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Builders Beware!

Published on Sat, Feb 06,2016 | 14:53, Updated at Mon, Feb 08 at 17:01Source : CNBC-TV18 |   Watch Video :

The biggest problem that home buyers in India face is inordinate delays in the delivery of an apartment. Beware of builders who are infamous for project delays, one sided purchase agreements and customer harassment. Well, maybe the tables have turned! Now builders better beware – or else like the 4 directors of Unitech – they’ll be spending some precious time in jail! Aayush Ailawadi reports that CCI, consumer courts and criminal courts are collectively ringing a loud wake up bell for the real estate industry…

Like thousands of other Indian home buyers, Sanjay Kalra and Devesh Wadhwa did not get the delivery of their under construction homes in time. They complained to the consumer court, where builder Unitech promised them compensation. But, Unitech failed again. Kalra & Wadhwa then went to a criminal court and accused the builder of cheating. The court sent Unitech Chairman Ramesh Chandra, MDs Sanjay Chandra and Ajay Chandra and Director Minoti Bahri to judicial custody and though they did get bail, it was only after spending a night in Tihar jail.

Hitesh Jain
Senior Partner, ALMT Legal

“In the past also several criminal complaints have been filed, and the developers on the first day of the hearing used to get bail. This is one rare instance where the courts have come to the conclusion and the case is made out and also in this they have referred to what has happened, what has transpired in the last 3 months – the manner in which the order was flouted, exemptions, all the dilatory tactics that were adopted, so basically a message has been sent very clearly – that we are aware that you’re powerful, you have an ability to engage lawyers, pay them huge fees and the system, people were usually complaining that they were getting away with the system, and by taking advantage of the procedures, creating delay and making sure that the buyers are so weak that they will not be able to follow up with the cases. So, from overall perspective, the order really serves up a wake-up call and the manner in which this order has been received among the public at large, the awareness that is created, I am sure it will open up the eyes and it will also force the courts to look from the perspective of the buyer also when there has been so much delay in delivering the possession to the buyers.”

It’s a chronic problem and it’s only going to get worse. One survey suggests that 15 lakh residential units across 7 top cities in India are currently delayed by 1 to 3 years. PropEquity claims: of the 9591 residential projects launched between 2008 and 2010 – 7391 are yet unfinished. So, what recourse do home buyers have? Well, to begin with they can approach a consumer court. But, as reputed consumer lawyer Shirish Deshpande points out, the redressal system in India’s consumer courts has not panned out as planned…

Shirish Deshpande
Consumer Lawyer
Chairman, Mumbai Grahak Panchayat

“You know the consumer courts remedy under the Cosnumer Protection Act is really expected to be efficacious, speedy and simple and it was also supposed to be inexpensive. Unfortunately the ground reality today is that it is neither speedy nor simple nor inexpensive and consumer courts as you say, if you start with the District forum, many a times the other party like builders being powerful and resourceful they drag right upto Supreme Court also. So, that has been very painful journey in the consumer courts to get redressal. Although the law says, within 90 days your complaint must be redressed and all, it is only on paper. In reality, I can tell you the cases are languishing even for 10 years in Maharashtra, be that against the builders or doctors. So it’s pathetic and needs drastic overhaul.”

Hitesh Jain
Senior Partner, ALMT Legal

“I think it’s a vicious circle. So, to answer your question about consumer forum, in theory, yes, but practically, there is a problem in the enforcement and sometimes, in my experience, at a state level or a district level, sometimes in order to meet the ends of justice, I think the consumer forums also cross the line and orders get set aside at the national, at the appellate forums.”

In a recent case, also against Unitech, the National Consumer Forum gave home buyers a big victory. It was a case of delayed delivery of apartments and though the agreement said the builder will pay 1.8% interest during the delay, the National Consumer Forum ordered Unitech to pay 12% and if the homes were not delivered by a revised date, the interest payable was 18%. It also awarded the home buyers litigation costs and said any additional service tax was to be borne by the builder.

Shirish Deshpande
Consumer Lawyer
Chairman, Mumbai Grahak Panchayat

“12% interest on the money that you have paid is not very unusual. In fact, in my own case where the MGP had filed a case before the NCDRC only on behalf of about 272 flat buyers in Mumbai. In that, it was a case of only refund of the money and the National Commission granted 18% interest from the time that complainants have paid this money to the builder. So, it was a huge amount. Well, again I would say, considering the escalation in the real estate prices if you see, comparatively this is nothing great or unusual, it’s a very normal thing.”


