Honorable High Court Overlooks Past Sins of Unworthy Unitech & Its Directors

If you own a Unitech property in Gurgaon, please visit GurgaonScoop.com/Gurgaon-SCA after reading this article.

 

The unsettling order which a huge number of Buyer Associations and individual (or groups) of buyers are getting ready to challenge is as follows:

Respecting the majesty of the law, we fully respect and honor the judgement by Justice SK Misra (Retd.), and the most effective way to discuss its merits & demerits is in the appropriate court of law; in this instant case as a Special Leave Petition (SLP) in the Honorable Supreme Court of India. But, we also believe that this special order should not be left only for lawyers to argue, but that the Unitech buyers (and other property buyers at large because this might become a precedent setting case for the other builders too) should also discuss this openly & frankly. An open and decorous discussion would also be keeping in the spirit with which Honorable Justice SK Misra passed this order, stipulating in Para 16 of the said order that "applicants and the company ... put forward their Scheme to each of the homebuyers by convening their meetings at convenient locations and seeking their approval," and in Para 17 that "the company shall take appropriate steps to get the same approved by all the stakeholders, prior to the filing of the second motion petition."

The Unitech case moved at supersonic speed through the Delhi High Court, and the Order was pronounced by Honorable Justice Sudershan Kumar Misra (now Retd.) on September 02, 2016.

The case of "Scheme of Compromise & Arrangement" with Unitech  went through the courts at supersonic speed.

The case of "Scheme of Compromise & Arrangement" with Unitech went through the courts at supersonic speed.

And, on September 06, 2106 Honorable Justice Sudershan Kumar Misra retired, and a farewell speech was given by Honorable Chief Justice G. Rohini.

The intent of the order on Unitech has been explained by Honorable Justice Misra in Para 16 of the September 02, 2016 judgement as:

16. The plight of the homebuyers is certainly very distressing. There is no denying this fact. They are well within their right to approach all legally available forums to secure their investment or to seek enforcement of the agreement with the company. However, .... if the company (Unitech) is not granted an opportunity to carry forward its proposed Scheme of Compromise and Arrangement, the net effect would be that the company, in the absence of any opportunity to fulfill its projects, might face erosion of its net worth and suffer loss of credibility, putting it at the threshold of liquidation. ... An  order of liquidation of the company at this stage would not serve the interest of any stakeholder, including those homebuyers who have got decrees in their favour. ... Thus, considering the impact and consequences of liquidation; and the feasibility of the homebuyers getting possession of the flats, as promised by the company within specified time frame, it would be in the interest of the homebuyers if an opportunity is granted to the applicants and the company to put forward their Scheme to each of the homebuyers by convening their meetings at convenient locations and seeking their approval to the proposed Scheme of Compromise And Arrangement. 

The initial reaction to this order has been of alarm amongst many buyers, and as of October 12, 2016 a petition on Change.Org had collected over 1800+ signatures! Please do sign the petition by Mr Subho Bhattacharya to receive regular updates on this case.

All property buyers must familiarize themselves with this precedent-setting Unitech "Scheme of Compromise & Arrangement." And it is also essential that before the Unitech buyers express themselves at the meetings to be convened according to the said order, they learn about and discuss the various issues threadbare: whether of law, of justice, or of specific projects, of veracity of data provided by applicants in the said case, of veracity of the statements of Unitech Directors in the cases, etc. According to Para 25 & 26 of the said order, the meetings of homebuyers with view to ascertain the approval or disapproval will be held as:

Venue Date & Time of Meeting Name of Projects whose homebuyers are eligible to attend the meeting Chairperson & Alternate Chairperson
Mohali, PUNJAB
Uniworld City, Sector 97, 106, Landran Banur Road,
20 November 2016
11:30 AM
Mohali, Punjab
Uniworld City Plots
Executive Floors
Gardens Villa

Ambala, Haryana
Unihomes
Ananda

Ashok Gurnani, Advocate (9810109039)
&
Sunil Sharma, Advocate (9811383958)
Chennai, TAMIL NADU
Uniworld City, Nallambakkam Road, Opposite IITDM
27 November 2016
11:30 AM
Chennai, Tamil Nadu
Unihomes 1 & 2
Gardens
Birch Court
Aspen Greens
Palm Villas
The Terraces
Palm Premiere

