Moneycontrol PRO

Homebuyers hire JAL as contractor to complete four towers of a housing project in Noida

Section 8 of RERA empowers authorities to hand over completion task to buyers' association

UP RERA also asked erring developers to give details of properties that can be auctioned

UP RERA also asked erring developers to give details of properties that can be auctioned

The Uttar Pradesh RERA (UP RERA) this week approved an order allowing the homebuyers' association of a project in Noida to take charge of the completion of four stuck towers and the remaining 300-odd units.

Interestingly, the association has decided to hire Jaypee Associates Limited (JAL), the original promoter, as the contractor for the work.

The question here is: Can RERA Authority approach homebuyers' associations or the original developer or for that matter bring in a third party to complete a stalled project?

Yes, it can. RERA can take over an unfinished realty project if it is 80 percent complete. It can act as a facilitator and work with the committee of homebuyers to complete the project under Section 8 of RERA.

Moneycontrol spoke to RERA authorities who said this could become a successful model to complete stuck projects going forward, especially after COVID-19, when more such cases are bound to happen wherein developers may not be in a position to complete projects in the wake of liquidity issues.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

Balvinder Kumar, member, UP-Rera said that JAL gave its consent and “we permitted the homebuyers’ association to take control of the project that we had deregistered earlier.”

Kalypso Court is a housing project launched by Jaypee Associates, the parent company of embattled Jaypee Infratech, way back in 2007. Its UP RERA registration lapsed in June 2019 following which the regulator invoked Section 8 of RERA. As many as 240 homebuyers had bought into units in the four incomplete towers.

Seven towers of Kalypso Court were registered under UP-RERA in 2018. The project has a total of 15 towers and 11 of them are complete. Work on four towers is pending. The original date of completion of the project was 2012.

UP RERA Authority has held a series of meetings over the last five months with representatives of the homebuyers association ever since the registration expired last year. The homebuyers have now decided that the project should be completed by the original promoter which is JAL. The estimated fund requirement for completion of the four towers is Rs 104 crore of which 40 percent would be contributed by Jaypee and the remaining would be in the form of receivables from homebuyers.

"This is a unique case because the original promoter is being brought on board. Had a new promoter come in, he would have had to re-evaluate the entire project and that could have become both time consuming and an expensive exercise," said Kumar.

Earlier, UP RERA had offered PSA Impex’s Sampda Livia in Greater Noida to homebuyers’ association. It has also deregistered Bhasin Group’s Festival City in sector 143.

“There are two to three projects that we had deregistered in the past and two more projects are under consideration which may be get completed under a similar model,” he said.

“We have also deregistered the Festival City project and issued an advertisement inviting homebuyers’ associations to take over. There are two similar projects in the pipeline,” Kumar said.

“We are making attempts to rope in buyers’ association to complete the projects which are stuck or where there has been inordinate delay in completing the projects. These projects are usually cash positive with unsold inventory and land banks, we access their capability to generate revenues for completing the projects before passing such orders,” Kumar added.

Senior officials at Jaypee Associates told Moneycontrol that they were in touch with RERA Authority and the Association of Allottees and have decided to take on the construction of the project.

Under RERA “we have worked out an arrangement wherein a committee comprising RERA officials, homebuyers’ and JAL representatives would be constituted to monitor the construction of the project.”

“Construction is expected to start three months after the COVID-19 situation stabilizes. Once we have mobilised manpower requirements and construction starts, we hope to complete work within 12 to 15 months,” they said.

While the structure of the four towers is complete, finishing work for the 300-odd units remains.

Legal experts said that, it would now be legally presumed that the project is being completed by the Association of Allottees and the propriety rights will remain with JAL even though it would now take on the role of a contractor.

“There’s nothing wrong with the original promoter taking over an incomplete project. The only thing which can perhaps come in the way is initiation of insolvency proceedings against JAL which is pending. This may bring the project completion to a standstill,” said Ashwarya Sinha, a Supreme Court advocate who is representing homebuyers in the Jaypee Infratech case.

Section 8 of RERA empowers authorities to hand over completion task to buyers' association

The RERA Act clearly states that “Upon lapse of registration or on the revocation of registration under this Act, the Authority, may consult the appropriate government to take such action as it may deem fit including the carrying out of the remaining development works by a competent authority or by the association of allottees or in any other manner, as may be determined by the Authority.

Provided further that in case of revocation of registration of a project under this Act, the association of allottees shall have the first right of refusal for carrying out of the remaining development works," the Act said.

There are clear provisions in RERA under which the Authority also has the power to take away the project from a particular developer and assign it to another agency to complete it.

“This model of completing stuck real estate projects can work and will certainly be tested post-COVID-19 because we will have many more developers falling by the wayside. It is then that the authorities would have to empower homebuyers to come forward and take on the task of completing the stalled projects with the help of RERA Authority," MahaRERA Chairman Gautam Chatterjee told Moneycontrol.

"Prima-facie, this appears to be an excellent move and will also set a very good precedent. But it is also very important to know (a) how the project will be funded and (b) if the builder has taken more money than what work has been done by him and how RERA plans to recover excess money from him," said MS Shankar, General Secretary, Forum for People's Collective Efforts.

Difficult for RERA to undertake projects from scratch

It should be kept in mind that RERA can step in provided a project has reached its completion stage. Doing something from scratch is difficult and not advisable.

“It all depends on the size of the project and should be taken up on a case-to-case basis. It is not something that can be applied across the board,” said RERA experts.

Agreement among all the allottees is also important. The allottees have to trust the committee. "They have to make the payment of the balance amount to the committee," experts said.

Who pays for the remaining construction?

In these cases, some buyers may have paid 80 percent, others may have paid more. But all buyers may have to pay some amount.

"They will have to show the receipts that they have so far paid and the balance money that is due from them to the committee. These amounts will be kept in a separate account and the committee will have to work with corpus," said RERA experts.

The committee will have to make do with the funds collected. They have to decide whether they would want to reduce certain specifications as funds may not be enough.

Vandana Ramnani
Vandana Ramnani
first published: Jul 29, 2020 02:03 pm