What are your views on Sept 2016 judgement by HC on Unitech Compr
UNITECH is among the biggest defaulter of real estate industry in recent times. Of the 17000 units sold, only a few thousand have been delivered by realty major in last decade. In an affidavit submitted by the company in Delhi High Court, close to 75+ projects are stuck in various parts of the Country. There are hundreds of cases filed by homebuyers from across the country against the developers and most of them are resulting in favorable orders like higher delay compensation and refund of the amount at 18%. However, the companies have been incompetent in honoring the court orders. Lack of fund is being touted as the reason for the mess up. While all this was happening, a group of buyers, claiming to be from various projects of Unitech filed a petition in Delhi High Court. They submitted that the NCDRC has awarded decrees in favor of various homebuyers and in some cases, also directed the respondent company to refund the amount of the homebuyers along with an interest * 18% p.a. The buyers apprehend that if such refunds are forced on the company and continue to be paid by the company, the construction activity of the company will completely halt and the company very soon will be in a situation of zero liquidity and may go into winding up at the instance of a few homebuyers and in that event the collective dreams of all the homebuyers of getting their residential units/flats will never materialize. They further apprehend that the properties of the respondent company may also get attached and auctioned to pay the debts/loans of the banks and the financial institutions, who have advanced huge loans to the company, thus, leaving the applicants herein along with other homebuyers without any substantive remedy since all the‘ homebuyers fall in the category of unsecured creditors of the respondent company. The buyers have submitted that they are solely keen to get the delivery and possession to their respective homes rather than wasting their valuable time and resources in pursuing litigation against the company. Thus, the applicants have proposed the draft Scheme of Compromise and Arrangement with the respondent which, according to the applicants, if approved by the respondent company and the class of homebuyers, who are unsecured creditors of the company, will ensure that the company will be able to complete the development of its projects, and eventually hand over the residential units to its homebuyers including the applicants herein. Scheme of Compromise and Arrangement The homebuyers submitted a draft Scheme of Compromise and Arrangement. The salient features of the Scheme are as under: a) Legal Proceedings Current : It is proposed that after this Scheme of Arrangement comes into effect, all legal proceedings initiated by the Unit Holders against the company and against the director-promoter or any officer of the company before any Court, Tribunal or before any Authority under the provisions of the Consumer Protection Act, 1986 and/or under any other legislation, code, law in force, if any, shall be withdrawn by the Unit Holders. Future : No homebuyer/unsecured creditor shall institute any fresh proceedings in any Court, Tribunal or before any authority against the company and its directors/officers under the Consumer Protection Act, 1986 and/or under any other legislation, code, law in force, in any respect. b) Possession to the home buyers where delay is more than 2 years from date of scheduled delivery: i)Such homebuyer shall get enhanced compensation equal to 2 times of the present delay penalty clause effective from the date of approval of the Scheme, prospectively; ii) Such enhanced penalty shall be adjusted from the final payment made/to be made by the homebuyers or by way of adjustment from the maintenance charges/advance payable by the homebuyer to the company or its associate maintenance company. iii) The company shall complete construction of the houses of the estranged homebuyers (who are presently delayed for a period more than 2 years from the date ,of their scheduled delivery) within a period of 2 years from the date of approval of the Scheme. c) Possession to the home buyers where delay is upto 2 years from date of scheduled delivery: i) Such homebuyer shall get enhanced compensation equal to 1.5 times of the present delay penalty clause effective from the date of approval of the Scheme, prospectively until such homebuyer falls in Category I when he will be compensated in terms- of that category and such compensation will be effective from the date of such change of category; ii) Such enhanced penalty shall be adjusted from the final payment made/to be made by the homebuyers or by way of adjustment from the maintenance charges/advance payable by the homebuyer to the company or its associate maintenance company; iii) The company shall complete construction of the houses of the estranged homebuyers (who are presently delayed for a period up to 2 years from the date of their scheduled delivery date) within a period or3 years from the date of approval of the Scheme. Other Conditions for Categories I and II: i) All the proceeds from the Customers shall be kept in the separate account and shall be utilized for the purposes of construction only subject to prior charge or encumbrance of banks and financial institutions etc.; ii) One representative from the Home Buyers from each project shall monitor the construction activities on the Project and shall become a coordinator and shall have access to accounts on a weekly basis; iii) The representative of Home Buyers to monitor and assist in collecting installments dues from the defaulting customers to speed up the process of construction. d) Phased Manner Exit and Refund to the homebuyers who wish to exit: To ensure that construction of Project is not jeopardized and at the same time, those of the home buyers who do not wish to continue in the project, may be given the following option:- i) Designated Refund Account A Designated Refund Account be formed for each