SC Amrapali judgment: A warning for lenders

By Soumyajit Mitra and Mohit Yadav, SNG & Partners
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The landmark judgment of the Supreme Court in favour of over 42,000 homebuyers in the projects being constructed by the Amrapali group of companies in Noida and Greater Noida, Uttar Pradesh was a huge relief for the homebuyers. The ruling not only punished the Amrapali Group but will also in the future deter all errant stakeholders and developers accustomed to circumventing the law.

Amrapali
Soumyajit Mitra
Principal associate
SNG & Partners

While relying on the audit report submitted by forensic auditors, the court held that it was apparent that a serious fraud had been committed with the connivance of officials of the Noida and Greater Noida Authorities and the banks. The audit report clearly established the diversion of funds by the directors through the creation of dummy companies, submitting professional fees, creating bogus bills, selling flats at undervalue price, payment of excessive brokerage, and so on. The court has restrained the unchallenged authority exercised by Noida and Greater Noida Authorities by clearly stating their loss of control over and interest in such lands due to a lack of timely vigilance.

The court ruled that mortgages created by Amrapali in their favour were bad in law, since the mortgages were subject to conditions imposed by the Noida authorities, but never fulfilled by Amrapali. Thus, lenders will not be entitled to enforce the mortgages. It was held that it is the duty of the lenders to ensure that funds are utilized only for development of the real estate project and if funds had been diverted, they should have been strictly dealt with. The court ruled that home buyers cannot suffer on account of the fraud, negligence and connivance of parties.

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SNG & Partners has offices in New Delhi, Mumbai and Singapore. Soumyajit Mitra is a principal associate and Mohit Yadav is an associate.

SNG & Partners
One Bazaar Lane, Bengali Market
New Delhi – 110001
India
Contact details
Tel: +91 11 4358 2000
Fax: +91 11 4358 2033
Email: info@sngpartners.in
Website: www.sngpartners.in

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