News: Explained: What Supertech's bankruptcy means for its home buyers-28-03-2022
Supertech Ltd, which is planning to challenge the order in the National Company Law Appellate Tribunal (NCLAT), said the projects under the company have 38,041 units, of which 27,111 homes have been delivered.
NEW DELHI: Realtor Supertech, which has undertaken several projects in Noida, Gurugram, Ghaziabad , and Greater Noida, was declared bankrupt on Friday by the National Company Law Tribunal (NCLT) for defaulting on payment of Rs 431 crore to a consortium of banks. The move could have a bearing on 11,000 home buyers of the firm's ongoing projects in the NCR region.
What happened: The action came after the Union Bank of India took the RK Arora-promoted company to the tribunal as the builder — whose two illegal towers are being demolished in Noida — defaulted in repaying loans to the state-run lender. The loan had been availed for Eco Village II project in Greater Noida.
Supertech Ltd, which is planning to challenge the order in the National Company Law Appellate Tribunal (NCLAT), said the projects under the company have 38,041 units, of which 27,111 homes have been delivered. Arora said the order will not impact several projects of the group, including Supernova, ORB, Golf Country, Hues, Azalia, Esquare, Valley, and Basera, as they were under a different company.
Now, what is this case about?
In 2013, Supertech had taken a loan of Rs 350 crore from a consortium of banks to part fund its Eco Village II project in Greater Noida. Union Bank’s exposure to the credit facility was the highest at Rs 150 crore. Supertech was irregular in repaying the debt and completely stopped paying from July 2019.
In April 2019, an NCLT notice was sent to Supertech for defaults in payments. Despite this, Supertech failed to repay the principal amount and the interest.
In January 2020, Supertech sought Rs 1,500 crore from the government’s newly created stress fund to complete its 12 ongoing housing projects at Noida and Greater Noida in Uttar Pradesh. A year later, Union Bank moved the NCLT claiming that Supertech had defaulted on payment of Rs 431.92 crore.
Is the twin-tower demolition related?
Moreover, in a landmark judgment in August 31, 2021, the Supreme Court had directed the demolition of twin towers being constructed by Supertech in Noida on account of illegal construction facilitated by collusion among the developer and the development authority.
The apex court had directed that the entire investment of 633 homebuyers who had booked flats in the twin towers be refunded with 12 per cent interest. 248 homebuyers took an early refund, while 133 took flats in other Supertech projects.
The court also directed Supertech to pay the resident welfare association of Emerald Court project Rs 2 crore for the harassment caused due to the construction of the twin towers, which would have blocked sunlight and fresh air to the existing residents of the project.
In February, the Noida Authority said that the demolition of the towers will be completed by May, the work for which has already begun.
Impacted projects
The projects that will be impacted include Eco Village I, II and III in Greater Noida (West), known as Noida Extension, as well as the Emerald Court project, which houses the twin towers.
Meanwhile, Union Bank of India reportedly rejected a onetime debt settlement proposal submitted by Supertech, and on March 25, 2022 the bankruptcy court ordered the initiation of insolvency proceedings against the real estate firm acting on the Union Bank’s plea.
Supertech is not the first developer to go under insolvency
Supertech joins several builders in and around Noida, including Jaypee and some of Lotus 3Cs companies, where insolvency resolution action has been initiated but homebuyers have not seen much progress as the cases are doing the rounds of multiple legal forums for years despite the Insolvency & Bankruptcy Code mandating the completion of the process in 270 days. This in addition to Unitech and Amrapali, which are being directly overseen by the Supreme Court.
What is Supertech's version?
Supertech, however, said that it would approach NCLAT to appeal against the order claiming that the matter pertains to a financial creditor. The company said that the NCLT order will not impact the construction of ongoing projects or operation of the company and “we are committed to giving delivery of units to allottees. We have a strong record of delivering more than 40,000 flats during the last 7 years and we shall continue to give delivery to our buyers under our “Mission Completion – 2022” under which we have undertaken a target of delivering 7,000 units by December, 2022.”
What does being declared insolvent mean?
Initiation of insolvency action ends the promoter’s role in the company. Following the NCLT order, there will be a moratorium against the company till the completion of the resolution process. The moratorium will apply to all pending civil, consumer, RERA cases, including executions.
It will be a long-drawn process for home buyers
With initiation of insolvency proceedings home buyers are now fearing further delay in the delivery of their homes
"Homebuyers that have invested in Supertech properties and are waiting for their flats have no option but to wait for their home until a resolution is reached. Usually, such proceedings take a long time to ultimately come to some resolution. The only silver lining is that the apex court had stated earlier that homeowners are a part of the body of creditors in such insolvency proceedings," said Prashant Thakur, Sr. Director & Head - Research, ANAROCK Group, a real estate consulting firm. Following the example of Unitech and Amprapali, the case has been taken up by the NCLT and the home buyer has been considered a creditor in the case, which means the waiting period for resolution should not exceed a year. Moreover, since only one firm has been declared insolvent, buyers that have invested in other group company projects, should not be impacted, " said Pankaj Kapoor, MD at Liases Foras.
What should home buyers do?
When a developer goes bankrupt, the first step one should take as a purchaser is to go through the contract to look for options and clause(s).
"Homebuyers must submit claims to the insolvency resolution professional . Once the claim is authorized, the homebuyer becomes a member of Committee of Creditors nd is granted the status of financial creditors, entitling them to vote on critical decisions alongside other financial creditors. As financial creditors, they now have a vote in the cash-strapped realtor's settlement process and can participate in decision-making.. However, the court has yet to decide the question of whether home buyers are secured or unsecured creditors, and it is past time for the courts to do so," said Sonam Chandwani, managing partner, KS Legal & Associates. Home buyers need to keep an eye out for the various announcements from the resolution professional by regularly checking Supertech's website. They should work collectively as a team and not stop paying EMIs for home loans even after your builder becomes insolvent as that could become another legal battle, which will only complicate matters. "It would be interesting to see if the Corporate Debtor challenges the order passed by the NCLT and how National Company Law Appellate Tribunal deals with the appeal. Although the Insolvency and Bankruptcy Code mandates that CIRP be completed within 330 days, it is often seen such timelines are not abided with," said Nitish Sharma, Counsel, Anant Law.
"While the initiation of insolvency proceedings against Supertech Limited is likely to hinder the completion of its ongoing projects, homebuyers are not left without any remedy as they also have the status of a financial creditor and are placed on an equal footing with the banks and other lenders under the IBC. As a first step, the homebuyers should immediately register their claims by submitting the necessary documents to the IRP. This will enable them to participate in the decision-making process for the revival of the company" said Kunal Arora, partner, Lakshmikumaran & Sridharan Attorneys.
