Unitech to open escrow account, use money to complete projects: Delhi High Court

New Delhi: The Delhi High Court has granted an opportunity to beleaguered real estate major Unitech Ltd to complete its delayed housing projects and hand over possession of flats to buyers by opening escrow accounts and using the money deposited in it solely for these projects.

The order came last week after various home buyers and the firm put forward before the court the proposed scheme of compromise which would enable the company to complete these projects and hand over the possession of flats.

The company told the court that they would open escrow accounts, in which amount received from the buyers and sale of lands would be deposited, and the money would be used solely for completing the delayed housing projects.

The court, which has put in "abeyance" all the proceedings pending before different forums against Unitech Ltd to enable it to fulfil its commitment towards homebuyers by handing over possession of flats, has appointed a court commissioner to monitor the functioning of the escrow account.

"I have been taken through the scheme in detail and also the affidavits filed by the respondent company (Unitech Ltd). On the face of it, it is obvious that the petition filed by a group of home buyers may also serve the interests of company which is clearly beset by serious financial difficulties that could result in its liquidation," Justice (since retired) S K Misra said.

The court observed that there was a "colossal failure" on the firm's part in completing its projects but if the company was not granted an opportunity to carry forward its proposed scheme of compromise and arrangement, it might face erosion of net worth and suffer loss of credibility.

"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. Even they would need to stand in the queue of the unsecured creditors for seeking execution of them," it said. The firm proposed to the court that escrow account would be opened for receiving the proceeds from any sale of land and the money used for completing the unfinished projects and meeting the working capital requirements of the firm.

The court noted that a representative of the buyers would be one of the authorised signatories to the escrow account and funds would be used for executing the project only.

Keeping in abeyance all the proceedings pending before different forums against the company till further orders, the court noted, "The company, as well as its directors, are facing prosecution in addition to the financial strain on the company's resources because of decrees passed against them."

"If a substantive, effective and meaningful opportunity is to be provided to the company to complete the projects and to handover possession to the homebuyers, it is important that they must be protected against execution of decrees passed against them," it observed.

"However, cases in which directions have been issued or may be issued in future by the Supreme Court of India to the company in this behalf shall stand exempted from the scope of this order," it clarified.

The court said this protection was being granted to the company and its directors with the sole objective of affording them a reasonable opportunity, as requested by them, to fulfil their commitments to the buyers.

The court's order came on a plea by a group of home buyers who urged the court to keep in abeyance all present and future litigation as instituted by the homebuyers/allottees of residential flats/units against the company.

They have submitted that since the company has failed to complete various projects across the country, they have been directed by various forums to refund amounts to the homebuyers with interest.