Project in which 10% of the proceeds from the customers of each project are transferred. The amounts in this Account shall be used exclusively for the purpose of refunds to these customers in 12 equal installments after zero period of 12 months from the date of approval of Scheme. ii) Hardship Cases In the hardship cases, where the homebuyers need urgent refund can approach the Hardship Committee for such refund and in such cases, after the approval of hardship committee, which will compromise of one representative of home buyers, one official from company and one officer from the Hon’bleHigh Court of Delhi, payments upto Rs.5 lacs may be released from the Designated Refund Account on the basis of priority decided by Hardship Committee. e) Failure to deliver the houses In the event, Company is not in position to offer houses to certain home buyers for any reason whatsoever after the lapse of period mentioned in Category I and II, Company shall be obligated to refund the amount in terms of the Buyers Agreement after the expiry of period (2 years or 3 years as the case may be) provided in the category to which home buyer belonged, from the date of approval of the Scheme. Courts Observations Section 391 of the Act deals with the powers of this Court to sanction any compromise or arrangement. The said section is a code in itself and it, inter alia, envisages consideration of a Scheme of Arrangement or Compromise with a class of creditors which may be the shareholders, the board members, the secured creditors, the unsecured creditors or any sub-category within each class. The applicants are proposing a Compromise and Arrangement between the homebuyers, as a class, with the respondent company. The homebuyers are the unsecured creditors of the company who have invested their money in the projects brought up by the respondent company and have made part deposits towards booking and allotment of a flat in the different projects of the company. The company is supporting the compromise and arrangement and, as noted earlier, has filed affidavits in this behalf. In its affidavits, the company has undertaken to fulfill its obligations towards the flat buyers within a specified time limit for each project and also to compensate the said flat buyers/unsecured creditors for the delayed ·handing over of the flats by promising to almost double the compensation provided under the individual buyers agreements. The plight of the homebuyers is certainly very distressing. There is no denying this fact. They are well within their right to approach all legally available forums to secure their investment or to seek enforcement of the agreement with the company. However, in the existing set of facts and circumstances, and in the light of the proposed Scheme of Compromise and Arrangement, if the company is not granted an opportunity to carry forward its proposed Scheme of Compromise and Arrangement, the net effect would be that the company, in the absence of any opportunity to fulfill its projects, might face erosion of its net worth and suffer loss of credibility, putting it at the threshold of liquidation. So far as the approval of the Scheme of Compromise and Arrangement from the shareholders and other statutory and secured creditors is concerned, the respondent company shall take appropriate steps to get the same approved by all the stakeholders, prior to the filing of the second motion petition. The company, as well as its directors, are facing prosecution in addition to the financial strain on the company’sresources because of the decrees passed against them. If a substantive, effective and meaningful opportunity is to be provided to the company to complete the projects and to handover possession to the homebuyers, it is important that they must be protected against execution of decrees passed against them. This protection being granted to the company and its directors is with the sole object of affording them. a reasonable opportunity, as requested by them, to fulfill their commitments towards the flat buyers by completing the flats and handing over the possession to the respective buyers. in order to ensure the smooth completion of each of the 41 held-up/stopped projects, three different Escrow Accounts, viz. Project Sales Escrow Account, Development Escrow Account and a General Escrow Account will be opened and the monies therein will be used for the sole purpose of completing the projects and meeting the statutory liabilities of the company the company owns these non utilized lands and properties and there is no stay on the sale of such non utilized land and properties, the company would be at liberty to sell such lands and properties and use the funds generated for expeditious completion of the projects. The company would ensure that such sale/of lands and properties is at the market rate and in any case not lower than the prevailing circle rates. The sales of lands/properties conducted would be in the knowledge of the Court Commissioner to ensure that the funds generated from the sales are transferred to the General Escrow Account and used only for the purposes of the completion of the projects. The Action Plan Mr. Lorren Bamniyal, Registrar of this Court is appointed as the Court Commissioner, who shall monitor the functioning of the Escrow Accounts and also keep a watch on the use of the funds by the company from the three Escrow Accounts solely for the purposes of completion of the held-up/stopped projects of the company and also ensure that the flats/units are handed over to the homebuyers within the period specified in the Scheme of Compromise and Arrangement. The Order All execution proceedings pending or which may be filed against the company before different forums, in respect of the projects of the company, details of which are provided in para 10 above, shall be kept in abeyance till further orders. However, cases in which directions have been issued or may be issued in future by the Supreme Court of India to the company in this behalf shall stand exempted from the scope of this order.