New Delhi: The Amrapali case has been the most infamous case of real estate fraud in recent times, with thousands of homebuyers left in the lurch, without a means to fight against a prominent builder.
However, the Supreme Court Tuesday cancelled the registration of the Amrapali Group, directed the state-owned National Building Construction Corporation (NBCC) to complete the unfinished projects, and instructed the Enforcement Directorate to charge the builders with money laundering and fraud.
It has also exposed the role of state government bodies and banks that were complicit in duping innocent homebuyers.
Diversion of funds
In its 270-page verdict, the Supreme Court has laid down the entire plan through which Amrapali trapped innocent customers — generating money and investing it not to complete projects, but to increase the directors’ “own personal assets”.
It also found that the group had not prepared any accounts from 2015 to 2018, and that all the money earned during that period was “diverted”.
The court has noted that Amrapali’s directors diverted the money by creating “dummy companies, realising professional fees, creating bogus bills, selling flats at undervalue price, payment of excessive brokerage, etc”.
The money Amrapali had obtained from banks was diverted to create “personal assets of directors, creation of assets in closely held companies by the directors along with their partners and relatives, for personal expenses of directors, to give advances without carrying interest for several years”.
The Supreme Court has also noted that there was “total non-monitoring by the bankers”, and identified a trail of bogus companies created by the Amrapali Group to divert funds. Close to 50 companies, some of which were also in the real estate segment such as La Residentia, lent unaccounted money to Amrapali, which was never paid back. The forensic report has noted that most of these companies had either no acting directors or members connected to the Amrapali Group.
How they cheated homebuyers
First, homebuyers were cheated by making false promises/claims like “selling of flats which were not even part of the master plan of projects or unapproved in the master plan”, and “double booking of the same flat by different customers”.
The verdict states that these funds were then diverted to other companies created by Amrapali and its directors by paying “professional fees” or generating “bogus bills” to the tune of Rs 837 crore. This also includes amounts earned by selling flats at “undervalued prices”, or cheaper than market rates.
Collusion by govt authorities
An important facet of the verdict is how the forensic report helped the court unearth the trail which proved that the Noida Authority and Greater Noida Authority worked in connivance with the Amrapali Group to dupe homebuyers.
The forensic auditors informed the court that this was a “serious kind of fraud played upon the buyers in active connivance with the officials of the Noida and Greater Noida Authorities and that of the banks”.
The investigation began with the fact that Amrapali was due to pay a colossal amount of Rs 5,500 crore to the two authorities. Meagre instalments were paid from 2010 to 2013, but “defaults continued to exist in the nature of premium money, lease money and also compensation to farmers whose land was acquired”.
The court noted that the authorities “very well knew” that there were defaults, but even then allotted further land to the Amrapali Group “without insisting on payment of dues”, and also allowed it to sub-lease plots executed by builders, allowing Amrapali to earn revenue without making payment to the state bodies.
Terming this as a “clear breach of public trust”, the Supreme Court stated that “the officials of the authorities acted clearly in collusion with the builders and overlooked the interest of the authorities and homebuyers”.
Role of banks in shielding Amrapali
There existed a perception that it wasn’t just homebuyers but also banks that were duped by Amrapali. However, the verdict paints a completely different picture.
The Supreme Court quoted the forensic audit report as noting that the “Bank of Baroda, Syndicate Bank, Bank of India, Corporation Bank did not monitor utilisation of funds and acted as a mute spectator to diversion which was almost happening evidently in all banking transactions”.
Giving an example, the court stated that in the case of Amrapali Zodiac Developers, Bank of Baroda had advanced an amount which “was diverted immediately on receipt”.
The court stated that the bankers’ “inaction” resulted in such a fraud.
Noting that public trust was breached, the court held that there was “no necessity of obtaining loans from the banks and it has not been used for the purpose it was obtained”.
“The authorities and bankers have violated the doctrine of public trust, and their officials, unfortunately, acted in collusion with builders. The dues of the banks are also to be recovered from the other attached properties,” the verdict stated.
On another front, banks were also held to be working hand-in-glove with the builders as “mortgage deeds in favour of the banks were not permissible due to non-payment of dues of the Noida and Greater Noida Authorities”. The Supreme Court stated that the authorities issued conditional NOCs in “collusion with the builders” for bank loan purposes, and the banks did not even insist on unconditional NOCs, thereby allowing “immediate diversion of funds”.
No recovery from consumers
The court, while directing the authorities and banks to recover money from “other attached properties of Amrapali”, has disallowed any kind of recovery from homebuyers.
“Real estate business can never prosper in case of breach of trust. Bankers, authorities in connivance and the builders cannot be permitted to take away the innocent homebuyers’ money without being accountable to their action/inaction,” it stated.