Amrapali Case: JP Morgan's Assets To Be Attached For FEMA Violation

The Amrapali Group, which a large number of homebuyers in the national capital region trusted with their hard-earned money, to book affordable homes in Noida and Greater Noida, colluded with several domestic and foreign entities to defraud customers, the forensic audit of the now-defunct real estate developer has revealed.

According to the reports submitted with the Supreme Court (SC), which has been handling the case since 2017, Amrapali signed illegal pacts with New York-based JP Morgan and New Delhi-based Rhiti Sports Management, to siphon off advances collected from homebuyers for its under-construction projects.

Through an agreement signed in 2010 which was in violation of the Foreign Exchange Management Act and foreign direct investment norms, JP Morgan invested Rs 85 crore in Amrapali to have a preferential claim on profits in a 75:25 per cent ratio. Later, Neelkanth and Rudraksha, two phony companies owned by a peon and an office boy of Amrapali's statutory auditor Anil Mittal, bought these shares back from JP Morgan for Rs 140 crore.

In 2009, Amrapali also allegedly entered into 'sham agreements' with sports management company Rhiti and paid it Rs 38 crore with an intention to illegally divert buyers’ money. Among other sports celebrities, Rhiti manages the account for Mahendra Singh Dhoni, who was endorsing Amrapali before the troubles began, forcing Dhoni to drag the builder to the apex court over payment delays.

"We feel that buyers' money has been diverted illegally and wrongly to Rhiti and should be recovered from them," the forensic auditors had said in their finding.

Following the revelations, the top court on January 13, 2020, directed the Enforcement Directorate (ED) to attach properties JP Morgan owns in India while also giving it the custody of three jailed Amrapali bosses ─ CMD Anil Kumar Sharma and directors Shiv Priya and Ajay Kumar ─ for interrogation.

While setting up a four-member panel to help state-run MSTC sell Amrapali's assets to arrange funds for project completion, the SC also asked NBCC to start work on seven pending housing projects of the Group.  

The brick-by-brick fall

Taking a decisive move in this high-profile case it has been involved in hearing for over two years now, the top court, in July 2019, cancelled the registration of all Amrapali Group projects registered with the Uttar Pradesh Real Estate Regulatory Authority (UPRERA).

It has also directed public builder National Building Construction Company (NBCC) to take over all pending projects of the embattled builder. Much to the trouble of nearly 42,000 buyers, the crisis-hit real estate giant has as many as 43 real estate projects in various stages of construction.

The Delhi Police arrested Amrapali bosses in February 2019.

How did things come to such a pass?

When the National Company Law Tribunal (NCLT) in 2017 initiated insolvency proceedings and appointed an interim resolution professional to manage the affairs of embattled Amrapali Group, thousands of flat owners, primarily in Noida, found themselves extremely jittery. Their jitters are not unfounded.  Under the earlier Insolvency and Bankruptcy Code (IBC), consumers were placed right at the end of the queue, when it came to distribution of assets, if a company were to be liquidated. (This has changed now.)

Also read: Buyers May Get A Say In Insolvency Proceedings Against Builders

Since insolvency proceedings would have impacted buyers’ interests, several pleas were filed in the SC, including one by the Amrapali Silicon City Flat Owners Welfare Society, against the NCLT order.

The NCLT move came after Bank of Baroda moved the tribunal in connection with loan defaults by the Noida-based realtor. BoB might have initiated the proceedings, but it is not the only lender to which the group owes. The group has a standing liability of Rs 1,000 crore to 10 banks. Additionally, the group owes about Rs 3,000 crore to Noida and Greater Noida authorities, the two areas where the group has the highest number of residential projects. 

Of failing promises

Initially, the three directors of the group, Anil Kumar Sharma, Ajay Kumar and Shiv Priya, had assured buyers that they "intend to complete all our ongoing projects", and were "not running away from the country”, and the company "is making efforts to deliver all flats by 2020". In light of the facts, those promises did look weak.

Sample this.

The company had launched 11,000 units in Noida. Of these, 8,500 have been delivered and 2,500 are pending. In Noida Extension, the company had launched 28,000 units. All of these are yet to be delivered. The company cites 'land acquisition issues in Greater Noida during 2011-15' and 'demand slowdown in the property market in the last several years', as the reason for delay in project delivery.