NCLT restrains MGF from creating third-party rights on Gurugram land

The tiff between global real estate developer Emaar Properties and its erstwhile joint venture partner MGF Developments is set to grow with the latest National Company Law Tribunal (NCLT) directive restraining the Indian developer from creating any third-party rights on a land parcel in Gurgaon till further orders.

Emaar has received this NCLT order against the developer in response to a case related to the main petition that accused MGF Developments, its chairman Shravan Gupta and his wife Shilpa Gupta of siphoning off funds and fraudulent activities.

The Dubai-based realty giant filed the petition with NCLT in November 2019 seeking investigation into this matter and compensation of Rs 2,400-crore bank guarantee to secure its losses.

This petition cited several instances of fraud and illegal acts through joint development agreements, transfer of land parcels to MGF shell entities without approval from Emaar or transfer of inferior land parcels from MGF entities to Emaar subsidiaries.

Emaar in its over 2,500 pages submission to NCLT sought restrain order on Gupta and associates from any transaction on their movable and immovable funds, assets, and properties.

MGF Developments said Emaar’s petition is baseless and devoid of any merit.

“Emaar MGF Land Ltd was a board managed company with equal number of directors between Emaar and MGF. All transactions required approval from the board and all transactions have been approved by CFO (an Emaar nominee),” MGF Developments said in response to ET’s query.

The petition by Emaar Properties through a holding company, Emaar Holding Mauritius, is being heard by the Principal Bench of NCLT Delhi.

Emaar Properties, which entered India in 2005 with the largest FDI in the realty sector then, had invested about Rs 8,500 crore in the Indian real estate market through Emaar MGF.

Emaar alleges that Rs 2,400 crore or over one quarter of its FDI was siphoned off by Shravan Gupta and his family for their personal benefit.

This was one of the first foreign direct investments into Indian real estate after the government had opened the gates for such investment alliances.

The petition said that the joint venture company suffered constant losses and faced multiple legal disputes due to MGF’s dominant position and breach of contractual and fiduciary duty and the true reasons for the losses and legal disputes were discovered by Emaar later.

Under the joint venture agreement, the foreign partners acted as financial investors and infused funds based on representations of MGF and Gupta, who under the arrangement was responsible for management and operations including the day-to-day operations.

Gupta finally resigned as the managing director of the joint venture company in 2016 and the demerger to MGF was approved in July 2018.

Emaar in its petition alleged that through the demerger, MGF only wanted to escape its liability for gross illegality and causing irreparable damage to the business and reputation of Emaar MGF, but represented that the split would assist in improving business efficiency.