Bengalaru, Karnataka
Uniworld Resorts

Rajat Wadhwa, Advocate (9810726995)
&
Akhil Mittal, Advocate (9891180590)
Gurgaon, HARYANA
Uniworld Resorts, Sector 33,48
Near Subhash Chowk
04 December 2016
11:30 AM
Gurgaon, Haryana
Alder Grove
Anthea Flor
Crest View
Espace Premier
Exquisite
Nirvana Plots
Residences
Uniworld resorts Plots
Uniworld Resorts Villas
Sunbreeze
The Willows Plots
South Park
Vistas
The Spruce

Rewari, Haryana
Ananda
Unihomes

Rajeev K. Goel, Advocate (9312409354)
&
Subhiksh Vasudev, Advocate (9810710871)
Noida, UTTAR PRADESH
Unitech Gold & Country Club, Sector 96, Near Mahamaya Balika Inter College
11 December 2016
11:30 Am
Noida, Uttar Pradesh
Exquisite
Gardens
Residences
Unihomes 1, 2, & 3

Greater Noida, Uttar Pradesh
Habitat
Heights
Horizon
Cascades
Unihomes Plot

Yogesh Jagia, Advocate (9810043405)
&
Rajeev Kumar, Advocate (9810466870)

The first question that must be answered is whether the list of 74 projects of Unitech, in Para 5 of the order, provided by the eleven applicants is a true reflection of the ground reality. A very complex reality of the project's "stage of development" is summarily answered curtly in vague words like "handover/finishing," "internal work in progress," "structure in progress," "land development activities in progress," etc. This way of presenting the current stage of the progress is very misleading, and absolutely unfair to base any decision on such vague descriptors. There is no real desire to delve into what are the real bottlenecks of the project, and of how much effort & money is realistically needed to complete the project.

It is unfair that deliberately vague descriptors were used to indicate the stage of development of property, thus hiding from the Honorable High Court the true scale of challenge that Unitech faces in completing these projects.

It is unfair that deliberately vague descriptors were used to indicate the stage of development of property, thus hiding from the Honorable High Court the true scale of challenge that Unitech faces in completing these projects.

There are many assertions that are made without clear evidence and justification, and are just "feelings" of some of these eleven "applicants," and it is surprising that so much of the feelings of these applicants are taken as the gospel truth on which to base the whole Scheme of Compromise & Arrangement. For example, in Para 7, the applicants are quoted without any strong justification as "the applicants apprehend that if such refunds are forced on the company and continue to be paid by the company, the construction activity of the company will be completely halted and the company will very soon be in a situation of zero liquidity and go into winding up at the instance of a few homebuyers and in that event the collective dreams of all the homebuyers of getting their residential flats/units will never materialize." This is hyperbole by the "eleven applicant" and is absolutely false.

Further, even though there is no evidence that these eleven applicants are experts in contracts, or even that they are experts in the field of housing, which is bolstered by the fact that these eleven applicants were still "unsecured creditors/home buyers" till as recently as May 2016, it is surprising that the draft "Scheme of Compromise & Arrangement" that they proposed has been accepted with so much alacrity and without proper due diligence. It is surprising that according to Para 7 of the said order, so much reliance is placed on the assurance of these eleven applicants that if their scheme is adopted it "will ensure that the company will be able to complete the development of its project." There is absolutely no way by which they could be so certain that the scheme "will ensure" that Unitech will complete their projects. Only thing that the Scheme will ensure is that the Directors of Unitech will not land in jail - at least for the next 2 to 3 years, like they did on 11 January 2016 ...

Unitech Directors spend January 11, 2016 night in Jail ...

Unitech Directors spend January 11, 2016 night in Jail ...

The draft scheme "proposed" by the eleven applicants has been accepted in toto by the Honorable Single Bench of Delhi High Court, even though there is no evidence that the scheme makes any economic sense, is even remotely workable in the real world, and the scheme does not provide anything substantial to Unitech going forward - except that they buy 2 or more years to do exactly what they have been doing so far which landed them in the trouble that they are today ... Honorable Justice Misra recognized that, and in Para 11 writes, "On the face of it, it is obvious that the petition filed by a group of home buyers may also serve the interests of the company (Unitech) ...."

The fact that this Scheme of Compromise and Arrangement has had very little effect on Unitech as a company, or in its management, can be seen in the Company's filing at the BSE (Bombay Stock Exchange). There is absolutely no fresh blood, no fresh ideas, no change in the management that led Unitech into this deep hole - all the pain and risk is left for the buyers to bear. This Scheme is actually of Compromise by the Buyers, and Arrangement by Unitech.

