Lavasa residents seek clarity from judicial forums on joining IBC process

Residents of Lavasa, India’s first private city, are awaiting clarity from several judicial forums on whether they can join the insolvency process of Lavasa Corporation, a subsidiary of BSE-listed Hindustan Construction Company (HCC).

Last Thursday, the Mumbai Bench of the National Company Law Tribunal (NCLT) admitted an insolvency petition against Lavasa, accusing the project of continual delays in delivering residences and other aspects of the project.

In Lavasa the developer must provide basic services like water and electricity, as well as security and other amenities.

In the early 2000s, the Maharashtra government awarded HCC the tender to build, develop and operate a hill-station city spread over 10,850 acres, covering 18 villages. The company has built substantial infrastructure, more than 2,200 apartments and villas, hotels, and city amenities and services, including an international convention centre.

Minoo Wadia, a former Indian Air Force officer who is representing residents and homebuyers in Lavasa, told Business Standard they had a case(s) filed at the National Consumer Disputes Redressal Commission (NCDRC).

So far the residents have not registered an association, and Wadia said they would register their “citizens’ association” in the coming week. He said a lot of residents did not permanently stay in Lavasa because of bad facilities and administration.

Wadia said there were around 1,000 residents and home-buyers in the citizen’s association.

“We have been asking Lavasa to give us access to the city’s management. Every city is run by public representatives in the local municipality and information can be obtained. However, here Lavasa has gone out of its way not to give us information as to how the city is run, and what services and facilities are available. We have been requesting them to resolve issues like bad roads and lack of security,” Wadia said.

As a result of the recent amendment to the Insolvency and Bankruptcy Code (IBC) and the Supreme Court’s precedent set in the Jaiprakash Associates insolvency case, homebuyers can now participate in meetings of the Committee of Creditors (CoC) as financial creditors and not as operational creditors.

While legal experts say the re-classification of home-buyers under the IBC is a positive step, they feel their vote in CoC meetings will be outweighed by that of the lenders. The NCLT has appointed Devendra Prasad interim resolution professional (IRP) under the IBC.

Lavasa owes lenders more than Rs 30 billion and owns nearly 20,000 acres in Maharashtra. A registered valuer has pegged the value of the land at Rs 92.8 billion.

“Lavasa is a very special urban development project and an initiative well ahead of its time. While shareholders’ interests have been sacrificed, we are hopeful that the pioneering efforts to grow Lavasa into a thriving smart city will now find stewardship in the hands of a new owner, enabled by the NCLT,” said Arjun Dhawan, director and group chief executive of HCC, in an exchange filing last week.

In 2010, the privately-run city and its developer got into legal and environmental troubles after the Ministry of Environment issued a show-cause notice to the company for allegedly unauthorised construction.

In January 2011, the company was permitted to continue construction if it set up an environmental restoration fund, conducted an environment impact assessment, and provided “credible” information about the development of the project.