In April 2021, the National Company Law Tribunal (NCLT), a quasi-judicial body in India that adjudicates issues relating to bankrupt companies, admitted the case of a Mumbai-based real estate company, Radius Estates and Developers Private Limited (henceforth Radius), to adjudication through the insolvency process. More than three years later, Adani Goodhomes, a subsidiary of Adani Infrastructure and Developers, acquired the bankrupt firm in a deal which certain creditors have alleged was discriminatory and akin to a sweetheart deal.
Radius, headed by Sanjay Chhabria (more about him later), had failed to deliver flats to homebuyers and defaulted on repayment of loans, resulting in the company becoming insolvent. The prospective buyers of residential accommodation in the housing project in Mumbai had together advanced ?747.19 crore (US $89 million) to Radius to book their flats. (Mumbai is India’s financial capital where the prices of real estate are the highest in the country and among the highest in the world in comparable terms.)
Although these prospective buyers of homes have the same rights as financial creditors, such as housing-finance companies, they are considered a separate class of creditors under India’s Insolvency and Bankruptcy Code (IBC) of 2016.
At the time of filing the insolvency petition in April 2021, Radius had a total outstanding liability of ?2834.92 crore (US $339 million). Out of the claims aggregating ?1750.81 crore (US $209 million) filed by the company’s financial creditors, the claims of debenture holders are estimated at around ?200 crore (US $24 million) or 11.4% of the total amount outstanding to all financial creditors. (Debentures are a type of long-term debt instrument issued by a company that typically offers a fixed rate of interest over a specified period.)
The Middle Income Group Co-operative Housing Society I (henceforth, the Society) in Mumbai’s Bandra East area had entered into a ‘development agreement’ with MIG (Bandra) Realtors and Builders Pvt Ltd (MBRB), a subsidiary of DB Realty Ltd, on 31 October 2010. Despite the agreement, construction of the buildings did not commence for almost five years.
The Society’s 176 members (176 families) who owned flats vacated their premises in early 2015 and handed these flats and the 4.98-acre plot of land on which they were situated to DB Realty. On 31 March 2016, MBRB signed a joint venture agreement with Radius Estates and Developers Private Limited (Radius) to redevelop the land. According to news reports from that time, Radius had a 49% stake in the project while 51% was with MBRB.
The state government body, the Maharashtra Housing and Area Development Authority (MHADA), owned the land that had been given on lease to the Society. The MBRB-Radius joint venture started construction on the land. According to the plan, the joint venture had to construct 722 flats in 15 towers, each costing between ?8.95 crore (US $1.07 million) and ?15.95 crore (US $1.9 million), depending on the floor area of the flat. Once completed, the total constructed area would be 2.6 million square feet. The project involving the construction of residential flats for members of the society had a ‘free sale’ component. The builder, after obtaining permission from the local authorities, was allowed to build more apartments that could be sold on the open market to anyone and not just to members of the society.
Incomplete residential housing project
Construction works on the housing project stopped in January 2020, by which time nine out of the 15 planned buildings had been partially constructed. In May that year, the Society cancelled its agreement with MBRB to develop the property, alleging numerous violations of the terms and conditions of the agreement, including failure on the part of the builder to pay the ‘transit rent’ to the members of the society. (Transit rent is what is commonly referred to as a hardship allowance, rehabilitation allowance, or displacement allowance, which is paid by the developer of a building or the landlord to the tenant who suffers hardship due to dispossession.)
Non-payment of transit rent was one of the issues behind the dispute between the builder (Radius) and the tenants, and which eventually led to the former becoming bankrupt. This led to insolvency proceedings and eventually paved the way for Adani to take over the bankrupt firm.
MBRB’s audit report for the financial year shows the company had a negative net-worth of Rs 397.58 crore (US $48 million).
DB Realty moved an arbitration petition in the high court of Mumbai. The court ordered that the status quo be maintained and appointed an arbitrator.
