BIKRAM CHATTERJI & ORS. V. UNION OF INDIA & ORS, Civil Appeal No.
940/2017. Uday Umesh Lalit, CJI / Supreme Court of India.
BACKGROUND OF THE CASE-
The Bikram Chatterji & Ors. vs. Union of India & Ors case is a significant legal case related
to the rights of homebuyers in India. It was heard in the Supreme Court of India and assigned
the case number 0947 of 2019.
The case was filed by a group of homebuyers who had invested in various real estate projects
in the National Capital Region (NCR) of India. These projects were delayed and had not been
completed, leaving the homebuyers in a state of uncertainty and financial distress.
The homebuyers argued that the delays were due to the developers' lack of accountability and
the government's failure to regulate the real estate industry effectively. They also claimed that
they had been treated unfairly by the legal system and were not given sufficient protection
under the law. The Supreme Court heard the case and issued several orders aimed at
providing relief to the homebuyers. It directed the government to set up a special cell to
address the grievances of homebuyers and to ensure that the real estate industry was regulated
effectively.
The court also ordered the creation of a fund to complete stalled real estate projects and to
provide compensation to homebuyers who had suffered financial losses. The case has had a
significant impact on the real estate industry in India and has helped to protect the rights of
homebuyers.
FACTS OF THE CASE-
In 2011 in Noida and Greater Noida varied assets comes for housing were started. Within the
varied comes the Amrapali cluster of firms projected to construct roughly 42,000 flats.
Varied brochures were printed and it had been assured that the delivery of possession shall be
created in 36 months and other World-class facilities were also promised. Various home
buyers booked their apartments during the period 2010-2014. The buyers signed the Standard
Form of Allotment-cum-Flat Buyers Agreement and even after payment of 40 to 100 percent
of total consideration, they are faced with the threat of forfeiture of huge booking amount.
The buyers invested their life savings and some of them had obtained the loan from the Bank.
Most of the buyers have made the payment to the extent of 50 percent to 100 percent abiding
by the payment schedule. Under Clause 14 of the agreement, the builder authorized itself to
finance loans from any financial institution by way of mortgage/charge/securitization of
receivable of the land and flats and the allottees will have no objection in this regard.
Clause 15 also authorized the builder to keep full authority over the flat depriving the
allottees of any lien or interest despite payment of the entire amount thereof. The builder
under Clause 19(a) was obliged to complete the flats of M/s. Amrapali Centurion Park
Private Limited within 30 months from the date of commencement of excavation/signing of
the agreement, which may vary for plus/minus 6 months. Under Clause 19(c), the builder
fixed a paltry sum of Rs.5 per square feet super area per month for the period of delay, which
would include any/all damages, compensation, claims for delayed possession. The dreams of
the buyers of obtaining houses were given serious jolts when M/s. Amrapali Silicon City
Private Limited and M/s. Amrapali Centurian Park Private Limited, respondent Nos. 3 and 4
herein respectively were found in serious breach of their obligation to deliver the flats within
36 months. They did not pay the amount both to the Noida or Greater Noida Authority and
also to the Banks. Several revised dates of possession were fixed unilaterally, but they failed
to deliver the flats. The Amrapali Group has failed to comply with its obligation under the
subvention scheme, the tenure of which was approved by the bank/financial institution. The
builder had failed to comply with the abovementioned scheme as the buyer making the
payment of EMIs to the banks, thereby causing a double loss. Some of the consumers
approached the National Consumer Dispute Redressal Commission by filing Consumer
Complaint No. 213 of 2017 under Section 12(1)(c) of the Consumer Protection Act, 1986.
