Bankruptcy: Lavasa Revival Needs Fresh Thinking and End to Delays Caused by Public Sector Banks
Even as increasingly affluent Indians desperately hunt for holiday destinations, Lavasa City, India’s first planned, private hill station lies in a shambles. Nestling in the majestic Western Ghats and styled on the lines of the Italian town of Portofino, the township is spread across 12,500 acres. It was set up by Lavasa Corporation (Lavasa), a subsidiary of Ajit Gulabchand’s Hindustan Construction Company (HCC) around the year 2000 with a 68.7% stake.
 
Lavasa proposed centralised infrastructure and maintenance and spawned a bunch of subsidiaries to construct roads, run sanitation and hospitality services, construct dams over the Warasgaon River and build thousands of homes of different kinds.
 
When it was dragged to the bankruptcy court in 2018, the project was mired in controversy for its land acquisition methods, allegedly breaches of environment norms and attracted strictures by the comptroller & auditor general (CAG). Construction was halted in 2010 by an environment ministry order. At that point, two out of five planned towns were completed and occupied, along with hotels, resorts, a city centre, educational institutions, and retirement homes. The project also aimed to include a golf course and international sports facilities. Despite the group's political influence and connections to the Sharad Pawar family, Lavasa's issues and debts escalated to unmanageable levels before the project reached its halfway point.
 
Large bankruptcies in India usually involve public sector banks (PSBs) as the biggest creditors. In this case they were owed over Rs8,000 crore. However, bankruptcy proceedings were initiated in 2018 by private creditor Raj Infrastructure Development India. Following admission to the resolution process, Lavasa’s centrally-managed systems started crumbling due to insufficient funds. The bankruptcy process itself has been mired in litigation and delayed for five years.
 
Legal challenges from banks and creditors initially focused on consolidating the resolution of Lavasa's subsidiaries such as Dasve Retail Limited and Warasgaon Power Supply Limited. Although this was resolved Lavasa struggled to attract serious bids, possibly due to concerns over the political involvement of the Sharad Pawar family.
 
In 2021, the committee of creditors (CoC) approved a Rs1,814 crore bid by Darwin group, after early interest from Haldiram consortium and Aniruddha Deshpande faded. The bidder, Darwin Platform Infrastructure Limited, promoted by Ajay Harinath Singh, specialises in construction and hospitality. The proposal aimed to inject working capital funds, complete the township, redeem non-convertible debentures (NCDs) issued by Lavasa, and provide an exit for around 1,100 home-buyers with investments stuck for over 12 years.
 
On 27 July 2023, the National Company Law Tribunal (NCLT) approved Darwin's bid (Read: https://ibbi.gov.in/uploads/order/ 2cc7f8da97d4c89b594ecad993bba4a1.pdf ). The order says that this was done only after multiple rounds of discussions by the resolution professional (RP), bid revisions, feasibility and viability checks and addressing queries/clarifications raised by the CoC.
 
And yet,  legal challenges against the resolution persist. Home-buyers, with an average investment of Rs40 lakh-Rs50 lakh each (made between 2008 and 2014) are dissatisfied with a resolution mandating a 60% haircut on their investment, or  self-completion of construction. They have reportedly approached the national company law appellate tribunal (NCLAT) accusing Darwin of fudging financial statements.
 
Union Bank of India (Union Bank), a key creditor, unexpectedly opposed the resolution plan, calling for a recall of the NCLT approval. It argued that the plan was based on a 2018 valuation of the Corporate Debtor's assets, which failed to consider improved real estate market dynamics from 2018 to 2023. NCLT dismissed Union Bank's request for an interlocutory order, stating concerns should have been raised before the plan's approval in July 2023. (Read https://nclt.gov.in/gen_pdf.php?filepath=/ Efile_Document/ncltdoc/casedoc/ 2709138145172023/04/Order-Challenge/04_order-Challange_ 004_16996078371892644988654df51d30505.pdf ).
 
As in most resolution proposals, the winning bidder makes only a small down payment. Darwin was  to infuse Rs92.50 crore for working capital, repairs and refurbishment that is crucial for  maintenance of the crumbling township.  It also committed to provide funds for the redemption of NCDs, which remain secured by 50 acres of land in the township. The bulk of Rs1,371 crore was be invested over a nine-year period.
 
If this weren’t enough, State Bank of India (SBI), which was also a part of the committee of creditors, has now woken up  to challenge the resolution before the NCLAT over the treatment of statutory dues in the NCLT approval order. The matter will be heard on 10 January 2024.
 
Due to he continued legal wrangling, Darwin has not invested funds in line with the NCLT order, citing time lost to litigation. In the circumstances, he actions of SBI and Union Bank seem rather suspect since they are clearly  sabotaging the  survival  of Lavasa City.
 
