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Faced with defaulting developers? Here is what homebuyers must do

To avoid the recurrence of Unitech like cases, it is important for homebuyer association members to take the lead and act as a bridge to raise funds, in case the builder claims he is bankrupt.

Since the last one year, as many as three developers of listed real estate firms have been arrested for allegedly siphoning off funds collected for residential projects or for duping both homebuyers and investors who booked flats with them.

The most recent among them is the case of Unitech Ltd’s promoters Sanjay Chandra and Ajay Chandra, who were arrested last week by the Economic Offences Wing (EOW) of the Delhi Police for allegedly duping over 500 customers over the proposed Wildflower Country housing project located in Gurgaon.

These are not isolated cases. There are score of other homebuyers who find themselves in similar circumstances. As many as 36 percent of the existing real estate projects launched in the last six to seven years have been running behind schedule by over 12 months. The delay has primarily been on account of slow sales and delay in approvals, leading to late deliveries.

If you are one of those who have been duped by a builder or are waiting indefinitely for your flat to be handed over, what should you do?

For thousands of homebuyers caught in a Unitech-like situation, it is important that they stay united and put pressure on the developer to get the project completed on time, say legal experts.

“The focus of homebuyers should be to get the project completed. They can approach the court to put in place an administrator or a commissioner who can work in conjunction with the association of homebuyers and get the project completed in a transparent and a time bound manner,” says Vaibhav Gaggar, partner, Gaggar and partners.

He had represented homebuyer associations in the famous DLF case before the Competition Commission of India (CCI). The commission has imposed Rs 630 crore penalty on the builder.

“It is important for homebuyer association members to take the lead and act as a bridge to raise funds, in case the builder claims he is bankrupt. This can be done either by forcing the developer to sell the additional floor area ratio allotted to him or additional land to get the project through or by collecting remaining installments from buyers,” he says.

Homebuyers must understand that cases for recovery of money or a consumer case for that matter is against the company and not against the individual promoter of the company, unless of course if the promoter is himself a party to the agreement in individual capacity. This is because under the law, a company is considered as a separate legal entity.

“In a situation where the promoter of the developer company is sent to jail, the buyer should immediately approach the civil courts against the company seeking recovery of the money. If the details of other legal cases either before the consumer forum or the civil court against the developer company initiated by other buyers is available with the consumer, the consumer may try to get his/her case filed and listed before the same court which is hearing the other cases, so that his/her case is also tagged and heard by the same court hearing other cases,” says Sumit Roy, associate partner (Dispute Resolution), Alpha Partners.

Homebuyers say that had the real estate regulatory authority been in place, such a situation would not have arisen. RERA or Real Estate Regulation and Development Act 2016 (RERA), which will be enforced by states by May 1 this year, is expected to ensure that builders complete projects on time or pay heavy penalty to homebuyers. It also calls for creating an escrow account for every project such that amounts collected from homebuyers is not diverted to acquire other land banks.

“The first step is to form a group, hold protests and send out representations to political parties and their ministers both at the state and the central level. Homebuyers should first approach the authority responsible and then political leaders. Legal recourse should be the last step. All these efforts will send out a message that buyers are united and the developer will be forced to fall in line,” says Abhay Upadhyay, national convenor, Fight For RERA, adding those fighting cases against developers should continue to do so as infrastructure relating to RERA may take a year or so to be put in place.

Earlier, the perception among developers was that any irregularity can be set right at whatever cost. With exuberance in the real estate market almost dead and sales being slow, not only is the homebuyer cautious about parking funds in real estate, the developer too has become careful.

“Everybody has paid their ‘tuition fees’. Developers have more or less been forced to fall in line. They can no longer take things for granted. Investors and buyers are wary of investing with a developer who may not have received approvals, defaulted in payment to authorities or not delivered projects on time,” says Pankaj Kapoor, managing director, Liases Foras, a real estate rating and research agency.
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