The petition filed by 107 homebuyers led by Bikram Chatterji has sought enforcement of
their fundamental rights that have been seriously abrogated by the provisions of the
Insolvency and Bankruptcy Code 2016. They want the Code to be held ultra vires to the
Constitution as being violative of Fundamental Rights -Right to Equality and Right to Life
guaranteed under Articles 14 and 21. The petition also prayed for quashing of the NCLT’s
September 4 order that appointed an Insolvency Resolution Professional (IRP) to take over
the company and ordered a stay on all the court proceedings against the company, including
those pending before the consumer courts till the corporate insolvency resolution process is
on. Besides, they have sought a direction to restrain the IRP from creating any third party
interest in the projects. The Bank of Baroda had filed Company Petition No. (IB)-
121(PB)/2017 before the National Company Law Tribunal under Section 7 of the Insolvency
and Bankruptcy Code, 2016 for triggering the Corporate Insolvency Resolution Process in the
matter of M/s. Amrapali Silicon City Private Limited, Respondent No. 3. A writ petition was
filed by homebuyers of various projects aggrieved by the Corporate Insolvency Resolution
Process being initiated by the National Company Law Tribunal in a Company Petition (No.
(IB)-121(PB)/2017) filed by the Bank of Baroda against M/s Amrapali Silicon City Private
Limited.
ISSUES INVOLVED-
1. Validity of the charge being claimed by the Authorities over the projects being
developed by Amrapali Group.
2. Validity of the charge being claimed by the Banks over the projects being developed
by Amrapali Group.
3. Whether the registration (RERA Registration) obtained by the Amrapali Group
under the Real Estate (Regulation and Development) Act, 2016 was liable to be
cancelled.
4. What relief can be provided to the home buyers in light of the present facts and
circumstances?
LAWS INVOLVED IN THE CASE
1. The Real Estate (Regulation and Development) Act, 2016 (RERA)
The homebuyers had approached the Supreme Court seeking relief under the
provisions of RERA. The act aims to regulate the real estate sector and ensure
transparency in transactions between buyers and builders.
2. Section 12(1) (c) in the consumer protection act, 1986
Section 12(1)(c) - one or more consumers, where there are numerous consumers
having the same interest, with the permission of the District Forum, on behalf of, or
for the benefit of, all consumers so interested; or
3. 3. Section 7 in the Provincial Insolvency Act, 1920
Section 7 Petition and adjudication — Subject to the conditions specified in this Act,
if a debtor commits an act of insolvency, an insolvency petition may be presented
either by a creditor or by the debtor, and the Court may on such petition make an
order (hereinafter called an order of adjudication) adjudging him an insolvent.
Explanation - The presentation of a petition by the debtor shall be deemed an act of
insolvency within the meaning of this section, and on such petition the Court may
make an order of adjudication.
4. Section 53 in the Provincial Insolvency Act, 1920
Section 53[5] Avoidance of voluntary transfer.—Any transfer of property not being a
transfer made before and in consideration of marriage or made in favour of a
purchaser or encumbrance in good faith and for valuable consideration shall, if the
transferor is adjudged insolvent 1[on a petition presented] within two years after the
date of the transfer, be voidable as against the receiver and may be annulled by the
Court. Any transfer of property not being a transfer made before and in consideration
of marriage or made in favour of a purchaser or encumbrance in good faith and for
valuable consideration shall, if the transferor is adjudged insolvent within two years
after the date of the transfer, be voidable as against the receiver and may be annulled
by the Court."
5. ARTICLE 21 OF THE CONSTITUTION OF INDIA, 1950
Article 21. Protection of life and personal liberty No person shall be deprived of his
life or personal liberty except according to procedure established by law.
6. The Insolvency and Bankruptcy Code, 2016 - In this case, the builders had filed
for insolvency, and the court had to determine the rights of the homebuyers in
the event of the builder's insolvency.
7. The Companies Act, 2013 - The court had to examine the obligations of the
builders towards the homebuyers under the Companies Act, 2013.
8. The Indian Contract Act, 1872 - The court had to examine the contractual
obligations of the builders towards the homebuyers under the Indian Contract Act,
1872.
