Lavasa is a planned hill station located in the Western Ghats of India, built by Hindustan Construction Company. The project was initiated in the 1990s and was envisioned as a self-sustaining town with modern infrastructure, tourist attractions, and a strong focus on environmental sustainability. However, the project has faced numerous challenges, including environmental concerns, legal issues, and financial difficulties. Recently, the project was sold to Darwin, a Mumbai-based real estate developer, in a bid to revamp and complete the project.
Environmental Concerns
The construction of Lavasa has faced opposition from environmental groups and local residents, who have raised concerns about the project’s impact on the local ecosystem. The project has been criticized for its alleged failure to obtain necessary environmental clearances and for carrying out construction activities in a protected area. The project’s environmental impact assessment (EIA) was challenged by environmental groups, who claimed that it underestimated the potential impact of the project.
Legal Issues
Lavasa has faced numerous legal challenges, including disputes over land acquisition, tax disputes, and violations of environmental regulations. The project has been criticized for its alleged failure to obtain necessary clearances and for carrying out construction activities in a protected area. Environmental groups and local residents have filed lawsuits against Lavasa, alleging violations of environmental regulations and human rights. The legal proceedings are ongoing, with the court ordering the company to take measures to mitigate the environmental impact of the project.
Financial Difficulties
Lavasa has faced significant financial difficulties, including a debt of over INR 6,000 crore. The company has been unable to repay its loans, leading to a default on its debt obligations. The financial difficulties have led to a delay in the completion of the project, with many of the planned amenities and infrastructure still unfinished.
Sale of Lavasa & NCLT Involvement
Lavasa filed an application before the National Company Law Tribunal (NCLT), seeking initiation of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). The NCLT acknowledged Lavasa’s financial distress and admitted the case for resolution, appointing an interim resolution professional (IRP) to oversee the proceedings.
The RP invited expressions of interest from potential bidders to acquire HCC’s assets, including Lavasa. In 2020, the NCLT approved a resolution plan submitted by a consortium of lenders, led by the State Bank of India (SBI). The plan involved the takeover of HCC’s assets by the consortium, including Lavasa, and the infusion of fresh capital to complete the project.
The resolution plan was opposed by some of HCC’s shareholders and creditors, who argued that it did not provide adequate value to the company’s assets. However, the NCLT rejected their pleas and approved the plan, citing the need to preserve the value of the assets and protect the interests of all stakeholders.
The resolution process in the case of Lavasa is significant because it demonstrates the ability of the IBC to address complex insolvency cases and facilitate the restructuring of large corporate debtors. It also highlights the role of the NCLT in overseeing the resolution process and ensuring that it is carried out in a fair and transparent manner.
In its recent order on July 21, 2023, the National Company Law Tribunal (NCLT) approved a resolution plan amounting to Rs 1,814 crore, intending to settle the claims of lenders and homebuyers.
Under the approved resolution plan, the NCLT has outlined a mechanism for returning the funds to lenders in installments. As for the homebuyers, the plan envisions the delivery of fully-constructed properties to the financial creditors within a period of five years from the receipt of Environmental Clearance, on an actual cost basis.
According to the NCLT order, the homebuyers will have to pay the actual future construction costs to the resolution applicant to obtain their properties in the project. Additionally, the resolution plan offers alternative options to homebuyers, such as exiting the project or undertaking self-construction of their properties at their own responsibility, expenses, and accountability.
For homebuyers who opt not to wait for the fully-constructed properties, the resolution plan proposes a full and final settlement by paying 40 percent of their entire admitted claims within 24 months from the receipt of Environmental Clearance for Phase 1.
Regarding claims due to MahaRERA orders (cumulating to Rs 9.33 crore), the resolution plan suggests a resolution of the amounts ordered by the Maharashtra Real Estate Regulatory Authority (MahaRERA) under individual cases. The proposed resolution involves payment of Rs 4.037 crore within 24 months from the effective date.
The Real Estate (Regulation and Development) Act, known as RERA, governs the regulatory aspects of the real estate sector.
Restructuring and Resolution
The IRP, along with the committee of creditors (CoC), engaged in extensive negotiations and consultations with stakeholders to explore potential resolution plans. Several prominent real estate companies and investors expressed interest in acquiring Lavasa and reviving the ambitious project.
Challenges and Opposition
Throughout the resolution process, there were legal challenges and opposition from various parties involved, including financial creditors, operational creditors, and dissenting shareholders. The NCLT played a crucial role in adjudicating these disputes and ensuring fair representation of all stakeholders.
Revival Efforts
Despite the complexities and obstacles, Lavasa’s resolution journey received considerable attention from the business and legal communities. Various resolution plans were presented, each with its unique vision for reviving Lavasa’s dream project. The NCLT scrutinized these plans meticulously to ensure their feasibility and compliance with legal requirements.
Final Outcome
After months of rigorous deliberations, the NCLT approved a resolution plan that received the highest number of votes from the CoC and was found to be viable and beneficial for all stakeholders involved. Lavasa Corporation Limited successfully emerged from insolvency, with a renewed vision and a revised business model.
Lessons Learned
Lavasa’s legal journey under the IBC and NCLT involvement provided valuable lessons for the real estate and corporate sectors. It highlighted the importance of timely resolution, cooperation among stakeholders, and the role of the NCLT in safeguarding the interests of all parties involved.
The successful resolution of Lavasa’s insolvency will have a positive impact on the Indian economy, as it will help to restore confidence in the country’s financial markets and encourage foreign investment. It will also provide a model for the resolution of similar cases in the future, and help to promote a culture of responsible lending and borrowing in the country.
Conclusion
Lavasa’s story serves as an inspiration for other companies facing financial distress. It underscores the significance of the IBC and NCLT in providing a structured and transparent framework for corporate insolvency resolution. Lavasa’s financial and legal challenges highlight the importance of responsible and sustainable development. The project’s focus on environmental sustainability and social responsibility must be matched by tangible actions and commitments. The company must engage with local stakeholders and address their concerns to ensure that the project is environmentally and socially sustainable. The sale of Lavasa to Darwin presents an opportunity for the project to be revamped and completed in a responsible and sustainable manner. It remains to be seen how Darwin will address the environmental and legal challenges facing the project and ensure that Lavasa is developed in a way that is sustainable and responsible. Lavasa Corporation Limited’s legal journey demonstrates the strength of legal mechanisms and its potential for revival and growth in the face of financial challenges.