The arbitrator ordered a conditional stay on the termination of the agreement between the housing society and the builder. DB Realty was asked to pay the transit rent and the corpus fund and to provide monetary compensation to members of the Society. The arbitrator stated that a violation of any of these conditions would result in the vacation of the stay order from the court.
Up to this point in time, Radius was not affected because the society’s agreement was only with MBRB.
Insolvency proceedings begin
In November 2020, Beacon Trusteeship Limited (BTL), one of the financial creditors of Radius, filed a petition under the IBC initiating a Corporate Insolvency Resolution Process (CIRP) against Radius. BTL was holding debentures issued by Radius in 2018. Towards the end of 2019, Radius started defaulting on quarterly payments to debenture holders.
On 30 April 2021, the NCLT initiated insolvency proceedings against Radius. A moratorium was imposed on further transactions. By this time Radius had sold 224 flats in the housing project.
The IBC specifies that the ‘moratorium commencement date’ refers to the day when a legal pause on specific actions against a company begins. Once insolvency proceedings begin against a company, a court or tribunal, such as the NCLT, imposes this moratorium, thereby allowing the company to reorganise itself and, potentially, to find a way to resolve its financial difficulties.
After insolvency proceedings began, a Committee of Creditors (CoC) was formed, which included various stakeholders, including homebuyers and financial creditors such as HDFC Limited, ICICI Prudential Venture Capital Real Estate Fund Scheme I and BTL.
HDFC Limited (formerly Housing Finance and Development Corporation) is one of India’s leading housing finance companies; HDFC Bank is one of the country’s biggest private banks. ICICI Prudential Venture Capital Real Estate Fund Scheme I is a venture capital fund managed by ICICI Prudential Asset Management Company, an associate of the financial bigwig ICICI Bank, a multinational bank headquartered in Mumbai with operations in 17 countries and one of India’s leading private banks (together with HDFC Bank). (ICICI used to stand for Industrial Credit and Investment Corporation of India.)
Adani enters the scene
In September 2021, DB Realty, the parent company of MBRB, recommended the appointment of Adani Infrastructure and Developers Private Limited (AIDPL) as the ‘construction manager’ of the project. Between 13 September and 17 September that year, officials from AIDPL and DB Realty made presentations to the CoC. The committee authorised itself to negotiate with AIDPL four days later, on 21 September 2021.
The NCLT-appointed resolution professional received expressions of interest (EOI) from two prospective resolution applicants — the first was from Adani Goodhomes and the second was a joint application from two firms, Ashdan Properties Private Limited and Ashdan Developers Private Limited. The resolution professional rejected the joint application from the Ashdan Group, saying it did not meet the eligibility criteria approved by the CoC. This led to Ashdan withdrawing its application from the process, leaving Adani Goodhomes the only remaining eligible applicant.
A resolution professional is an individual appointed by an adjudicating authority, in this instance, the NCLT, whose most important function is to ensure the operations of the corporate debtor are maintained. Even when the corporate debtor (in this case, Radius) is undergoing insolvency, its operations had to be preserved and protected until the insolvency process was concluded.
Accusations of collusion
At this juncture, two creditors, ICICI Prudential and BTL, accused the resolution professional, Jayesh Sanghrajka, of colluding with the largest creditor, HDFC, resulting in only one bid, the one by Adani Goodhomes being found eligible.
The dissenting creditors, ICICI Prudential and Beacon Trusteeship, objected to the resolution professional’s decision and alleged that the plan violated the IBC and repeated their concerns about collusion and alleged procedural irregularities. They claimed that the NCLT approved the resolution plan hurriedly and the Resolution Professional’s actions were discriminatory.
They further alleged that Adani put a strict and narrow timeline for approval of the resolution plan to put pressure on the CoC. Moreover, they alleged that the valuation of the property, done by the valuers appointed by the RP with the approval of CoC, hugely undervalued the project to favour the resolution applicant, in this instance, Adani Goodhomes.
