'Dirty Nexus' Of Allottee Builders, NOIDA's Officials: Allahabad High Court Orders CBI Probe Into Sports City Development Scam

The Allahabad High Court has directed CBI inquiry against the officials of New Okhla Development Authority and various allottees/ builder allegedly involved in a "scam" pertaining to the development of the Sporty City project in Noida.

Ordering CBI inquiry and dismissing writ petitions filed by the allottees seeking various reliefs against NOIDA, the bench of Justice Mahesh Chandra Tripathi and Justice Prashant Kumar observed

“The action of the officials of the Noida Authority is highly questionable. In fact, the entire process of allotting Sports City to the petitioners and in the implementation of the Sports City, there were large scale bungling and a huge benefit was extended to the builders by the conniving officials of the Noida Authority. Shockingly, no action is taken against the builders and the conniving officials whose deeds have resulted in such a huge scam.”

Dirty Nexus of Allottee Builders and NOIDA's officials

The court in its order observed that the present matter is a study of "dirty nexus of the builders and the officials of the Noida Authority, where benefits after benefit were doled out to the builders, which was completely contrary to the Scheme, MOA and the implementation of the Sports City Scheme".

The court said that several years had passed, and a number of officers in NOIDA would have come and gone, however surprisingly "no one blowed a whistle to the scam, or took any action against them", and did no efforts to recover the outstanding dues, and continued to extend undue benefits / favors to all the allotee / sublesses of the sports city, which was contrary to the interest of Noida Authority/Bank and the State Government. 

"What is most shocking is CAG unearthed the scam in 2021, but till date Noida Authority or the State Government have not lodged a single FIR against any of the officials, who were involved in the scam. No effort has been made to retrieve the losses, only a notice was sent in 24.07.2023 asking the builders to pay the outstanding premium. However, no action has been taken to recover the dues. This shows how influential the builder lobby is, and how well entrenched there are in the government system.  The Court will not be wrong to say that the efforts are made to shield the corrupt officers and also the builders who had made huge amount of money by defrauding the State Government, Noida Authority. The court also realises that all investigations cannot be entrusted to the CBI. The courts should infact be reluctant in straight away referring the matters to CBI. However, in view of the possibility of involvement of high functionaries, a CBI enquiry is more desirable," the court observed. 

The court after referring to various judgments on when can a CBI probe be directed said that the court has no other recourse but to refer the investigation to the CBI. It said that the central agency would also investigate the role of all the persons involved in this scam. 

"The Central Bureau of Investigation (CBI) is hereby directed to lodge a complaint against all the conniving officials of the Noida Authority and the allottees/ builders involved in allotment, development, sanction of Sports City Project and any other person who may be involved in the present scam," the court directed. 

Factual Background

NOIDA launched a scheme for development of Sports City in Sector Nos. 78, 79, and 150 in 2011. The reserve price for the scheme was set at Rs.11,500/- per square metre with the intention for development of sports facilities over 70% of the entire land allotted to the developer by the developer. One of the conditions was that the developer had to infuse his funds to develop the same. Out of the 30% land on which construction was allowed, 28% was to be developed for Group Housing and 2% for commercial purpose.

The entire project was for an area of 7,27,500 sqm., out of which 5,92,300 sqm. land was immediately allotted to the Consortium lead by M/s. Xanadu Estates Private Limited on 04.05.2011. An application to sub-divide the land was approved by NOIDA. A revised master plan was approved by NOIDA in 2014 which provided that development of sports facilities would be done only by two companies, whereas the development of residential and commercial plots would be done by several other sub-allotees.

Due to various irregularities in the development of the Sports City, the Comptroller and Auditor General of India gave a report of a scam of around Rs. 9000 crores. Pursuant to this report, NOIDA ceased all operations in the Sports City and deferred to the State Government for taking decisions.

Many allottees and sub-allotees approached the High Court seeking various relieves including deferred payments, grant of benefit of zero period. Some companies involved in developing the project have also been admitted in insolvency.

Findings

The Court observed that there were large illegalities committed by the Builders (sub-lessees) in connivance with the officials of NOIDA which resulted in loss to the authority, State Government and public at large. The Court noted the lack of concern by NOIDA regarding report of the Controller and Auditor General of India which highlighted the scam.

Holding that such action of NOIDA had created problems for the homebuyer, the Court observed that

“The timeline of events, the total inaction of the NOIDA Authority and the apathy of the State Government, in the face of the CAG report compels us to pass suitable orders in the matter. A Court, much less a Constitutional Court, cannot sit helpless in the face of blatant illegalities and apparent collusion.”

The Court observed that Sports City was to be developed as an integrated project and not by bifurcating it into smaller projects by handing over to individual developers. By allowing the haphazard development of group housing, NOIDA had frustrated the concept and scheme of Sports City, held the Court.

Noting that money which was to be used for development of sports facilities was syphoned off by the allottees who developed the residential and commercial projects, the Court held that a channel for back-door allotment to ineligible persons was created.

While pointing out various breaches of the brochure and terms of lease deed, the Court observed that

“The allottees kept on defaulting in payment of the dues of the Noida authority but no efforts were ever made to recover the principal with the contractual interest from the allotee. In more than a decade only 3 or 4 stray notices have been sent. Even those were nothing but just an eyewash. The officials of the Noida authority have miserably failed to recover the dues. This was nothing but an outcome of the conniving parties, which led to a huge loss to the state exchequer.”

While noting that there was no development of the sports facilities in the Sports City by the allottees/ sub-allottees, the Court observed that NOIDA did not press the concerned allottees for such developments and had failed to monitor the implementation of brochure which was its duty as per the document. It was held that NOIDA turned a blind eye to the terms and conditions to give undue advantage to allotees/ builders.

“Since in this case there has been a web of companies incorporated by the same promoters and all of his newly incorporated companies applied as a consortium, and there after the share holdings have changed in certain companies without the permission of the authority, contrary to the provisions of the sports city scheme.”

The Court held that since the promoters of all the companies in the consortium were same, the consortium was not a genuine one. It was held that most of the assets was parked in the smaller companies, while the liability of developing the sprots facilities rested on 2 bigger companies. It was further held that initiation of corporate insolvency for various companies of the consortium was a way to escape paying NOIDA and the financial institutions.

It was held that the money to be used for development of sports facilities of syphoned off to “tailor-make” insolvency of the smaller companies by the original promoters of the companies. In such cases, the Court held that doctrine of 'piercing of corporate veil' was necessary.

Referring to the object of the IBC in maximization of value of assets of a corporate debtor and balancing interest of all stakeholders, the Court held that the Code is silent qua the rights of a Consortium if one of its members goes into insolvency. Accordingly, the Court made certain recommendations with respect to the aforementioned situation. 

While dismissing the writ petition, the Court directed Central Bureau of Investigation to lodge complaint against all the conniving officials of the NOIDA and the allottees/ builders involved in allotment, development, sanction of Sports City Project and any other person who may be involved in the scam.

Case Title: M/S Three C Green Developers Pvt. Ltd. And 8 Others vs. State Of U.P. And 2 Others 2025 LiveLaw (AB) 75 [WRIT - C No. - 31823 of 2019]

Case Citation: 2025 LiveLaw (AB) 75

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