NBCC To Lead Completion Of Supertech's Stalled Projects, Securing Homebuyers' Rights

The judgment advocates for transparency and accountability in the real estate industry and protection of the rights of homebuyers, lenders, and public funds.

Background Facts:

M/s. Supertech Limited (“Corporate Debtor”) is a real-estate Company engaged in construction of various housing Projects in Noida, Greater Noida, and other cities of the country. Union Bank of India (“Financial Creditor”) had extended financial facilities to the Corporate Debtor for Project Eco Village-II. There being default committed by the Corporate Debtor in repayment of financial facilities, Section 7 Application was filed and admitted.

An interim order was passed on 12.04.2022, directing the IRP not to constitute the Committee of Creditors (“CoC”). The order was modified on 10.06.2022, permitting CoC to be constituted with regard to Project Eco Village-II only; other Projects were to continue under the supervision of Interim Resolution Professional (“IRP”).

The Supreme Court passed an order on 11.05.2023 which allowed operation of order dated 10.06.2022. The Tribunal directed Project wise resolution on 31.05.2024.

On 15.07.2024, NBCC showed interest in the Projects of Corporate Debtor. On 19.09.2024, NBCC filed an application to undertake the Projects, which was allowed. On 16.10.2024, the Tribunal directed the implementation of the Master Agreement to complete the Project.

In an application filed by NBCC Ltd., the Supreme Court on 01.10.2024 directed that the pendency of appeals would not hinder NCLAT's examination of NBCC's proposal for 17 ongoing Projects of the Corporate Debtor.

The order passed by the NCLT, New Delhi dated 25.03.2022 admitting Section 7 Application filed by Union Bank of India against the Corporate Debtor - M/s. Supertech Limited was challenged.

Submissions:

Counsel for Yamuna Expressway, Noida, and Greater Noida opposed the application filed by NBCC on two main grounds. It was submitted that these authorities have provided land to Corporate Debtors, and there are liabilities on the Corporate Debtors towards statutory authorities. The NBCC Proposal does not address the repayment of these dues in the Terms of Reference. Without including a repayment plan, the Proposal is neither acceptable nor feasible. NBCC's request for a waiver of statutory compliances or financial concessions cannot be accepted, as these Authorities are bound to follow the UP Industrial Development Act, 1976, and related regulations. It was further submitted that the statutory Authorities must be included in the proposed Court Committee to safeguard public interest.

Counsel for Homebuyers expressed support for the NBCC Proposal to complete the Projects, bringing attention to the long-standing delays in the delivery of their homes. It was submitted that Homebuyers should not be asked to pay any additional amounts beyond what was agreed to in the Builder Buyers Agreements.

One group of Homebuyers expressed concerns about the NBCC Proposal. Cape Town Association of Apartment Owners highlighted deficiencies in the Status Report filed by IRP related to safety issues, water, and electricity concerns. Eco Village-II Welfare Association proposed the formation of a Court Committee and a project-specific bank account. It was further submitted that the liability period should be extended to 5 years, rather than 2 years mentioned in NBCC's Terms of Reference. Allottees of Eco Village-I objected to lack of a clear timeline for completion. It was argued that NBCC should be held accountable for adhering to RERA requirements.

Supertech North Eye, Supertech Group Buyers Association submitted that NBCC's proposal lacked clarity regarding finance sources, timelines, and escalation costs. The Counsel advocated for the establishment of a project-wise committee and the fulfillment of financial obligations towards lenders and authorities.

26,475 homebuyers submitted support for the NBCC proposal. They insisted that a forensic audit should be conducted and a project-specific committee be formed to ensure that no cost escalation burden is placed on homebuyers.

Counsel for Homebuyers submitted that Homebuyers are not much concerned as to who constructs the project, but they are concerned with the timeline under which the construction is to be completed and the houses delivered to them. Homebuyers should not be asked to pay any extra amount apart from the amount agreed upon in the Builder Buyers Agreement.

Homebuyers also pressed for their entitlement to delay compensation due to the delay in handing over the houses, and argued that delay compensation may be adjusted against the amount payable by the Homebuyers as per the Builder Buyers Agreement.

Shri Abhijeet Sinha, Senior Counsel for the Appellant opposed the proposal by NBCC. He submitted that NBCC lacks locus to file any application in this proceeding, as it is neither a creditor, stakeholder, nor a party in the appeal. He further submitted that the application titled 'Proposal on behalf of NBCC' does not propose any substantive resolution and can only be described as a proposal to give a proposal.

