SUMMARY OF DECISION BY THE HON’BLE SUPREME COURT OF INDIA IN THE CASE TITLED

“BIKRAM CHATTERJI & ORS. v. UNION OF INDIA & ORS. [1]”

(- BY ASHISH GARG, ALBA LAW OFFICES)

*** Please note that the discussion herein below (for the aforementioned case) is only concerned with regards to the various infractions committed viz-a-viz the homebuyers and no comment is being made with regards to other issues discussed therein.

• FACTS OF THE CASE:

The present case is a landmark decision by the Hon’ble Supreme Court concerning the real estate industry in India and probably the most awaited one in light of the various difficulties being faced by the homebuyers all over India.

The facts of the present case can be summarized as below:

1. A writ petition was filed by homebuyers of various projects aggrieved by the Corporate Insolvency Resolution Process being initiated by the National Company Law Tribunal (“NCLT”) in a Company Petition (No. (IB)-121(PB)/2017) filed by the Bank of Baroda against M/s Amrapali Silicon City Private Limited.

2. The homebuyers stated that by initiating the Corporate Insolvency Resolution Process against M/s Amrapali Silicon City Private Limited and by virtue of the Moratorium issued thereon, the interest of thousands of homebuyers of various projects, being developed by the M/s Amrapali Silicon City Private Limited and other related entities (“Amrapali Group”), were being affected adversely.

3. The Supreme Court after hearing the grievances of the homebuyers and in light of the allegations of siphoning of funds being made against the Amrapali Group, decided to take cognizance of the Petition and ordered a Forensic Audit to be conducted of all the entities under Amrapali Group.

4. Before the Supreme Court, in addition to the Amrapali Group, the pleas of the homebuyers were challenged by the Noida and Greater Noida Authorities (the “Authorities”) with whom Amrapali Group had executed Lease Deeds on the parcel of lands over which the projects were being developed, and the Banks who had financed loan to the Amrapali Group under various Mortgage Deeds, by claiming that their right over the projects take precedence over any right of the homebuyers under their respective Lease Deeds and Mortgage Deeds.

• ISSUE BEFORE THE SUPREME COURT OF INDIA:

The Supreme Court after hearing the parties to the dispute, was concerned with following issues:

1. Validity of the charge being claimed by the Authorities over the projects being developed by Amrapali Group (hereinafter referred to as “Issue – A”).

1. Validity of the charge being claimed by the Banks over the projects being developed by Amrapali Group (hereinafter referred to as “Issue – B”).

1. 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”).

1. What relief can be provided to the homebuyers in light of the present facts and circumstances.

• ANALYSIS AND OBSERVATIONS OF THE ISSUES

• CONTENTION OF THE PARTIES

It was contended on behalf of the homebuyers that:

1. The dues of Authorities cannot be treated at par with the dues of homebuyers and that the charge of the money paid by the homebuyers must be treated as the highest priority;
2. The Authorities are liable to issue Occupation/Completion Certificate (“OC/CC”) for the various buildings that have been completed and are being inhabited by the homebuyers, despite the fact that land dues of the Authorities have not been paid by the Amrapali Group.

1. 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 till date, including non payment of premium installments stipulated under the Lease Deeds, despite the fact that nearly all amount has been realized from the homebuyers by the Amrapali Group;

1. The Public Trust Doctrine enshrined under Article 21 of Constitution of India is very much applicable upon the Authorities and a duty is cast upon them to act fairly and reasonably in order to promote public good and public interest;

1. 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 needs to be cancelled;

1. That not only the Authorities, but the Banks were also very negligent on their part as they gave loans to the Amrapali Group inspite of the facts that no development of the projects had taken place and no diligence of any sort was conducted by the Banks before sanctioning loans to Amrapali Group;

1. The Banks after sanctioning of the loans forego 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;

1. The Mortgage Deeds issued between the Banks and Amrapali Group have no sanction under no law, because of the fact that they were premised upon conditional NOC’s by the Authorities, which clearly stated that the NOC is valid only if payment of premium and lease rent has been done.

