A number of “Unitechs” have happened earlier that led to the enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA).”

01 Nov 2020 Long Read

- Yudhvir Singh Malik, Chairperson and Managing Director, Unitech

Over a decade ago about 15,000 homebuyers signed up for properties in Unitech projects. They waited and waited but their dream homes did not materialise. Many gave up hope of a resolution, until January 2020, when the Supreme Court directed the Union of India to nominate directors to the Board of the crisis-hit company. In conversation with CW, nominated chairperson and managing director Yudhvir Singh Malik explains how the reconstituted Board of Unitech proposes to raise funds to deliver pending properties to about 15,000 homebuyers and repay about 42,000 fixed deposit holders.

The newly constituted Board has sought to direct homebuyers to pay the balance receivables. How do you propose to instil confidence in homebuyers to pay up the remaining amount?

Having gone through all the issues facing the company, the newly appointed Board had two options before it. Given the company’s huge liabilities across all stakeholders and potential sources of revenue, one could have recommended resolution of the company under the Insolvency & Bankruptcy Code (2016), wherein, based on the realisable values of all the assets, the stakeholders would have at best realised no more than 13-15 per cent of their investment. That, too, God knows over what timeframe, especially as it may have involved the liquidation of assets where third-party rights have already been created. Alternatively, the new Board could resolve the issues keeping in view the interest of about 15,000 homebuyers and other stakeholders. Eventually, the Board was driven by the mandate of the Supreme Court: to complete and deliver residential units to the large number of homebuyers who had been waiting almost endlessly. This approach would necessarily entail all stakeholders to take some haircuts, according to their capacity.

Apart from the most immediate and pressing liability of about Rs 5,000 crore (as per initial cost estimates) to complete the residential units sold to the homebuyers, the company has huge amounts payable to authorities like Noida and Greater Noida towards unpaid dues (claimed amount of about Rs 8,500 crore); the Haryana government (claimed amount of about Rs 775 crore towards external development charges, infrastructure development charges and license renewal fees); banks and financial institutions (estimated amount of about Rs 5,500 crore including interest); fixed deposit holders (about Rs 954 crore including interest); employees for their salaries and their provident fund payments for about five years; tax deducted at source pending deposit; and vendors and contractors (about Rs 600 crore). The Board held the view that, as directed by the Supreme Court, the rights of homebuyers had to be seen as way superior to all other stakeholders. As such, all stakeholders, including the homebuyers (in terms of foregoing any delayed interest and penalties), would have to take haircuts of varying amounts. Banks and financial institutions, though secured creditors, would also have to take considerable haircuts, almost on the same lines as they do in one-time settlements in the case of non-performing assets (NPAs). It has to be appreciated that this is an extraordinary situation that calls for extraordinary solutions. Otherwise, it will not be possible to resolve various issues.

Coming to the homebuyers, as against the Rs 5,000 crore initial cost estimates for the completion of all the units, the balance receivable from them is about Rs 3,200 crore, payable as per a revised payment plan. We have proposed that the company will not pay any delayed penalties or interest to homebuyers, nor will the company charge any interest on the defaulted amount till the cut-off date. Homebuyers have to appreciate that the newly appointed Board has proposed a holistic resolution framework and tried to be most considerate to those who have suffered. Despite 10 to 12 years having elapsed since the units were booked, the Board has proposed to complete and deliver them for the same booking price, implying that all the escalations over the period are proposed to be borne by the company from other sources. Given this proposal, the timely payment of the balance receivable by homebuyers is critical to help maintain the required cash flow for uninterrupted construction. In fact, even those cash inflows are not likely to meet the payment obligations arising on account of construction, for which the company will have to arrange additional priority financing and simultaneously monetise other non-project assets.

Do you propose to dispose of Unitech’s unsold inventory, supposedly worth Rs 3,000 crore, and another Rs 6,000 crore worth of land?

The Board has taken cognisance of unsold inventory of about 4,000 units, although this number would also vary depending on how many homebuyers are adjusted through migration and how many are finally directed to be refunded. This inventory would become saleable only when it is completed alongside the sold stock. So, there will be a mismatch in its sale and the cash flow requirement. However, the proceeds from this unsold stock will very much be a part of the cash flow management as detailed in the resolution framework to meet construction/completion costs.

