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It's Time Enforcement Directorate(ED) Investigated "Errant" Real Estate Companies

Sep 18, 2017


Many real estate companies around the National Capital Region have taken money from homebuyers over the years, and failed to deliver homes. Some of these companies have also defaulted on bank loans.

Take the case of Jaypee Infratech, one such company, which has been in the news lately. The company has collected anywhere from 70 to 100 per cent of the price of the homes that they were selling, from around 27,000 buyers. These buyers have paid anywhere between Rs 40 lakh each to Rs 1 crore each, to the company.

On the other hand, the company has defaulted on a loan of Rs 526 crore.

Or let's take the case of Amrapali Group. One of the group companies (Amrapali Silicon City Private Ltd.) has defaulted on a loan amount of Rs 59.38 crore. Over and above this defaulted amount, overdue interest and penal interest adds to another Rs 11.77 crore. This takes the total amount to a little over Rs 71 crore. On the other hand, a newsreport in The Times of India suggests that there are nearly 45,000 homebuyers to whom the Amrapali group hasn't delivered the promised homes.

A report in the Business Today suggests that the group "owes over Rs 1,000 crore to about 10 banks".

When a debtor defaults, the banks can file an application under the Insolvency and Bankruptcy Code, 2016, with the National Company Law Tribunal, to trigger the Corporate Insolvency Resolution Process and appoint an insolvency resolution professional. Under this, the existing board of the company is suspended. The professional has 180 days to come up with a workable solution for the company to be able to repay the loans it has defaulted on. This can be extended by another 90 days. At the end of 270 days if no solution is in sight, then a liquidator is appointed.

The trouble is that currently the homebuyers are not on the list of entities that will be compensated for payment of what is due to them once the company is liquidated. Some suggestions have been made that the homebuyers can be compensated under Section 53(1)(f) of the Insolvency and Bankruptcy Code. This is after workmen, secured creditors, employees other than workmen, unsecured creditors, amounts owed to the central and the state government, etc., have been compensated and before preference shareholders and equity shareholders, are compensated.

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In fact, Section 53(1)(f) lists "any remaining debts and dues," under it. The question is can the money handed over by the homebuyers to these real estate companies be treated as debt? From the legal point of view this does not make sense given that the money that the buyers had handed over to the real estate companies was basically an advance and not a loan. Even with this point, the homebuyers come to low in the hierarchy to hope to be compensated at the end of the liquidation process.

In the case of Jaypee Infratech, where the buyers went to the Supreme Court, in order to stall the insolvency resolution process, the Court has directed the insolvency resolution professional to come up with an interim resolution plan within 45 days. This plan is expected to take into account the interests of homebuyers i.e. those people who paid Jaypee Infratech for homes that were never delivered.

The Supreme Court needs to basically decide whether homebuyers can be categorised as financial creditors or not.

But does not answer the basic question: Where did the money that the homebuyers handed over to the real estate companies, actually go? This is an important question to ask because the bank loans that the developers have defaulted on are really very small, in comparison to the total amount of money they have raised from homebuyers and siphoned off.

Take the case of Jaypee Infratech. The company has defaulted on a Rs 526 crore loan from IDBI Bank. In comparison, various media reports and suffering homebuyers suggest, that the company has taken on more than Rs 20,000 crore from homebuyers. Where did this money go?

Given this, the bank defaults and the non-delivery of homes are two separate issues, and they need to be treated separately.

Of course, Jaypee Infratech is not the only company here. There are many other companies. A newsreport in The Hindustan Times suggests that 13 FIRs were filed against six such companies, Amrapali, Supertech, Alpine Realtech Private Limited, BRUY Limited, Today Home Builders and JNC developers, in early September 2017.

The question is where did the money all these companies and others, raised from homebuyers disappear? Did the promoters pad up the expenses and tunnel this money out to buy land? Or did they simply siphon this money off? Or did they use it to complete other projects? And if that was the case, where did the money that was raised for these other projects go? It clearly seems that money has been laundered by promoters of these companies. Unless, these questions are answered and the homebuyers' money recovered from the errant real estate companies, there is no way that this issue can be solved.

Hence, the questions listed above need to be investigated. Given that FIRs have already been filed against many real estate companies which have not delivered on homes, under the required sections of the Indian Penal Code, the Enforcement Directorate can register cases against these companies and carry out detailed investigations under the Prevention of Money Laundering Act (PMLA).