CONTENTIONS OF THE PARTIES-
It was contended on behalf of the home buyers that:
1. The dues of Authorities cannot be treated at par with the dues of home buyers and that
the charge of the money paid by the home buyers must be treated as the highest
priority;
2. The Authorities are liable to issue Occupation/Completion Certificate (“OC/CC”) for
the various buildings that have been completed and are being inhabited by the home
buyers, despite the fact that land dues of the Authorities have not been paid by the
Amrapali Group.
3. The Authorities have been very liberal in their approach and did not take any stringent
action against the Amrapali Group despite the continuance of various infractions till
date, including non-payment of premium instalments stipulated under the Lease
Deeds, despite the fact that nearly all amount has been realized from the home buyers
by the Amrapali Group;
4. The Public Trust Doctrine enshrined under Article 21 of Constitution of India is very
much applicable upon the Authorities and a duty is cast upon them to act fairly and
reasonably in order to promote public good and public interest;
5. That by not taking corrective actions against the Amrapali Group, the Authorities
have acted in connivance with the Amrapali Group and thus breached the Public Trust
Doctrine and accordingly the Lease Deeds executed by the Authorities needs to be
cancelled;
6. That not only the Authorities, but the Banks were also very negligent on their part as
they gave loans to the Amrapali Group in spite of the facts that no development of the
projects had taken place and no diligence of any sort was conducted by the Banks
before sanctioning loans to Amrapali Group;
7. The Banks after sanctioning of the loans forego all their responsibilities and acted in
connivance with the Amrapali Group by turning a blind eye to the illegal diversion of
funds being committed by the Amrapali Group;
8. The Mortgage Deeds issued between the Banks and Amrapali Group have no sanction
under no law, because of the fact that they were premised upon conditional NOC’s by
the Authorities, which clearly stated that the NOC is valid only if payment of
premium and lease rent has been done.
9. The RERA Registration of the Amrapali Group over the various projects is liable to
be cancelled because of the continuous and persisting delay by the Amrapali Group in
completing the projects.
It was contended on behalf of the Authorities that:
1. By virtue of the Lease Deeds executed by the Amrapali Group, the Authorities had
first charge over the projects and their charge would take precedent over other charges
including the charges created in favor of banks and other financial institutions.
2. That Public Trust Doctrine is not attracted in the present case as there is no breach of
trust and the decision of the Authorities to transfer lease after receipt of 10% of
premium was a carefully thought out policy approved by the State Government;
3. That the Authorities had been diligent in their approach viz-a-viz the Amrapali Group
and have been sending notices to the Amrapali Group for payment of premium
installments. The Authorities further submitted that they did not want to take the
drastic step of cancelling the Lease Deeds as the said step would then require
demolishment of all structures constructed on the various parcels of land.
4. That no OC can be issued till the time the dues of the Authorities have been paid.
It was contended on behalf of the Banks that:
1. They were diligent in their conduct viz-a-viz the sanctioning of loan and all suitable
methods were deployed to monitor the utilization of funds post their sanctioning;
2. The Mortgage Deed executed between the Banks and Amrapali Group is valid and
subsisting and according to the terms thereof, the Banks have charge over the projects
till the time the loan amount is repaid;
3. The homebuyers are not secured creditors and thus do not have any right, title or
interest on the basis of allotment through flat buyer agreement.
DECISION OF THE COURT-
The Supreme Court, after considering the contentions of both the parties and the report of the
Financial Auditors, wherein, siphoning off of the funds by the Amrapali Group was
confirmed, stated that:
1. The Public Trust Doctrine is applicable upon the Authorities in the present
circumstances and it was the duty of the Authorities to take affirmative action for
effective management of the Lease Deeds granted in favor of the Amrapali Group,
and the homebuyers are empowered to question its effectiveness;
2. The fact that the land of the farmers had been acquired for the purpose of housing and
infrastructure needs by the State Government, the Authorities were bound to ensure
that builders act in accordance with the objective behind the acquisition of land and
the conditions on which allotment had been made;
3. The Authorities were very negligent in their conduct and did not take any corrective
step against the Amrapali Group even though there were repeated infractions by them.
