Here is why government’s plan to take control of Unitech is good for homebuyers

Published On: 08, Dec 2017 | Source:

The National Company Law Tribunal (NCLT) has allowed the corporate affairs ministry to appoint 10 nominee directors for Unitech, who would be subject to tribunal nod, saying that the existing directors will not be allowed to sell company’s or personal asset, CNBC-TV18 reported.

According to Bloomberg, the corporate affairs ministry has moved the bankruptcy court to take over management control of real-estate giant Unitech, citing mismanagement and diversion of funds. The government has sought the suspension of Unitech’s existing board of directors and its chief financial officer in a petition filed with the National Company Law Tribunal under a section of the Companies Act, 2013.

The government said that the company has not cooperated in the investigation so far and so the current directors should be should be restrained from acting as board members. The NCLT has issued a notice to Unitech seeking a reply to the plea within four weeks, while allowing to appoint 10 nominee directors. The corporate affairs ministry will suggest 10 nominee directors for the Unitech board in four weeks.

Here’s why it is a good thing for homebuyers:

The slump in real-estate demand, mainly due to incomplete projects, left companies like Unitech, Jaypee and Amrapali in the lurch, forcing the government to seek control of the former on grounds of mismanagement and diversion of funds, while two others are facing insolvency and repeated raps from the Supreme Court. But, as the real-estate business failed, it put enormous risks on home-buyers, who did not get their house even after investing their hard earned money.

Moving for insolvency when the companies are failing to either deliver their promised projects and repay their loans seems as the only option but homebuyers get nothing from it as they are not treated as secured creditors such as the banks and financial institutions. Unitech has failed to deliver despite the apex court refusing to grant bail to Managing Director Sanjay Chandra. The government trying to take control of Unitech, which has 16,299 flats worth Rs 7,816 crore yet to be delivered, could be a good thing if it succeeds in reviving the management and ceases the chances for going into insolvency.

In September, the Supreme Court allowed the Interim Resolution Professional (IRP), a body formed by the NCLT, to take over the management of the Jaypee Infratech to protect homebuyers’ interest, while staying the insolvency process against it.

Investments of thousands of home buyers are stuck due to huge delays by Amrapali group as well. In September, the NCLT had admitted a petition of Bank of Baroda against Amrapali Silicon City over a loan default. An IRP was appointed to carry out the proceedings under the Insolvency and Bankruptcy Code (IBC).

Under Real Estate Regulatory Authority (RERA), buyers can claim compensation for delay in possession and envisages cancellation of a developer’s registration in case the developer fails to complete the project within the stipulated deadline. The Bombay High Court recently held the constitutional validity of RERA stating that “ongoing projects” too would come under its ambit. To get away from the ambit of RERA, some experts suggest, companies would be opting for insolvency to transfer their losses.