The draft of the Scheme for Compromise and Arrangement as submitted to the Honorable High Court can be seen below. It is quite an impressive feat for a group of "unsecured" creditors and homebuyers, but shabby and a complete mess when looked at from the professional's viewpoint, and also a nightmare to effectively implement ... It has so many loopholes, and is so poorly thought out, that it is a wonder that the lives & mental stability of over 13,000 buyers is pivoting on such a mess of a "Scheme." And how can 13,000+ buyers be put into 4 buckets of Mohali, Chennai, Gurgaon & Noida, and many projects be forced into a single meeting for vote of No/Yes. The lack of mind applied by the eleven applicants in coming up with this scheme is mind boggling, but not surprising. 

There is also no material evidence to show why "2 years" was chosen as a first milestone or window in the draft scheme proposed by the eleven applicants, and not 6 months, or 1 year, or 5 years .... etc. It is also absolutely false for Unitech to claim (as in Para 10) that they have positive net worth of Rs 9852.15 crores, and "expected cash flows of Rs 4079.00 crores .... which exhibits capability of respondent company to deliver all the undelivered units." It exhibits NOTHING, esp knowing that Unitech has a web of shell companies and unless a serious and detailed investigation is undertaken nothing can be "exhibited."

There is no material evidence to show that the Directors are being diverted by these "legal cases" and it is preventing them from focussing on getting the projects completed; the Unitech Management has a stellar and vast team of advocates who are quite capable of handling all the legal challenges that the company has attracted due to its own actions & inactions.

As any long term watcher of Unitech can tell, the avalanche of all these problems was not created in a day; Unitech has diligently worked in a fashion such that all these problems were a logical consequence, and completely predictable. For these eleven "applicants," who were even recently unsecured creditors/home buyers, it is quite disingenuous to suddenly come out now shouting that the sky is falling, sky is falling ...

Unitech Director Mr Ajay Chandra submitted to the Honorable Court that "the real estate industry has been witnessing an unprecedented slow down and volume reduction in the last 4-5 years. This has caused a squeeze in the working capital for" Unitech. This is not quite true. Unitech purchased land a very low rates, and launched projects on these lands. Further, getting a customer to book a apartment or plot, Unitech must have collected almost 35% of the total price (not cost) of the apartment / plot / villa without doing a shred of work on the site, and then Unitech must have collected installments in advance as it built the structure. The money spent by Unitech was always less than the money collected by them - then pray, how was there a squeeze in the working capital. The likely answer to is that Unitech has done criminal misappropriation of funds, and if so any scheme to save them from legal actions from the next 2 to 3 years is not justice.

mercy-to-guilty-is-cruelty-to-innocents

Chief Justice of India designate H L Dattu

Mr Ajay Chandra has advanced a discredited argument to justify the non-performance in Para 10 of the order as "lack of bank financing coupled with various regulatory delays due to issues pertaining to NGT, land acquisition matters for infrastructure around the development etc." These same arguments were made by Unitech in numerous cases at the National Consumer Disputes Redressal Commission," State Commissions, etc and at every place after due evaluation they were roundedly junked. That is why the Honorable Consumer Commissions imposed various penalties and interest on Unitech ... It is surprising that eleven "applicants" swallowed these  false explanations from Unitech hook, line and sinker. And it is even more disturbing that such arguments were presented to the Honorable High Court unvarnished and unchecked.

It is understandable that Unitech and the eleven (11) applicants would seek to convince the Honorable Justice to use the vast powers of Section 391 of the Companies Act, 1956 to sanction their draft scheme. But, it is not clear that

  1. the Honorable Court was made aware of the true and material facts relating to Unitech, and it is not clear that
  2. the interests of over 13,000 persons of the affected class have been properly represented.
  3. And it has not been sufficiently demonstrated that Unitech in its present form is even capable of doing what it is expected to do.

That is why it is important that buyers understand the implications of a Yes/No vote during the Homebuyers meetings to be held.

Everything is now in the hands of majority of the buyers, who present themselves and vote on those fateful days of 20 November in Mohali, 27 November in Chennai, 04 December in Gurgaon, and 11 December in Noida. ... Excepting, of course, the proactive buyers and Associations who are approaching the temples of justice to put a stop to all this ill-thought drama ....

Thanks,

Best wishes,
Dr. Sanjay Sharma