Alternative Investment Fund for stalled projects under RERA

Introduction:

Special Window for Affordable and Middle-Income Housing Investment Fund I (“SWAMIH”) is an alternative investment fund set-up by the Central Government with an objective to complete the projects which have been stalled due to lack of funds as the key reason and are very close to completion. The assistance of SWAMIH will be provided for the projects registered with the Real Estate (Regulation and Development) Act 2016 (“RERA”) authority.

The RERA mandates registration of the development of a building or a building consisting of apartments or converting an existing building or a part thereof into apartments, by the promoter with the RERA authority.

Special Window fund

Union Cabinet approved the establishment of the SWAMIH under a 'Special Window' fund as an alternative investment to provide priority debt financing for the completion of stalled housing projects for the affordable and middle-income housing sector. SBICAP Ventures Limited shall be engaged to be the investment manager of SWAMIH.

The Ministry of Corporate Affairs (“MCA”) vide notification dated March 18, 2020 has notified that a debt raised from SWAMIH will constitute ‘interim finance’ under Section 5(15) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). This fund would in turn provide relief to the `developers that require financial assistance to complete unfinished / stalled projects and consequently ensure delivery of homes to the home-buyers. Funding through the SWAMIH can be considered for all / any projects undergoing corporate insolvency resolution process before the National Company Law Tribunal (“NCLT”) where the resolution plan for such insolvency resolution process has not been approved/rejected by the committee of creditors.

Tatva Legal, Hyderabad has an experienced team of lawyers who, amongst other services, advise on transactions covering multiple practice areas such as insolvency and bankruptcy, real estate transactions, title due diligence, legal advisory for financing related activities.

Affordable and Middle-Income House

Financial assistance is provided for the stalled housing projects that are in the affordable and middle-income housing sector registered under RERA. Affordable and middle-income house as defined under RERA includes any housing projects wherein housing units (to be specified in detail in the fund documents) do not exceed 200 square meters of RERA carpet area[1] and are priced as below:

• Upto or less than Rs. 2,00,000,00 (Rupees Two Crore only) in Mumbai Metropolitan Region;
• Upto or less than Rs. 1,50,000,00 (Rupees One Crore and Fifty Lakhs only) in National Capital Region, Chennai, Kolkata, Pune, Hyderabad, Bangalore and Ahmedabad;
• Upto or less than Rs. 1,00,000,00 (Rupees One Crore only) in the rest of India.

Eligibility criteria

The guidelines for eligibility of the projects are as set out below:

• The development projects stalled due to lack of adequate funds;
• The project stalled is under the development of Affordable and Middle Income Category housing;
• The development project/ stalled project should have their net worth positive (including non-processing assets and projects undergoing under the NCLT proceedings);
• The project for the development should be registered under RERA;
• At least 30% of the stalled project needs to be completed, however, priority will be provided for the projects those are very close to the stage of completion.

All applications received by SWAMIH for availing financial assistance would be reviewed by the investment committee of the fund for approval, after due diligence and discussions with existing lenders and legal advisors. The decision of the investment committee shall be guided by the investment objective of the fund as agreed in the contribution agreement entered into with the investors. Projects involving fraud or diversion may not be considered by SWAMIH.

Recently, the Supreme Court while passing an interim order in Bikram Chatterjee and Others. vs. Union of India and Others[2] observed that housing is treated as a constitutional right and governments draw housing policies to meet or discharge several such social obligations and, on this basis, allowed SBICAP Ventures Limited to fund and finance stalled Amrapali Projects as it is a “social welfare project”.

Conclusion

In view of the above, the funding provided under SWAMIH is for construction and completion of the stalled projects only and the funds cannot be diverted to any other projects/purpose such as interest/compensation/refunds payable

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.

[1] Carpet Area shall have the meaning as assigned to it in clause (k) of section 2 of RERA i.e. Carpet Area means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment.

[2] W.P.(C) No.940/2017, decided on October 13, 2020