The two creditors, ICICI Prudential and BTL, demanded that the insolvency process be restarted. However, in December 2022, the NCLT approved Adani Goodhomes’ bid citing ‘insufficient evidence’ to substantiate the allegations against RP Sanghrajka.
Huge ‘haircut’
Adani Goodhomes proposed a resolution plan for Radius Estates which aimed to settle the outstanding dues of the latter firm totalling more than ?1700 crore ($203 million). Adani’s offer resulted in a 96% reduction in the claims of certain creditors, meaning that those creditors would only receive ?76 crore ($ 0.3 million). It should be clarified here that the 96% haircut pertains not to all the creditors but the sub-set of creditors who will not be repaid the principal amount and interest on the loans advanced to Radius.
Indian insolvency rules require two thirds of creditors to approve a debt-resolution process. Adani's bid received the approval of over two thirds of the company’s creditors before being presented to the NCLT for its final approval. Nearly all the homeowners, who hold a third of the voting rights in the CoC, supported the bid, along with the largest financial creditor, HDFC.
Adani’s promise to complete the residential project at no additional cost to homeowners was seen as a positive move towards mitigating losses and fulfilling the commitments made by Radius to homebuyers.
According to a report in The Economic Times, the Middle Income Group Co-operative Housing Society I had 196 members in May 2017. As mentioned, Radius had sold 224 flats as per the ‘free sale’ component in its agreement with the MBRB and the joint venture was in the process of building more apartments by applying to the relevant authority to increase the floor-space index – simply put, the floor-space index is the maximum permissible floor area that a builder can build on a particular plot of land that is usually determined by a local urban development authority.
While the homebuyers are happy because they are getting their flats at no additional cost, those who had pre-booked flats and later cancelled their bookings due to the delays in completing the project are not getting the full value for their money.
According to the resolution plan, Adani will repay them when their booked flats are constructed and sold to other buyers. Moreover, Adani will not pay interest to those who cancelled their bookings. Many people who had availed themselves of a home-loan facility for their booking have had to lose the interest they paid to the banks in the interim.
On 27 May 2024, the NCLAT upheld Adani Goodhomes’ resolution plan to take over the bankrupt Radius, dismissing challenges from creditors and debenture holders, including ICICI Prudential and Beacon Trusteeship.
This is the second large housing project that the Adani Group has secured in Mumbai after the Dharavi Redevelopment Project – Dharavi in Mumbai is Asia’s, and one of the world’s, largest slum. Adani has won the right to redevelop it by demolishing this huge shantytown and re-housing its inhabitants. Many people fear they will be made homeless and jobless. View a 43-minute documentary film and read about the controversial Dharavi Redevelopment Project here.
Adani has obtained rights to develop other areas in Mumbai and hopes to become one of the biggest real-estate players in the megapolis.
A controversial resolution
The point that needs emphasis about the Adani Goodhomes case is that although home-owners who have already paid for the flats are getting their homes without any price escalation, more than ? 1650 crore (almost US $200 million) belonging to the financial creditors – including money loaned to ICICI Bank and HDFC Bank by their public depositors – has been written off to favour the homeowners as well as Adani Goodhomes.
Those supporting the deal argue that the resolution favours the homeowners at a cost to the major financial institutions, a David-versus-Goliath story. The resolution certainly does favour the homeowners at the expense of the bigger creditors, two of whom are part of large financial institutions, HDFC and ICICI. However, the point we are stressing here is that the resolution has enabled Adani to acquire a bankrupt real-estate firm, Radius Estates, for ?76 crore after the bankruptcy tribunal ordered creditors who were owed ?1700 crore by Radius to write-off or reduce their claims – in other words, accept a ‘hair-cut’ – to the extent of 96% of what was owed to them. This is the unusual party of the story.
According to the IBC, the CoC is supreme, and a majority decision of the committee cannot be challenged except in the Supreme Court of India. Why has this not happened? We wrote to representatives of the three main creditors, HDFC Bank, ICICI Prudential and Beacon Trusteeship, to ascertain their views. This article will be updated as and when we receive a response from them.
