Supreme Court Seeks Responses on Allegations of Homebuyers' Fund Diversion in Real Estate Projects
The Supreme Court has sought responses from the Centre, Enforcement Directorate (ED), Reserve Bank of India (RBI), and other stakeholders, including several real estate firms, on a plea alleging the siphoning of thousands of crores collected from homebuyers in projects in Noida and Yamuna Expressway.
A bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and Vipul M Pancholi took note of the submissions made by lawyer Prashant Bhushan, who appeared for the petitioner Vandana Sabharwal. The court issued notices to the respondents, with responses due by July 15.
The petition highlights a systemic issue in the real estate sector where developers are alleged to divert homebuyers' funds, transfer land and development rights to related entities, and eventually push projects into insolvency, leaving buyers in a precarious situation. Sabharwal's plea states that this pattern is recurrent and widespread.
Bhushan referred to the findings of the ED, which is investigating the matter under the Prevention of Money Laundering Act (PMLA). According to the ED, out of nearly Rs 14,559 crore collected by Jaiprakash Associates Ltd (JAL) and Jaiprakash Infratech Ltd (JIL) from over 25,000 homebuyers, substantial amounts were diverted for non-construction purposes and siphoned off to related group entities, including Jaypee group companies.
“This issue keeps recurring project after project,” Bhushan said. “Funds are collected from homebuyers, diverted elsewhere, and the companies eventually go into bankruptcy. Homeowners are left in a serious situation because the diverted funds are either never identified or not identified and brought back in time.”
Bhushan also highlighted that developers routinely transfer land and other assets to affiliated companies, frustrating recovery efforts even after investigations reveal fund diversion. He noted that although the ED had provisionally attached assets worth around Rs 400 crore, the alleged diversion involved assets exceeding Rs 14,000 crore.
He urged the bench to direct the ED to complete its investigation expeditiously and issue provisional attachment orders wherever proceeds of crime or diverted funds were found invested in land or development rights. “What has been happening is that these assets are usually never recovered. Investigations reveal diversion to related companies, but if recovery does not happen, the benefit never reaches the homebuyers,” he said.
Bhushan also sought directions to the RBI to conduct audits of banks that financed such stalled housing projects, arguing that banks too were suffering substantial losses. “One of the things the RBI should do is issue directions because this is happening across the board and many banks are losing money in such projects,” he added.
Referring to proceedings before the National Company Law Tribunal (NCLT), Bhushan submitted that homebuyers opting for refunds were being offered only the principal amounts paid over a decade ago, without interest, despite a sharp rise in property prices. “If we want a refund today, we are being offered what was paid 12 years ago without any interest. Today, the same flat would cost three times more,” he said.
The CJI acknowledged that the matter involved complex issues and noted that while in another matter involving similar allegations, the court had handed over the probe to the CBI, the ED had already registered a case in the present case. “Let us see what they have to say,” the bench said and asked the ED to place a status report on record regarding the progress of its investigation.
Bhushan informed the bench that the ED had registered an enforcement case information report (ECIR) based on multiple FIRs lodged by the Economic Offences Wing of Delhi Police and Uttar Pradesh Police. The bench directed all respondents to file their replies by July 15.