With regard to other non-project land assets, what is material is their realisable value, not their book value. A major part of the readily monetisable and value stock has been charged to banks/financial institutions and asset reconstruction companies. Some encumbrance-free land parcels have already been monetised through the Justice Dhingra Committee appointed by the Supreme Court, the proceeds from which have been deposited in the Supreme Court Registry. We have started the ‘due diligence’ process for the remaining land assets but it would be an overstatement to expect that kind of money (Rs 6,000 crore) from those sales. In most cases, the book value appears to be overstated compared to the realisable value. The disposal of some land assets that are not contiguous (like 244 acre in Varanasi and 246 acre in Agra), or which do not have proper access, seems extremely challenging. We have dealt with this subject adequately in the resolution framework.

Why aren’t you giving homebuyers the choice to opt out and get their money refunded?

Some homebuyers seeking refunds have had a decree or other order issued in their favour by a court or other authority. The available information shows that the Amicus Curiae has, on the directions of the Supreme Court, already refunded the full principal amount of Rs 101.70 crore to 391 homebuyers, though none of those have returned the title papers/NOCs with respect to those units in spite of the directions of the Court in this behalf. Further, about Rs 121 crore has been released towards partial refunds (about 14 per cent) of the principal amounts in favour of about another 1,100 homebuyers. The payment of the full principal amount in these partial refund cases would entail an outgo of about Rs 450 crore. If this amount were also to be refunded, it would be out of the same corpus proposed to be used for the commencement of the completion of projects, thus having a major adverse impact on the cash flow. It has been proposed that such homebuyers should accept delivery of their current allotment because we have only one kitty to complete the backlog. If we use it to refund monies and defray other liabilities, the Board will not have the cash flow needed for construction. Homebuyers, who have already been given part refund of their principal amounts would be required to return the refunded amount within 60 days of the acceptance date, failing which they would be deemed to have foregone their allotment and the Unitech Group would be entitled to include such units for further sale, free of any encumbrance. It has been proposed that such homebuyers shall be refunded the remaining part of their principal paid-up amount from the final surplus after the construction and delivery of all the homes.

Estimates suggest that Unitech owes the Noida Authority around Rs 8,000 crore, of which Rs 5,000 crore is in interest and penalties. Banks have to be paid around Rs 5,000 crore, with interest accounting for 40 per cent of the amount. Apparently, the Board wants a Rs 5,000-crore interest and penalty waiver from the Noida Authority and banks. What justification do you put out for this waiver? Why should they agree? Doesn’t it set a bad example?

It has been highlighted multiple times in the proposed resolution framework that, without condoning the actions of the promoters and erstwhile management in any manner, including in relation to taking unmanageable and unconscionable risks or alleged siphoning off of funds, making misrepresentations to homebuyers and other stakeholders etc, it appears to the Board that the delays in construction and delivery of units in several situations have also been caused due to factors outside the control of the Unitech Group, including acts and omissions of authorities and governments.

If you take the situation in Noida and Greater Noida, all of Unitech’s land was bought through an open bid process. It isn’t as if the land was allotted. The authority invited bids for prime land in sectors 96, 97 and 98, land which accounts for “major defaults”, to quote the Noida authority. Unitech Group offered a bid price of Rs 1,582.84 crore for that land against a reserve price of Rs 788.68 crore. Thus, its purchase price was slightly more than double the reserve price.

After the bidding, the lease agreement for the land sprang a surprise. It said that there were litigations on the land and that the title (lease) of the land would be subject to the outcome of the litigation. A company called I-City Infrastructure (India) had claims on the land. I ask you: Which bank or financial institution would finance such a project? It would cease to be a bankable project from Day 1.