Of course, this would mean investigating many companies, but the modus operandi of laundering money in many cases would be similar. At the same time, this can set the record straight for the future. If housing for all is to be achieved by 2022 (or even 2032 for that matter), the private real estate companies need to play an important role in it. And given that, it is important that the errant real estate companies not be allowed to get-away with the crime that they have committed against the homebuyers.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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9 Responses to "It's Time Enforcement Directorate(ED) Investigated "Errant" Real Estate Companies"

Kapil Dev Malhotra

Sep 24, 2017

Mr Vivek Kaul has the rare quality to state clearly what is wrong and what the future will be in case impractical policies are continuously pursued. The government , babus and decision makers are far removed from everyday common folks as the system insulates them .People and the policy makers / executers do not have any connect who can guide on practical everyday issues which affect the common man. The everyday people they interact are at best their servants/ people aligned to their views who are careful to give views which suits the seeker. However we need to remove the corrupt entrenched system which can claim the most die hard and motivated people. The policies are not original but shelved plans of the earlier era which are trotted out as new thinking. Clearly we need jobs and population growth check. A culture based on merit and pragmatism.

Like (2)


Sep 20, 2017

I couldn't agree more. The way in which property developers finance their projects with (often) ordinary middle class wage earners money is absolutely scandalous. Frankly it is little different to a gigantic Ponzi scheme. They have got away with it for so long because of the rising values of property, and the fact that so many politicians' and babus' black money is involved.
It is well past time that this situation is brought under strict control.
Demonetisation may have been intended to bring black money under control, but the laws of unintended consequences (and the total failure to think the project through) mean that tens of thousands of ordinary families are losing very substantial sums of money through no fault of their own whatsoever.

Like (2)


Sep 20, 2017

Home buyers should boycott and stop buying under construction properties. Let Banks and other institutional investors take the risk of giving loans to the Builders. They have the resources to arm twist the defaulters if required. Individual investors cannot do that. Of course there are black money investors who invest in Under construction projects, since they cannot invest anywhere else. Let them suffer if the Builders default. We should not worry about them.

Like (2)


Sep 20, 2017

"The question is can the money handed over by the homebuyers to these real estate companies be treated as debt? From the legal point of view this does not make sense given that the money that the buyers had handed over to the real estate companies was basically an advance and not a loan" - how can the law treat advances as part of the assets of the company? Shouldn't these be set aside first - as these are not 'owned' by the company?

Like (2)

Gulshan Lal Malhotra

Sep 19, 2017

Defaulter should be punished by
1. all belonging by defauter should be confiscated
2. their relative's assets should be thoroughly investigated
3. any future asset purchased by relatives at any time in future should always be questioned and suspected
4. defaulter should be allowed only to use public transport system and not private transportation provided by his well wishers
5. defaulter should not be allowed to go to hotel or club by himself or accompanied and sponsored by his well wisher

Like (2)

V. Ramdas

Sep 19, 2017

The promoters and the builders responsible for these crimes should be arrested and their entire properties/ assets attached and money realised should be given back to the victims along with the flats / houses. Courts should act more swiftly and hasen the process.

Like (2)

Samson Francis

Sep 18, 2017

Dear Vivek,

I have been reading all your articles with great interest. They educate and enlighten us.
You have constantly raised valid point and suggestions. Wish the government would take notice of it.
Nevertheless, you have raised our awareness. Thank you and keep on doing the good work.

Like (1)

Sushanta Dey

Sep 18, 2017

It is shocking to know that how a renowned builder like Jaypee Infra, Unitech, Amrapaly etc group had siphoned off common man hard-earned money and we have no law to protect the interest of those people. Even the Sec 53(1) (f) of Bankruptcy code articulated recently did not look into the matter. But as per Contract with the builder/promoter the money advanced to them is payment towards acquiring of the flat and prorate ownership on land on which the building is erected. Can it not be argued and possession be taken on built/half built flat

Like (1)

Chandrashekhar Vaidya

Sep 18, 2017

Mr. Vivek Kaul has been criticising every move of the Modi Government , whether it be demonetisation or even implementation of GST. Now, he is suggesting ED investigation of the Real Estate Companies. It is possible that the Modi Government is already considering such a move. If such an investigation starts, it will certainly upset even the 'Honest' real estate players. This may further erode confidence of the 'economy'and when that happens, the same Mr. Vivek Kaul will then find another reason to complain how the economy is struttering!

Sorry to sound critical but unfortunately, Mr. Kaul comes across as clearly biased. This is not to say that Modi Government has not made mistakes but Mr. Kaul needs to distinguish between outcomes and intentions!

Like (1)
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