Karnataka RERA orders owners' association to take over and complete delayed project

The project Commune One located in Anekal Taluk of Bengaluru was supposed to be handed over by December 2019.

In a rare decision, the Karnataka Real Estate Regulatory Authority has ordered an association of flat buyers to take over a delayed project and complete it after the developer failed to deliver the apartments on time.

The regulator said developer Commune Properties Pvt Ltd. and financier Anand Rathi Global Finance Ltd. had violated its orders that restricted the builder from selling additional apartments and prevented Anand Rathi from selling mortgaged apartments to recover dues.

KRERA ordered Anand Rathi to hand over Rs 4.3 crore collected from the sale of mortgaged apartments to the association, which would use the money to help complete the project, according to its order dated May 17.

The case

The Commune One project located in Anekal taluk in the southern part of the Bangalore metropolitan area was supposed to be ready by December 2019. KRERA noted that the developer had partially completed the 384 flats across five towers and handed over about 200 without amenities or occupancy certificates.

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Additionally, the association claimed before the authority that the developer had mortgaged the entire project with Anand Rathi in 2017 without the consent of the homebuyers.

"The funds raised from mortgaging the project have been diverted despite the developer collecting more than 90 percent of the money from the homebuyers," the association alleged.

The association also alleged that Anand Rathi misused its privileges and issued a recovery notice against the developer in 2020 by taking possession of the mortgaged flats, including those already sold to homebuyers.

While the developer said the 188 flats mortgaged to Anand Rathi were unsold, the KRERA order mentioned that about 90 flats had already been sold.

The association approached KRERA for relief to take over the project and complete it.

The order

During the hearings, Anand Rathi told the regulator that it had initiated recovery proceedings against the developer after it failed to repay the loan as per the agreements in the mortgage deed.

After going through the documents presented by the architects, KRERA concluded that the project was still incomplete and that the developer had failed to provide quarterly and annual updates to the regulator, as per the RERA Act.

The authority noted that after the mortgage, the developer sold 40 apartments to Anand Rathi for Rs 8 crore. In turn, Anand Rathi sold 18 apartments to various homebuyers for Rs 4.3 crore.

Additionally, the regulator said that as per the latest budget document filed by the developer, about Rs 5.3 crore was required to complete the rest of the project. However, estimates from the association showed that about Rs 22 crore was required to complete it.

KRERA ordered the buyers' association to take over the project, as per Section 8 of the RERA Act, and complete it within two years. It asked Anand Rathi to hand over the Rs 4.3 crore collected from selling the 18 apartments to the association in order to complete the project.

The regulator said the association could sell unallotted apartments to raise funds in order to complete the project.

"The existing account maintained by the developer will be frozen and the company will transfer the corpus fund collected from homebuyers (for maintenance) to the housing association," the regulator said in its order.