Thereafter, the National Green Tribunal imposed a ban on all construction activity for two years (September 2013 to August 2015) because the said land fell within 10 km of the Okhla Bird Sanctuary. Rules mandated each state to notify the boundaries of eco-sensitive zones around national parks/sanctuaries by a given date, failing which the limit would extend to an area of 10 km around their boundaries. The state took two years to notify its boundaries, in the said instance restricting the buffer area up to only 100 m. The developer could not have done anything during this period. Why should the developer pay instalments, lease money, interest and penal interest for those two years? We have set out all the reasons in the resolution framework as well as how much we believe is payable by the company.

Unitech also faced delays in getting approvals of layouts and building plans, and unreasonable demands for the payment of compensation to farmers. If a developer pays well above the reserve price for land, as it had for the land in sectors 96 to 98 and also for land in sectors 113 (highest bid price of Rs 378.04 crore against the reserve price of Rs 259.97 crore) and 117 (Rs 503.43 crore as against the reserve price of Rs 346.20 crore), we believe any additional compensation to farmers is payable by the authority, especially when no such condition was laid down in the lease deeds.

As for banks and financial institutions, given the peculiar situation and the fact that most accounts have become NPAs, the normal practice in the banking industry in the case of NPAs is to go in for one-time settlements wherein the payment obligations are settled at 60 to 70 per cent of the principal amount, foregoing all interest. However, a final resolution on these liabilities will depend on how the Supreme Court views the proposals.

A Supreme Court-ordered forensic audit in 2018 found that Unitech had collected Rs 14,270 crore from homebuyers between 2006 and 2014 and Rs 1,805 crore from six financial institutions for 74 projects. What measures have been taken to get back this money?

It is difficult to comment on this. The forensic audit report has not been shared with the new management. Most of the issues emerging from the forensic audit, as also mentioned in the Supreme Court order dated December 18, 2019, are a subject matter of investigation by agencies. Any outcome would largely depend on the steps to be taken by such investigating agencies and the disgorgement proceedings, if any.

Homebuyers are becoming restive as there is hardly any progress on ground since January 20, 2020, when the Supreme Court ordered the appointment of an independent Board of Directors. They have started murmuring that the newly appointed management is also not moving at the desired or expected pace. When will Unitech’s homebuyers get their booked flats?

We can understand their being restive. However, please understand that the new Board could not submit the resolution framework within a period of two months as directed because of successive lockdowns due to Covid-19. We faced a very complex and multidimensional legacy, which had to be addressed holistically. We filed the resolution framework on July 16, 2020. Thereafter, we have also been waiting for the Supreme Court to find time to consider it.

A total of 14,980 sold units are pending delivery and another 4,000 unsold units in those projects are pending completion. In all, we have to complete about 19,000 units. In the resolution framework, we have proposed that it will take at least six months after we get a ‘go ahead’ from the Supreme Court to complete the process of award of contracts and site mobilisation by the contractors before construction work is resumed at project sites. Thereafter, we have proposed a timeframe of 48 months to deliver the units.

Assuming that the required funds for completion and working capital are available, approvals from the regulatory authorities are made available on time (where required), and the court order is received for all the pending projects so that construction of all of those starts simultaneously, we plan to deliver about 2,500 units within the first year, about 6,500 units in the second year, about 5,000 units in the third year, and the balance units in the fourth year. These are somewhat aggressive timelines but appear to be achievable unless we face some unforeseen conditions (like COVID-19) or stoppage of construction activities for certain periods due to environmental constraints, etc.

What measures would you propose to ensure that another ‘Unitech’ does not happen?

A number of ‘Unitechs’ have happened earlier that led to the enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA) and the establishment of authorities thereunder. It is expected that necessary checks will be in place wherever RERAs have been instituted and become operational.

In fact, although it has been mentioned that Unitech’s pending projects are old, preceding RERA, and hence we have asked for certain exemptions from RERA, this Board has also committed that the balance receivables from homebuyers will go into a specified project account and 70 per cent of that money will be applied only to complete the project. We don’t intend to use any money from those project-specific accounts except to meet operational expenses of an ongoing concern, until we complete the project. Thereafter, the balance can be utilised for the completion of the deficit projects as well as to meet obligations towards other stakeholders in accordance with the proposed final surplus distribution waterfall.


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