The Supreme Court’s directive sending three directors of the Amrapali group to police custody will be welcomed by homebuyers. The highest court’s directive to hand over all documents relating to 46 group companies to forensic auditors and give possession of flats to 42,000 buyers carries a big message for real estate companies. The Amrapali case points out that the long arm of the law will reach wrongdoers wherever they might be. Charges of siphoning off money that were levelled against the promoter directors are serious and need to be probed quickly. Given that these promoters have violated laws and not discharged their responsibility of developing real estate implies serious contractual misdemeanour.
Supreme Court’s decision to handover incomplete projects of the Amrapali group to NBCC for completion may provide relief to harassed homebuyers. The court’s decision to sell unencumbered properties to mobilise funds is again a doable assignment. Amrapali is not alone in harassing homebuyers. The Gaur family promoted Jaypee Group’s real estate projects have hit a big wall – and without completion, the company faces bankruptcy. Ambitious and unsustainable expansion of Jaypee Group projects with investors and homebuyers running from pillar to post is unacceptable. Moreover, the feud in the Gaur family coupled with mismanagement has hit the company’s housing projects. The experience of homebuyers with Unitech has been no different, as the company has gone under with huge stock of incomplete projects and frustrated middle class families who have been left out in the cold as a result. These cases are symptomatic of the mess that commercial and residential real estate sector in India has landed investors in. And, in most cases, there has been no easy way out notwithstanding intervention from state government agencies.
The larger issue is how to deal with errant builders that have either cheated or siphoned off funds as in the case of both Amrapali and Unitech. In Amrapali alone, diversion of over Rs 2,765 crore from six projects has been reported. This has left individual investors flummoxed.
All the companies mentioned above, like many others in the same business, have resorted to questionable practices. Over 31,475 realty projects are under implementation across 28 states while a huge chunk of these ventures remain incomplete. Over 300,000 homebuyers have had a very bad experience with their hard earned money getting stuck in projects that may not near completion anytime now. Promoters that have defrauded homebuyers must be put behind bars. The court’s directive in the Amrapali case should serve as a deterrent for other promoters that have amassed wealth in the name of real estate development. The government’s move to create a stressed assets fund may not work for the simple reason that most incomplete projects were never ‘business failures’. Promoters’ greed, over-leveraging or cooking up companies’ balance sheets to borrow heavily or random diversification and expansion are the key issues.
Seizure of directors and promoters assets could be one option before the law enforcement agencies to ensure investors get their flats and repayments were to banks. But then, do the governments in states have the wherewithal to undertake such operations? Given that many real estate promoters are also bigwigs in known political parties, action against the erring companies may not happen easily. Bringing all the projects under Real Estate Regulation (Regulation & Development) Act and consequently allowing regulators to take a call could be one area on which the government should work. The positive aspect of regulating realty firms and their agents is that most states have implemented RERA, notified rules and constituted regulators in their respective areas. While Maharashtra has taken the lead in the matter, states like West Bengal will have to follow suit.