Issues Raised – the problems or questions brought before the court.
The core problem involved approximately 42,000 flats proposed by the Amrapali Group of Companies in Noida and Greater Noida that were never delivered, despite home buyers paying up to 100% of the cost.
The home buyers filed petitions because they were suffering a “double loss” (paying bank installments/EMIs without having possession) and feared losing their entire savings. Their interests were jeopardized after an insolvency process (CIRP) was triggered by a bank, leading to restrictions (moratorium) on legal action.
The broader issues concerned the fraudulent diversion of vast sums of money collected from buyers and banks, estimated by the developer itself to be over Rs. 2,765 crores, and the complete failure of the promoters to complete construction.
Issues Framed – the main questions the court decided to examine.
- How to protect the interests of the 42,000 home buyers and ensure the completion of the stalled projects.
- Whether the Amrapali Group directors were guilty of severe misconduct, including a “criminal breach of trust” due to the massive diversion of funds.
- Whether government authorities (Noida/Greater Noida) and banks, who held financial charges/mortgages on the land, could enforce those claims against the projects, given their own alleged collusion and negligence in monitoring the builder.
- Whether the development leases granted to the Amrapali Group should be canceled due to the chronic failure to pay dues and abide by statutory rules.
- How to recover the diverted money from the promoters, directors, and associated fraudulent companies.
Observations on Issues Framed – what the court noticed or said on each issue,
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- Fraud and Diversion: The Court found the conduct of the Amrapali Group to be “dubious and unfair”. The promoters, supported by the CFO and Statutory Auditors, engaged in “patent and blatant fraud”. The money paid by home buyers was diverted (totaling over Rs. 5,619.47 crores) to shell companies often run by junior employees, peons, and relatives of the Directors and Auditors. This diverted money was used for personal expenses (like a daughter’s wedding, luxury cars, and personal assets like hotels and malls).
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- Negligence of Authorities and Banks: Noida and Greater Noida Authorities acted in “clear breach of public trust” by repeatedly failing to monitor the projects, allotting more land despite the developer’s defaults, and permitting the builder to sub-lease land without clearing its substantial public dues. Banks (like Bank of Baroda) were also negligent, acting as “mute spectators” to fund diversion, despite the fact that the money was routed immediately after sanctioning the loans.
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- Status of Mortgages: Because the builder never fully paid the land premium and lease rent to the Authorities (a condition precedent for mortgage approval), the mortgages created in favor of the banks were held invalid.
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- Protection for Home Buyers: The buildings were erected using the home buyers’ money. Therefore, Authorities and Banks cannot be permitted to recover their dues by penalizing the innocent buyers and selling off the projects built with their investment, as this would be “unjust” and constitute “another fraud” upon them.
Sections Interpreted – the sections of law and Act names discussed by the court.
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- Real Estate (Regulation and Development) Act, 2016 (RERA Act): Sections 4(2)(l)(D) (70% mandatory deposit rule), 7 (Revocation of registration), 8 (Obligation to complete project after revocation/lapse), and 11(4)(h) (Mortgage restriction after sale agreement).
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- U.P. Industrial Area Development Act, 1976: Section 14 (Resumption of site).
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- Insolvency and Bankruptcy Code, 2016 (IBC): Section 53 (Creditor payment priority).
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- Foreign Exchange Management Act (FEMA): Provisions related to External Commercial Borrowings (ECB) and Foreign Direct Investment (FDI) were found to be violated (e.g., in transactions involving JP Morgan).
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- The Companies Act, 2013: Section 164(2) (Director disqualification).
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- Constitution of India: The Public Trust Doctrine was applied to hold public officials (Authorities and Bankers) accountable for mishandling public resources and failing to protect the public good.
Law Settled – the legal rule or principle made clear by the court.
The principle that “fraud vitiates” dictates that entities (like banks and government authorities) cannot enforce rights (such as primary charge/mortgage) against a project if they were negligent or complicit in the large-scale fraud committed by the developer who diverted the majority of the invested funds.
Under the RERA Act, the Authority is mandated to ensure that housing projects are completed if a promoter defaults or commits fraud (Section 8). Furthermore, any mortgage created by a promoter on a unit after executing a sale agreement with a buyer cannot affect the buyer’s interest.
The massive financial dues owed by the defaulting builder to Authorities and Banks must be recovered from the personal assets of the promoters, Directors, and the fraudulent companies created by them, not by placing the burden on the home buyers.
Judgment / Directions (Conclusion) – the final order or directions of the court.
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- Lease and Registration Cancelled: The Supreme Court canceled the RERA registration of the Amrapali Group companies. It also canceled the land leases granted by Noida and Greater Noida Authorities.
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- Court Takes Control: The rights to the projects are immediately transferred to a Court Receiver (Mr. R. Venkataramani, Senior Advocate).
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- Project Completion: The NBCC (a government construction company) is appointed to complete all pending projects and hand over possession to the buyers.
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- No Dues Hold-Up: Noida/Greater Noida Authorities must immediately issue completion/occupancy certificates and execute the legal transfer deeds (tripartite agreements) in favor of the home buyers within one month, regardless of the outstanding land dues or bank charges.
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- Financial Recovery: Authorities and Banks cannot sell or demolish the residential units to recover their money. They must recover their dues from the other properties of the promoters and the assets created through the diversion of funds that have been attached.
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- Home Buyer Payments: Home buyers must deposit their remaining dues into a special UCO Bank escrow account established by the Court within three months, and this money will be strictly used for construction.
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- Investigation/Punishment: The Enforcement Directorate is directed to investigate money laundering and FEMA violations. The Institute of Chartered Accountants of India must take disciplinary action against Statutory Auditor Mr. Anil Mittal.
- Recovery from Promoters: Directors, companies, and individuals found holding diverted money must deposit the amounts into the Court account within one month