Six years of IBC - impact on Real Estate sector

Six years of IBC 2016 www.infralive.com 35 InfraLIVE January 15, 2023 from homebuyers in various projects of Unitech, the amount paid by them, the amount lying with the company and also assess- ing the number of homebuyers interested in taking possession. The Amicus Curiae in his report submitted that as many as 61 out of 74 construction projects under- t aken by the company were incomplete. About 16,300 home buyers are involved in these projects. He estimated that the company owed Rs 7,816 crores to the homebuyers and they would be required to be refunded, if the flats were not handed over to them. Counsel of Unitech however submitted that if permitted, the developers would wish to generate funds by monetising their assets. The Apex Court directed the d i rec tor s/ promot er s o f the company to deposit an amount of Rs 750 crores byDecember 2017. In order to facilitate the process, the Apex Court had directed that requisite facilities be extended to the directors who are lodged in Tihar jail so as to enable them to negotiate the sale of their unen- cumbered properties or assets. However, the court's order was not fully compliedwith and only Rs 307 crorewas deposited. In March 2018, the Apex Court directed the directors of Unitech to file affidavits stating the details of the unencumbered properties of the company and their subsidiaries both in India and abroad. In pursuance thereto, a list of unen- cumbered assets was filed before the court. Later on, the court also directed the company to file a list of their encumbered properties together with the extent of encum- brances. The directors of Unitech and its subsidiaries were also directed to file a list of their personal assets. In pursuance of court's order, certain affidavits were filed. However, the affidavits were incomplete and bereft of details, including the value of the proper- ties, in the absence of which the extent of encumbrances could not be determined. Further, the information regarding assets furnished to the benchwas found to be contradicted by the filings made by company in proceedings , pending in other jurisdictions. Justice SN Dhingra Commit- tee While the bench continued to warn the directors to give the complete details of assets, the Apex Court constituted a committee headed by Justice SN Dhingra, former Judge of the Delhi High Court for conducting sales of unencumbered properties of the company so as to monetise the assets for completion of the stalled projects and/or making refunds to the homebuyers. The Apex Court noted that despite having collected money fromthe homebuyers, the company has neither delivered the promised flats in the projects nor it is in a position to refund the amounts collected. The amount of Rs 750 crores that was directed to be realised by December 31, 2017 has also not been deposited till Decem- ber 2018. The Apex Court felt that it was necessary to ascertain how the funds which have been collected both from the homebuyers and the financial institutions have been utilised, particularly in view of the disturbing state of affairs brought to its notice by the Delhi Police in W.P.(Crl.) No. 2298 of 2016. The case disclosed the manner in which f u n d s we r e c o l l e c t e d f r om homebuyers and then siphoned-off before the accounts were closed, the fact of availability of Rs 4,500 crore as reserves and surplus capital in the foreign subsidiaries of Unitech, closure of newly incorpo- rated 150 subsidiaries of Unitech during 2011-2012 to 2016-2017 and observations made by the inde- pendent auditors of company. Forensic Audit of Unitech GroupbyGrant Thornton The Apex Court accordingly ordered for a forensic audit of the Unitech group of Companies including its subsidiaries, sister concerns and directors commenc- operating in a manner prejudicial to public interest - in this case, homebuyers, shareholders and depositors - for suspending the board of directors headed by Ramesh Chandra of the Unitech Ltd and for appointment of 10 member board of directors by the central government for running the affairs of the Company. It was primarily because Unitech owed over Rs 7,800 crore to 16,300 homebuyers in 61 projects. The GOI petition, cited the fate of 19,000 homebuyers, 15,000 small depositors and 7 lakh shareholders as constituting public interest. The company has also defaulted on debentures worth Rs 251.78 crore and owed small depositors Rs 596.76 crore. Therefore, the Principal Bench of NCLT admitted the plea and suspended the Board and directed the Ministry of Corporate Affairs (MCA) of union government to nominate the directors of the company. However, as the issues pertain- ing to the affairs of the company was already before the Apex Court in a bail petition case since August 2017, the matter was brought to the notice of the bench of the Apex Court. The Supreme Court stayed the order dated December 8, 2017 passed by the Principal Bench of NCLT. Unitech Ltd, established in 1971, is a listed company. The company, once the country's second largest real estate firm after DLF Ltd, is primarily involved in the real estate sector. The company has 186 domestic subsidiaries and 32 foreign subsidiaries, along with 20 associates/ joint ventures. The company has a total of 78 residen- tial projects and 13 commercial projects, including the ones being executed by its subsidiaries and joint ventures. AmicusCurie appointed The Apex Court appointed counsel Pawanshree Agrawal as Amicus Curiae to assist the court in assessing the magnitude of the grievances of homebuyers by collecting and collating the data