The Authorities not only failed to observe the terms of the Lease Deeds and keep
track of the projects, but also permitted the Amrapali Group to execute sub-lease of
the projects, thereby allowing Amrapali Group to earn a huge amount without making
payment of the amount due to them;
4. The Authorities have in collusion with the Banks and Amrapali Group permitted
diversion of funds of home buyers and if contention of the Authorities/Banks with
regard to their charge over the projects is accepted, fraud would be committed upon
the home buyers who have been taken on ride for no fault of theirs.
5. The conditional NOC issued by the Authorities to Amrapali Group make it evident
that the said NOC is only valid in case where full payment of premium has been made
and up to date annual lease rent had been paid, however, considering that no such
payments were made by the Amrapali Group, no mortgage was created in favor of the
Banks over the project properties;
6. That not only the Authorities, but the Banks were negligent in their conduct and
decided to sanction the loans to Amrapali Group without verifying the conditions of
the NOC’s being issued by the Authorities;
7. That in light of the present circumstances the principle “fraud vitiates” is clearly
attracted and it is the duty of the Court to not only save the home buyers but also
ensure that they are not cheated.
8. The provisions of RERA Act have been violated by the Amrapali Group and the
reliance by the Amrapali Group on the force majeure provision of the RERA Act is
misconceived as the scenarios enumerated by the Amrapali Group is covered under
the ambit of force majeure.
ANALYSIS OF THE CASE AND CONCLUSION-
After the Bikram Chatterji & Ors. vs. Union of India & Ors case, the status of home buyers in
the insolvency proceedings of Jaypee Infratech changed significantly. The Supreme Court
held that home buyers should be treated as financial creditors under the Insolvency and
Bankruptcy Code, 2016 (IBC). As financial creditors, home buyers had the right to
participate in the insolvency proceedings and have a say in the resolution plan.
The court also directed the formation of a committee of home buyers to protect their interests
in the insolvency proceedings. This committee was responsible for representing the interests
of the home buyers and ensuring that their rights were protected in the resolution plan. The
facts revealed that not a single construction or developmental project undertaken by Amrapali
Group of Companies was completed during the period of 2010-2014, leaving approximately
42,000 flats incomplete Additionally, the builders had defaulted in lease rent payments to
NOIDA and Greater NOIDA development authorities amounting to Rs.3000 crore.
Accordingly, The Court ordered forensic audit was conducted which revealed that no
accounts were maintained since, 2015;sale proceeds from homeowners and banks were
diverted to the Directors of the firm through various shell companies.
Therefore, this is the analysis of the judgment-
The court heard arguments of all the three claimants on the basis of the aforementioned
issues. The main contention of the homeowners was the fact that they had invested their
savings in addition to taking loans from banks to buy apartments that they didn’t get
possession of till 2019, which was in clear violation of Clause 19 (a) of the sale agreement,
which stated and I quote; “The builders sought to complete the flats within 30 months of
signing of the agreement with an added extension of 6 months.” So, Not only did builders
commit a serious breach of contract, they also extended the date of completion without
notice. Prima facie, the court’s decision in cancelling the builders’ registration with RERA
under Section 7, handing over of the incomplete projects to NBCC, directives to the Court
Receiver to issue Occupancy and Completion Certificate to the home- buyers seems justified.
The Forensic Audit disclosed that there wasa critical breach of diligence and supervision on
the part of the local authorities and the lender banks. Despite continual non- payment of the
lease rent, no action was taken by the authorities, even though the NOC provided by the
authorities, for mortgaging of such leased land, as security for loans taken by Amrapali, was
explicitly conditional in nature, and dependent on fulfillment of annual payment of rent on
the leased land and premium. This points to the omission on the part of the lender banks, who
were incompetent in making regular checks on the timely payments being made towards
lease rent, as their status as “secured creditors” was dependent on the same. Additionally,
they were inept in acting on their due diligence in conducting a substantial background check,
both before and after sanctioning of the primary loan, and each time they released funds for
the alleged development of the land.
