Thumbs down on Unitech settlement

InGovern tells stuck home buyers to vote against proposed scheme, says too loaded in favour of realty major

The proposed settlement scheme by realty major Unitech covering 13,000-odd home buyers in 41 unfinished projects has hit an unlikely block. Shareholder advisory firm InGovern has analysed the scheme on behalf of the home buyers and advised them against it.

The scheme was proposed before the high court here by a group of 11 home buyers and fully supported by the company. Accordingly, a plan involving court-monitored escrow accounts and delivery timelines was prepared. On October 3, Unitech told the stock exchanges the HC had ordered convening of meetings of certain customers (home buyers), as unsecured creditors, to approve a Scheme of Compromise and Arrangement.

These meetings would be in Mohali, Chennai, Gurgaon and Noida between November 20 and December 11. The meetings require a quorum of 50 per cent of all home buyers and approval of 75 per cent by value.

In a detailed advisory titled ‘Is it a compromise for Unitech?’, analysing various aspects of the scheme, InGovern has said: “The proposals make it evident that the terms are in favour of Unitech rather than the home buyers...the home buyers compromise a lot more than Unitech does. If approved, this scheme would set a wrong precedent and might encourage other real-estate developers to take a similar route.”

A Unitech spokesperson did not respond to an e-mail seeking comment.

Acknowledging the objective of the scheme to get homes completed and delivered to home buyers, and the necessity for Unitech and the home buyers to arrive at a compromise for constructions to resume and move to completion, InGovern said these “would only work if there are greater disclosures and enhanced governance of the scheme”.

Unitech states it was substantially upgrading its operations and strengthening the back-end infrastructure of the construction division to efficiently implement its projects. InGovern found this contradictory to its contention in the court that it was unable to complete the projects due to financial crunch, excessive piling of inventory and continuing overheads for upkeep, security and day-to-day repair and maintenance, political uncertainty and land issues in UP, among others.

“Unitech needs to provide substantial evidence that it has the required cash flows (both present and future) to complete its projects in the proposed time period. Until it does so, acceptance of the scheme might not be in the best interest of home buyers,” Ingovern added.

It particularly did not like the clause that barred home buyers from approaching courts in future. “In any case, home buyers should not forgo their fundamental right to approach the legal system against the company and its officers in future,” the report said.

Due to non-completion and non-delivery of flats within the stipulated time, the company faces litigation from many home buyers. As many as 958 cases are pending against Unitech at the National Consumer Disputes Redressal Commission.

“If this is what is called a compromise, every real-estate company would be more than happy to seek such a compromise with its customers, rather than completing its projects on time. InGovern recommends home buyers, as unsecured creditors, vote AGAINST this scheme,” the report concluded.