, of 2016 has perceptible benefits over consumer forums that can be understood in terms of ease of filing disputes. [5]The introduction of depositor’s insurance could be considered as a choice that would at least give depositors some support for investing their money in real estate. Mediation is also becoming one of the best alternatives for such disputes. To protect the interest of the allotters, faults in departmental approvals should also be inquired about. An advisory board can be set up to help buyers with proper paperwork and warn the buyers of possible discrepancies in upcoming projects. This will help in narrowing issues of the parties in dispute.
CONCLUSION
Across Indian cities, buyers are waiting for over a decade to get their dream home after investing all their life savings. Thousands of projects are getting stalled, who should be held accountable? There is a lack of coordination among various agencies, even at the centre and state levels. Ill intentions of the developers can lead to duplication and corruption infecting the entire process from construction to possession. Thus, such situations are not circumstantial and can be avoided. A reasonable consideration for the welfare of others is the foundation of our social conduct.
Author(s) Name: Rumza Sheikh (Isabella Thoburn College, Lucknow)
References:
[1] Pioneer Urban Land and Infrastructure Ltd Vs. UOI (2019)Writ Petition (Civil) No.43 of 2019
[2] Tushar Mangl,”Ajnara India Dragged into Insolvency by Homebuyers”(99acres, 22 September 2022)< https://www.99acres.com/articles/ajnara-india-dragged-into-insolvency-by-homebuyers-nid.html> accessed 6 October, 2022
[3] Alicia Tuovila,”Insolvencies”(Investopedia, 23 May 2022)
< https://www.investopedia.com/terms/i/insolvency.asp> accessed 6 October, 2022
[4] Jitendra Balani Vs. Unitech Ltd (2016) Cc No.503 (2015)
[5] Kavya Lalchandani,”Challenges Posed by Insolvency in Real Estate Sector” (New Indian Express, 5 April 2022)< https://www.newindianexpress.com/opinions/2022/apr/05/challenges-posed-by-insolvency-in-real-estate-sector-2437971.html> accessed 6 October, 2022