THE DOCTRINE OF PUBLIC TRUST AS DISCUSSED IN THE CASE-
The Public Trust doctrine is enshrined in Article 21 of the Indian Constitution, essentially
establishes effective management of resources by the state through affirmative actions, and,
empowers citizens to hold such state authorities responsible in the event of breach of the
same. This doctrine finds pertinence in this case from when, the lands were acquired by the
government from farmers with the powers vested in them under the Land Acquisition Act,
1894 and was later leased out as private property to the builders for housing and
infrastructural work. This ensued an added responsibility on the State Government and the
local authorities to keep proper vigilance and make certain that the objective of such land
acquisition was satisfied and the builders were acting within their legal capacity.
The local authorities denied any breach of trust on their part and claimed that the lease was
only transferred to the builders after they received 10% of the premium amount after seeking
approval by the State Government, thereby establishing that the Public Trust Doctrine was
not relevant in the current scenario. The Court stated the duty of the authorities in effectively
managing the lease deeds granted to the builders and their omissions thereof reflecting back
on the case of In Association of Unified Tele Services Providers & Ors. V. Union of India &
Ors (2014) 6 SCC wherein the court deliberated that state and its agencies should work
towards public good and make efforts to achieve the objective for which it exists and to that
effect, have a duty to protect public interest in pursuance of Public Trust Doctrine.
ANALYSIS OF EXPULSION OF REGISTRATION UNDER RERA-
Once, the forensic report concluded obvious siphoning of funds and commission of fraud on
the part of the builders amounting to “unfair practices” under Section 7 of RER, it culminated
into cancellation of registration of the builders with RERA. Consequently, lease deeds made
to that effect were cancelled and the company lost its developmental rights in projects beyond
500 sq. meters or eight apartments. The incomplete developmental projects were handed over
to NBCC for completion with the profit margin of 8% and the project rights, sale of flats
were vested on the Court Receiver who was directed to draw a new tripartite agreement and
handover possession and OC/CC to respective home-buyers. It also insinuated a prima facie
case on several criminal offences, like money laundering, violating FEMA, FDI regulations,
and the court ensured substantial criminal proceedings against Amrapali.
Section 7(c) of RERA makes promoters guilty of unfair practices or irregularities liable to
cancellation of RERA registration, which includes use of any unfair means or deceptive
practice for the sale and development of a real estate project, andthe promoter indulging in
any fraudulent practices. In the light of the aforementioned commission of crimes, revealed in
the report, there was an apparent fraud committed by the builders, justifying their liability to
cancellation.
COMPENSATION GRANTED TO HOME-BUYERS-
Section 19(4) (1) of RERA elaborates on the rights of allottees to compensation from the
promoter in case of failure to give possession due to suspension or revocation of his
registration. Referring to Clause 19 (c ) of the sale agreement, buyers additionally have a
rightful claim towards compensation. Unlike the banks and the local authorities, home-buyers
are not granted the right to claim their compensation from other properties attached by the
buildersdespite having a valid legal instrument substantiating such claim even though the
court explicitly dictates that they are not absolving their right to enforcement of right of
compensation through NCDRC( national consumers disputes redressal commission). There
are a number of precedents by NCDRC wherein builders have been ordered to provide
compensation for delayed possession of flats like in Jitendra Balani v. Unitech Consumer
Case No. 510 of 2015 the buyers were awarded an interest at the rate of 18% to 24% per
annum for each year of delay, amongst others Additionally, in 2019, NRCDC declared that
buyers are authorized to demand for full refund in the event of an entire year of delay in
possession, reinforcing repeated opinions of Supreme Court and consumer courts’ that home-
buyers wait indefinitely.
Having said that, it is undeniable that this judgement has been nothing short of a blooming
piece of legislation in the field of Real Estate, expected to act as a deterrent in future, set a
strong precedent, at the least.
