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Weeding Out Shady Opertaors

Weeding Out Shady Opertaors

Is the world of real estate murky? Are homebuyers are mostly at the mercy of the builders? Well, a home being the single largest investment a middle class individual makes during her/his lifetime. Housing, though a necessity for a vast majority of our population without a roof over their heads, sadly also seems to be an elusive dream for many who have invested their hard earned money to fraud builder groups.

The landmark Supreme Court ruling earlier this week related to the Amrapali group has brought to light the harsh realities as to how a group of ‘promoters’ capitalized on the idea to fool thousands right under the noses of the general public including the regulatory authorities and financial institutions.

The Apex Court not long ago had come down heavily on two leading real estate giants - Unitech and Jaypee – which had failed to deliver as promised leaving hundreds of home buyers in the lurch literally. Unitech’s top brass Sanjay Chandra and his brother Ajay Chandra, arrested on April 1, 2017, on complaints of cheating filed by homebuyers against them have been jailed.

Amrapali is a classic case, where on a large scale, middle-class home buyers have been defrauded of their hard-earned money and the company failed to deliver housing projects on time, forcing home buyers to move court.

In its 270 page judgment, the top court, by cancelling the registration of the Amrapali group under the Real Estate Regulation and Development Act (RERA) the top court has sent the right signals.

Amrapali’s 46 firms now have to face forensic audit. Hopefully not only crores of rupees invested by homebuyers, which were apparently diverted will be tracked but over 42,000 home buyers who had invested in the housing projects of the debt-laden Amrapali group can look forward in possessing their ‘dream homes’ soon as the state-owned National Building Construction Company (NBCC) is to complete the housing units that Amrapali failed to deliver.

There seems to be no escape route for the promoters of Amrapali as the Enforcement Directorate will investigate Amrapali Group officials and directors over money laundering which could lead to their assets getting attached.

The Supreme Court appointed forensic auditors found that the Authorities and Bankers violated the doctrine of public trust and their officials acted in collusion with builders. The auditors’ report makes it clear that Bankers failed to ensure and oversee that the money was invested in the projects and not diverted elsewhere. However, the money obtained from banks was diverted to unapproved uses like creation of personal assets of Directors besides bogus flat allotments. Amrapali Directors diverted money by creating dummy companies, realizing professional fees, creating bogus bills, selling flats at undervalued price etc.

More shocking revelation is that JPMorgan Chase & Co, a unit of the American multinational investment bank and financial services company headquartered in New York City, violated India’s foreign investment rules and helped Amrapali Group divert funds from realty projects.

Reportedly, JPMorgan investment of around Rs 850 million in an Amrapali Group company’s shares which it sold to an office boy and nephew of the auditor for Rs 1.4 billion is only a tip of the iceberg.

Since 2015, no construction activity had taken place; although account books were not maintained, money however was routinely transferred but no audit undertaken.

Also money was taken out from banks and fake purchases made. Allegedly the violations range from disregarding foreign investment norms, paying dividend without generating profits, setting up fake companies and overvaluing shares.

Notably it was found that no accounts were prepared effective 2015 till 2018 and money withdrawn was diverted during the said period. The Directors who were not employees pocketed professional fee without rendering any professional services.

Dummy companies were created in the names of peons, boys of office etc. and several companies were created only for the purpose of few transactions. Funds close to Rs 2,996.20 crore were transferred to 9 companies of the Amrapali Group.

Even as the Amrapali matter has been listed for further hearing this   August 9, among others, the Apex Court has cancelled with immediate effect the various lease deeds granted in favour of Amrapali Group of Companies by the authorities for projects in question and rights will vest in the Court Receiver appointed for the purpose. The rights of Noida and Greater Noida Authorities including banks to sell the homes of home buyers or the land leased out for the realization of their dues has been cancelled. While NBCC is to complete the various projects and hand over the possession to the buyers, all outstanding amount under the Agreement entered by home buyers with Amrapali is to be deposited in a special bank account within the Supreme Court premises within 3 months which shall be invested in the fixed deposit and disbursed under the Court order on phase-wise completion of the projects/work by the NBCC.

The initiative of the judiciary in cleansing the real estate sector and weeding out shady operators is challenging. Nonetheless, there is an imperative need for regulatory authorities and financial institutions to complement such efforts in the right earnest.

(Published on 29nd July 2019, Volume XXXI, Issue 31)