Besides HDFC, why did other creditors of Radius, Yes Bank, and Piramal Capital and Housing Finance Limited (PC&HFL), formerly known as Dewan Housing Finance Ltd (DHFL), act in the way they did?
HDFC raised a total claim of ?904.82 crore (US $108 million) for recovery from Radius. The resolution professional admitted ?827.80 crore ($99 million) as recoverable. HDFC had adequate security in the form of a mortgage in the upcoming project for this particular claim. To settle this claim, Adani offered ?10 crore ($ 1.2 million) and HDFC accepted the offer! How come?
When a loan is granted by a financial institution (in this case, HDFC), it is usually presumed that the institution has sufficient assets to ensure that it does not go bankrupt if the loan is not repaid. HDFC had raised a claim of ?904.82 crore on Radius and accepted (apparently, meekly) the decision of the resolution professional Jayesh Sanghrajka to settle the claim by writing-off 96% of the amount owed, thus paving the way for Adani’s offer of ?10 crore to be accepted.
This is the question we are asking: Why did HDFC accept the resolution that was offered by resolution professional Sanghrajka? How come HDFC did not protest like ICICI and Beacon? Is HDFC going to challenge Sanghrajka’s order in the Supreme Court of India? We do not know because HDFC did not reply to our questionnaire. This is what makes the story so out of the ordinary.
In the meeting of the CoC to approve Adani’s resolution plan, Yes Bank abstained from voting. The bank agreed to settle its outstanding claim of ? 59.46 crore (US $7 million) for ?0.5 crore (US $60,000). PC&HFL (formerly DHFL) voted in favour of the resolution and agreed to settle its accepted claim of ?429.96 crore (US $51 million) for a mere ?0.4 crore (US $48,000).
Yes Bank scandal and Radius official Sanjay Chhabria
In 2022, Yes Bank, a prominent private-sector bank in India, was embroiled in a major scandal. It was accused of mismanagement, corruption and fraudulent lending practices. The scandal had been brewing over several years and came out into the open in April 2022.
Under its founder and former CEO Rana Kapoor, the bank extended loans that were not repaid (called ‘non-performing assets’), leading to a liquidity crisis. Yes Bank had extended substantial loans to DHFL and Radius, led by Kapil Wadhawan and Sanjay Chhabria respectively, who reportedly had close ties with Kapoor. These loans became non-performing assets as they were given without proper due diligence and were used for purposes other than what they were intended for.
Kapoor was accused of accepting kickbacks and bribes in exchange for sanctioning loans to dubious corporate entities. The Directorate of Enforcement (ED) in the Indian government’s Ministry of Finance arrested Kapoor in March 2020 on charges of money laundering and fraud.
Besides the ED, the country’s ‘premier’ investigating agency, the Central Bureau of Investigation (CBI), conducted extensive investigations into the working of Yes Bank, scrutinising not just the bank’s transactions but also the involvement of individuals such as Chhabria, managing director of the Radius Group, that had been disbursed loans by Yes Bank.
Kapoor was released on bail after being incarcerated for four years. In April 2022, the Radius Group’s Chhabria, too, was arrested by the CBI after he was accused of financial irregularities and money laundering. Assets worth Rs 415 crore (over $ 50 million) were reportedly seized from him. He was denied bail in February 2024.
In the voting for the resolution plan for Radius proposed by Adani Goodhomes, Yes Bank abstained from voting, while PC&HFL (formerly DHFL) voted in favour of the resolution plan. A curious story indeed!
Besides some of the homeowners, only one entity gained from the convoluted bankruptcy proceedings: Adani Goodhomes.
Adani has claimed that by taking over the bankrupt firm, Radius, it is helping the homeowners. Of course, it is. But the unusual aspect of the story is how a major creditor like HDFC accepted without demur the resolution plan by foregoing 96% of what was owed to it, all of which undoubtedly helped the Adani Group.
