As Supertech faces bankruptcy, its home buyers are increasingly anxious about potential delays in receiving their homes. When a developer goes bankrupt, the first action a buyer should undertake is to thoroughly review the contract for available options and pertinent clauses.
The real estate developer, Supertech, known for its completed projects in Noida, Ghaziabad, and Greater Noida, was recently declared bankrupt by the National Company Law Tribunal (NCLT) after failing to repay a substantial debt of Rs 431 crore owed to a consortium of banks. This unfortunate development may adversely impact approximately 11,000 home buyers currently engaged in ongoing projects within the National Capital Region (NCR).
How did the situation unfold?
The bankruptcy proceedings began when the Union Bank of India filed a lawsuit against the RK Arora-led company, which had previously faced issues due to the demolition of two illegal towers in Noida that were financed by a loan linked to the Eco Village II project in Greater Noida.
Supertech Ltd Plans to appeal this recent ruling to the National Company Law Appellate Tribunal (NCLAT). It claims that out of the 38,041 units across its projects, 27,111 have already been sold. Importantly, Mr. Arora clarified that the recent order would not impact certain projects, such as Golf Country, Supernova, Azalia, ORB, Hues, Esquare, Valley, and Basera, as these are managed by another company.
In January 2020, Supertech sought to secure a Rs 1,500 crore loan from a newly created state anti-stress fund to complete 12 ongoing residential projects located in Noida, Greater Noida, and elsewhere in Uttar Pradesh. One year later, however, Union Bank filed an NCLT petition, alleging Supertech had defaulted on its payment obligations amounting to Rs 431.92 crore.
Demolition of Twin Towers
The situation escalated dramatically when the Supreme Court ordered on August 31, 2021, the demolition of Supertech's twin towers in Noida due to illegal construction practices facilitated through collusion between the builder and local development authorities. On top of this, the court mandated Supertech to pay Rs 2 crore to the resident welfare association of Emerald Court for the disturbances caused by the towers, which had obstructed sunlight and airflow.
As per the Supreme Court’s ruling, all investments from 633 home buyers who had booked apartments in the Twin Towers must be refunded at a 12 percent interest rate. While 248 home buyers opted for immediate refunds, another 133 chose to take possession of units in different Supertech developments.
Rejection of Debt Settlement
Recently, it has come to light that the Union Bank of India has declined a one-time debt settlement proposal from Supertech. Subsequently, the Bankruptcy Court, on March 25, 2022, initiated insolvency proceedings against the developer following Union Bank’s request.
Impact on Supertech’s Upcoming Projects
The projects that will likely face repercussions include Eco Village I, II, and III in Greater Noida West, as well as the Emerald Court project, which encompasses the Twin Towers.
Supertech has stated its intention to challenge the NCLT's ruling at the NCLAT, emphasizing that the case pertains to a financial creditor. The company reassured stakeholders that ongoing projects will not be impeded by the NCLT application. "We are dedicated to delivering units to allottees. Over the last seven years, we have successfully delivered more than 40,000 apartments. Furthermore, in 2022, we are committed to delivering an additional 7,000 units by December," Mr. Arora expressed.
Duration of Supertech’s Insolvency Process
As the company enters insolvency proceedings, many buyers find their prospects of home possession uncertain.
Prashant Thakur, Sr. Director and Head of Research at ANAROCK Group, commented, "For homebuyers invested in Supertech properties awaiting possession, the situation leaves them with little choice but to wait for a resolution. Typically, such proceedings can be lengthy. The only encouraging aspect is that the Supreme Court has ruled that these homeowners should be considered creditors in similar insolvency processes."
Pankaj Kapoor, MD at Liases Foras, added, "Following the precedents set by companies like Unitech and Amrapali, NCLT is now engaging with this case, which reinforces the status of home buyers as creditors. This effectively limits the delay for a decision to under one year. Also, since only a single company has declared insolvency, buyers in other group firms should remain unaffected."
Guidance for Home Buyers in Light of Supertech’s Bankruptcy
In the wake of a developer's bankruptcy, it is essential for buyers to meticulously analyze their contracts for possible options and clauses.
Aditya Parolia, a partner at PSP Legal, urged homebuyers involved with Supertech projects to file their claims with an insolvency resolution professional before April 8, 2022, and to ensure they submit all relevant documentation. This includes the contract with the developer, bank statements, and any official correspondence regarding special agreements.
Kunal Arora, a partner at Lakshmikumaran & Sridharan Attorneys, warned that the insolvency proceedings of Supertech are likely to negatively affect its ongoing projects. Homebuyers lose legal protections and become financially equivalent to lenders, putting them on par with banks and other financial institutions under the Insolvency and Bankruptcy Code (IBC). Therefore, it is critical that homebuyers immediately register their claims with the IRP to enable participation in crucial decisions.
Avoiding Default on EMI Payments
Sonam Chandwani, managing partner at KS Legal & Associates, advised buyers to file claims with the bankruptcy attorney or insolvency resolution professional. Once their claims are validated, those homebuyers will join the creditors' committee, effectively granting them voting rights on paramount decisions alongside other financial lenders. However, the courts have not yet made a decision on whether home buyers are classified as secured or unsecured creditors. Time is of the essence for clear rulings on this matter. Homebuyers should remain vigilant by frequently checking Supertech's website for updates and maintaining unity in their actions. It is also vital to avoid defaults on their EMI loans, as this could engender further legal entanglements, exacerbating the situation.