1. The RERA Registration of the Amrapali Group over the various projects is liable to be cancelled because of the continuous and persisting delay by the Amrapali Group in completing the projects.

It was contended on behalf of the Authorities that:

1. By virtue of the Lease Deeds executed by the Amrapali Group, the Authorities had first charge over the projects and their charge would take precedent over other charges including the charges created in favour of banks and other financial institutions.

1. 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 lease after receipt of 10% of premium was a carefully thought out policy approved by the State Government;

1. That the Authorities had been diligent in their approach viz-a-viz the Amrapali Group and have been sending notices to the Amrapali Group for payment of premium instalments. The Authorities further submitted that they did not want to take the drastic step of cancelling the Lease Deeds as the said step would then require demolishment of all structures constructed on the various parcels of land.

1. That no OC/CC can be issued till the time the dues of the Authorities have been paid.

It was contended on behalf of 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 utilization of funds post their sanctioning;

1. 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;

1. The homebuyers are not secured creditors and thus do not have any right, title or interest on the basis of allotment through flat buyer agreement.

The Supreme Court, after considering the contentions of both the parties and the report of the Financial Auditors, wherein, siphoning off of the funds by the Amrapali Group was confirmed, stated that:

1. The Public Trust Doctrine is applicable upon 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 favor of the Amrapali Group, and the homebuyers are empowered to question its effectiveness;

1. The fact that the land of the farmers had been acquired for the purpose of housing and infrastructure needs by the State Government, the Authorities were bound to ensure that builders act in accordance with the objective behind the acquisition of land and the conditions on which allotment had been made;

1. The Authorities were very negligent in their conduct and did not take any corrective step against the Amrapali Group even though there were repeated infractions by them. The Authorities not only failed to observe the terms of the Lease Deeds and keep track of the projects, but also permitted the Amrapali Group to execute sub-lease of the projects, thereby allowing Amrapali Group to earn a huge amount without making payment of the amount due to them;

1. The Authorities have in collusion with the Banks and Amrapali Group permitted diversion of funds of homebuyers and if contention of the Authorities/Banks with regard to their charge over the projects is accepted, fraud would be committed upon the homebuyers who have been taken on ride for no fault of theirs.

1. The conditional NOC issued by the Authorities to Amrapali Group make it evident that the said NOC is only valid in case where full payment of premium has been made and upto date annual lease rent had been paid, however, considering that no such payments were made by the Amrapali Group, no mortgage was created in favour of the Banks over the project properties;

1. 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 NOC’s being issued by the Authorities;

1. That in light of the present circumstances the principle “fraud vitiates” is clearly attracted and it is the duty of the Court to not only save the homebuyers but also ensure that they are not cheated.

1. The provisions of RERA Act have been violated by the Amrapali Group and the reliance by the Amrapali Group on the force majeure provision of the RERA Act is misconceived as the scenarios enumerated by the Amrapali Group is covered under the ambit of force majeure

• DIRECTION BY THE SUPREME COURT:

The Supreme Court after stating the aforementioned, held that:

1. The RERA Registration of Amrapali Group under RERA Act shall stand cancelled and the various projects shall now henceforth be completed by NBCC (India) Ltd;

1. The various lease deeds granted in favour of Amrapali Group Authorities for projects in question stand cancelled and all rights shall henceforth vest in Court Receiver (Senior Advocate, Shri R. Venkataramani);

1. The Authorities and Banks shall have no right to sell the flats of the home buyers or the land leased out for the realization of their dues and all their dues shall have to be recovered from the sale of other properties of Amrapali Group which have been attached;

1. The right of the lessee shall vest in the Court Receiver (earlier with the Amrapali Group) and he shall execute through authorized person on his behalf, the tripartite agreement and do all other acts as may be necessary and also to ensure that title is passed on to homebuyers and possession is handed over to them;

[1] Writ Petition (C) No. 940/2017