Amrapali ruling may hit lending to realty sector

Banks are weighing the option of filing a review petition in the Supreme Court as they fear the apex court's verdict in the Amrapali case can leave them with financial holes while solely protecting the interests of the homebuyers.

If the judgement becomes a precedent for other future cases, this could lead banks slowing down their lending to the real estate sector. The Supreme Court on Tuesday said that the homebuyers need not repay the banks, and the banks will have to get back their money by selling off other assets of the Amrapali group. This, the court said, was necessary because the banks did not monitor the end use of the funds.

"The Supreme Court verdict may set a precedent for future cases. If the developer for some reason siphons off the money, the banks will be unable to recover their loan amount. It will put brakes on bank lending to the real estate sector," said a banker.

The Amrapali properties are in the Noida area where 42,000 homebuyers had invested close to Rs 3,500 crore into the project. Much of this money was home loans sanctioned to the homebuyers but released to the developer to complete the project.

In September 2018, the Supreme Court had allowed Corporation Bank, which led a consortium of lenders to Amrapali group, to move National Company Law Tribunal (NCLT) against the real estate firm. The Supreme Court bench led by Justices Arun Mishra and U U Lalit, however, restrained the NCLT from proceeding ahead in the matter without any direction from the court.

When the court realised that the homebuyers would get a raw deal if the company is liquidated in the NCLT, it gave priority to them in getting possession of their homes as they were servicing the home loans sanctioned by the banks.

The Supreme Court on Tuesday cancelled the registration of the Amrapali group and appointed the state-run National Buildings Construction Corporation to complete all its pending projects, bringing great relief to thousands of homebuyers who had invested their money with it. The court said that the banks did not monitor the projects and the money was being siphoned off from the projects by the promoters.

The court also directed the Enforcement Directorate (ED) to investigate the alleged money laundering by the group's chairman and managing director, Anil Sharma, and other directors and senior officials of the group.

The bench appointed senior advocate R Venkataramani as the court receiver. All rights of Amrapali properties will be vested with him after the cancellation of the lease.

The court also directed Noida and Greater Noida to give completion certificates to flat buyers already residing in various projects of the group. It further asked the Centre and the state governments to take appropriate action against the builders who have not delivered the group projects on time.

The trouble started in April 2013 when raids on the Amrapali group revealed that they had not completed any projects between 2009 and 2015. In 2015, 900 families staying in an Amrapali housing society claimed that they were not getting water and electricity. Two years later, they sued Amrapali for Rs 150 crore. In 2017, homebuyers of Amrapali's Dream Valley project moved the Supreme Court against its decision of insolvency proceedings against Amrapali Infrastructure. In October 2018, the court sent three Amrapali directors, Anil Sharma, Shiv Priya and Ajay Kumar, to police custody after Amrapali failed to hand over balance-sheets of 46 companies to auditors.