Alok Kumar, Founder of THS - The Law Firm, Counsel for the Union Bank of India (Financial Creditor), stated, “The decision to entrust the projects to NBCC was in the best interest of all stakeholders. NBCC, being a PSU audited by CAG, has demonstrated its capability in delivering complicated real estate projects like Amrapali. While there were proposals from other interested parties, they did not align with the interests of the banks or homebuyers. In this case, NBCC was undoubtedly the best option to ensure timely delivery of flats to homebuyers, recovery of dues for banks, and payments to landowning authorities.” Union Bank of India supported NBCC's proposal, citing its capability to restore confidence among all stakeholders and recover public funds effectively.

Shri Nakul Dewan, learned Senior Counsel for the IRP submitted that if the projects are to be handed over to NBCC, a Project-wise Committee consisting of IRP, Land Authorities, Financial Lenders, and representatives of Homebuyers should be established to supervise the projects.

Counsel for Lenders submitted that the proposal that payments to lenders should be made only from surplus funds after completion of project is unacceptable.

Shri Gopal Jain, Senior Counsel for NBCC submitted that NBCC's proposal is based on its proven track record in the Amrapali case, where it successfully constructed thousands of flats under the direction of the Supreme Court. He also submitted that NBCC will ensure safe and reliable construction as per CPWD norms. He further submitted that construction will begin with funds from Financial Institutions and receivables from sold units, and surplus funds after completion of the projects will be distributed to stakeholders, including Authorities and Banks.

Observations & Directions:

The Tribunal observed that NBCC cannot be exempted from complying with statutory requirements, including the RERA Act. The Tribunal referred to the judgment in Bikram Chatterji & Ors. v. Union of India, which laid down that public trust doctrine calls for the State and its functionaries to take affirmative action for effective management.

The Tribunal observed that Homebuyers who had made substantial payments for units in various projects are entitled to recover only the unpaid dues as per the Builder Buyers Agreement. It clarified that there shall be no additional cost imposed on the Homebuyers for completion, except the outstanding dues. The Tribunal also noted that the completion of projects must be funded by the unsold inventory, receivables from Homebuyers, and funding from NBCC.

The Tribunal directed that the completion of projects should be prioritized, without further financial burden on the Homebuyers for delay-related costs.

As regards real estate projects covered under the RERA, the Tribunal noted that section 4(2)(l)(D) mandates that 70% of the funds collected from allottees be deposited in a separate bank account to cover construction and land costs. The Tribunal directed that the remaining 30% can be used for corporate, legal, and CIRP-related expenses, as well as outstanding payments to financial creditors, land authorities, financial institutions, and banks, subject to Court Committee approval. The Tribunal held that the promoter must withdraw funds from this account in proportion to the completion percentage of the project. The funds must only be used for the specific project and audited annually.

NBCC was authorized to take over as Project Management Consultant (PMC) for the projects and will prepare monthly/quarterly cash flow projections. NBCC was directed to adhere to all statutory and regulatory requirements, including RERA. The Tribunal observed that NBCC's proven track record, including its role in the Amrapali case, makes it the ideal choice for managing Supertech's stalled projects. The PSU will consolidate efforts, ensuring that cash surplus from certain projects is directed to cash-deficient ones, preventing “cherry-picking” and safeguarding public money​.In order to Safeguarding Homebuyers' Interests, the Tribunal directed that:

• Homebuyers will not bear additional costs beyond their Builder Buyer Agreements.
• Quality construction will be prioritized, with third-party audits conducted by reputable institutions​.
• Projects must be completed within 12 to 36 months.

The court-appointed committee will oversee the progress, supported by project-specific subcommittees involving representatives of homebuyers, lenders, and statutory authorities.

The Tribunal's decision is a ray of hope for over 50,000 homebuyers who have been waiting for possession of their homes, many of whom have faced financial hardships due to delays.

Case Title: Ram Kishor Arora, Suspended Director of Supertech Ltd. vs. Union Bank of India & Anr.

Case Number: Company Appeal (AT) (Insolvency) No. 406 of 2022 & Interlocutory Application No.6557 of 2024

Date of Judgment: 12.12.2024