An private city is vastly different from factories or businesses that simply shut down and stop production when they go bankrupt. “This is a city, a living organism with thousands of people residing there including many ex-servicemen who sold their homes elsewhere to settle here. There are 2,000 students studying at a University and they have nowhere to go,” says an anguished resident who has watched Lavasa deteriorate over the years.
 
As things stand, Lavasa’s infrastructure is in a state of severe disrepair. Street lights have been switched off; water supply and garbage collection is irregular; and the staff has to resort to strikes in order to get paid.
 
A source reveals that a monitoring committee comprising a Union Bank representative, the Darwin group, and a RP, was established under NCLT orders. The RP's role was to implement decisions made by the other members, ensuring funds were available for basic services and workers' salaries. However, banks displayed little interest in organising meetings or ensuring that the committee functioned effectively.
 
The monitoring committee was recently reconstituted on government prodding. Yet, the finance ministry has remained silent on PSBs delaying resolution with late legal challenges. This column has consistently highlighted that bankers have not faced consequences for reckless lending leading to large corporate defaults, perhaps because outstanding loans increase gradually. But far greater accountability and responsibility are expected when challenging resolution plans immediately after approval.
 
Banks have written off Rs10.5 lakh crore as bad loans in the past five years alone. The exchequer regularly infuses public money into PSBs to paper over the hole in capital due to these write offs. Shouldn’t the finance ministry also ensure that PSBs  act in a responsible manner, especially, when their actions also affect unsecured creditors, home-owners and debenture-holders.
 
If, indeed, there are serious concerns about the Darwin group, it may necessitate a new approach to save a 'smart city' in a country that badly needs new business, tourist, and leisure destinations. The Infrastructure Leasing & Financial Services (IL&FS) a giant conglomerate, with Rs one lakh crore debts and over 348 group entities had defaulted around the same time as the smaller Lavasa Corporation entered bankruptcy. Since IL&FS's resolution process has led to substantial recoveries in the past five years, why not consider out-of-the-box solutions for a semi-ready smart city like Lavasa as well?
 
Perhaps it is time to cancel the resolution plan, take over the Lavasa project, and appoint a committee to suggest and implement a commercially viable revival strategy. Lavasa's proximity to Mulshi dam and Pune city, known for rapid expansion in education and technology businesses, offers potential as a knowledge city and thriving tourist destination. Someone with the background and drive of Amitabh Kant (Sherpa to the G20) could pull this off with ease. As the ‘game changer’ bankruptcy law is proving to be a stumbling block to resolution, proactive government action could transform a failed project into a success and establish a positive new template for resolution.
 
Comments
spritesh8588993579
4 months ago
A similar case of AMBEY VALLEY.
A group of sahara india scam
They invested small investors money in it .
It should also be AUCTIONED.
and money should be given investor.
Ramesh Popat
4 months ago
It may be deeper than we think.
PSBs not real culprits. Political angel may be at play. In big cases, this is not unusual.l
rejiomanair
4 months ago
Lavasa urgently needs attention, I am an NRI and have been to Lavasa 3 times in 2020 and 2021. It’s such a beautiful place and feel so sorry to see tha present condition of Lavasa. Please revive Lavasa and let Tourism flow to this lovely land.
sachsmart18
4 months ago
Yes prime minister can intervene and revive lavasa .. it was halted by them so revival also can be done by them .
zaverinsons
4 months ago
Respected Honourable Prime Minister please on behalf of lavasians kindly intervene and save us all which is being prolonged several years bythis corporate entities
sachsmart18
4 months ago
I m one of the home owner of dasve ..i took loan for mystudio apt at lavasa . ... like me there are many non possession home owners waiting with their dream turn into reality with possession of their flat. I wish that government needs to take rapid steps for revival of city . It will boost tourism at lavasa create revenue for government as well .
amahadevia
4 months ago
The PSBs seem to have some ulterior motive in suddenly opposing, on flimsy grounds, the very resolution that they had earlier approved. There is more to this than meets the eye. They are playing with the lives of thousands of common folk who are standing to lose their homes and their life savings. It’s a tragedy that the Government has not intervened to solve this issue.
njsanghviindore
4 months ago
A resolution plan, once approved can not be cancelled unless SRA fails to fulfill terms as approved by NCLT. Suggestions viewed herein may not be possible for any stakeholder to go ahead, as that stage has gone. If SRA fails, Liquidation is only way out and subsequently it may be sold as GOING CONCERN only.
prakashpatil2129
4 months ago
A fantastic revival proposal. Out of the box solution. PSB'S should be ashamed of their irresponsible attitude. All PSB's should be subject to forensic audit for mismanaging public funds
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