Anil Harish
Partner, DM Harish & Co
Specializes in Real Estate Law

“I think it’s good because it’s speedier than others, but it is not something that is wide ranging because each person would have to apply. For example, if a project is delayed and there are 100 flats in the building, it’s not usually all 100 who would apply to consumer court, and so few individuals can get a remedy but there’s no complete or comprehensive action that is taken against a builder that has violated the terms and conditions of his agreement. So, it is good that the consumer courts have been cracking down on erring builders, but I think it’s not enough.”

Besides consumer courts, the one other forum that offered some relief to home buyers was the CCI. In 2014, CCI fined DLF 630 crore rupees for unfair and abusive practices against customers. After that, the CCI was flooded with complaints from harassed home buyers, but the DLF rationale couldn’t apply to all!

Anil Harish
Partner, DM Harish & Co
Specializes in Real Estate Law

“That was in the case of a company which was the largest real estate company in India- DLF and therefore the concept of dominant undertaking may not apply to every single real estate developer especially if it’s smaller buildings etc because these are sometimes the cases where there are defaults and therefore the CCI isn't the most effective one to go to! One feature of the CCI is that they can take up cases suo moto. it’s not necessarily that an individual who is aggrieved must go to them and pursue the matter, he can just make a complaint and take up the matter whereas in the case of a civil matter or consumer or criminal case, generally the person would have to plead the case and bring all the facts on record.”

Hitesh Jain
Senior Partner, ALMT Legal

“I don’t think many developers have taken the orders of the CCI very seriously because there is not a single instance of CCI orders being executed or CCI orders being taken to the logical conclusion at the end of the day, all this fancy numbers of compensation, penalties, whatever we are talking about – where have they been recovered? So, there has to be one recovery from CCI and you will see the seriousness.”

Shirish Deshpande
Consumer Lawyer
Chairman, Mumbai Grahak Panchayat

“I wouldn’t say it’s not relevant but at the same time that will not be the real recourse for the aggreieved flat buyers, you know, day to day transactions or grievances, not any and every flat buyer will be able to knock on the door of the CCI which is located in Delhi and if you have regard to the provisions of the Competition Commission, basically it is not really intended to redress such types of grievances. Okay, by virtue of if you see certain provisions in the agreement and if they happen to be anticompetitive etc, maybe perhaps you may try your luck but even then the law on it is not yet settled as yet”

Consumer courts are slow and the CCI’s jurisdiction is narrow. So, last month’s action by a criminal court may be seen as a beacon of hope for aggrieved home buyers. But, it’s important to remember that the court sent Unitech’s directors to judicial custody, not for delayed delivery of homes but, because it had promised the consumer court to compensate buyers and failed to do so.

Anil Harish
Partner, DM Harish & Co
Specializes in Real Estate Law

“When a person enters into an agreement to buy a flat, for him to allege that there was “cheating” is something completely different than a delay in complying with a contract. So, it is only if a person has a very clear case of cheating where the developer just didn't have title to the land and knew that he wouldn't be able to complete, that’s a different situation. However, if a person had filed a consumer case and then an undertaking was given to a consumer forum and that undertaking has been violated, well that might lead to a charge of contempt of court of criminal proceedings. But, criminal proceedings will not be applicable to every case of default of a contract.”

Shirish Deshpande
Consumer Lawyer

“Usually, I find that consumers are content with saying, “Okay, I , my money, I am interested in getting my flat back and I’m not really interested in sending the builder behind bars.” So. It will suffice if I get possession of my flat, if there are long delays and all, some directions that the builder completes the flat in a certain period, time gap and I get a compensation for the money that was stuck and locked with the builder for some years and all. So, usually the flat buyers I see are content with that and not very many consumers are seen that is why going into criminal courts knocking the doors of the Magistrate and trying to send the builder behind bars.”

Hitesh Jain
Senior Partner, ALMT Legal

“It depends upon what stage the buyer is – suppose the buyer has not got the possession for 5 years, 6 years, 7 years and he has been running from pillar to post, then I think for him this is an appropriate remedy, because this is the ultimate course or remedy which may force, but it has an other side also because suppose you file a complaint, maximum how many days you will keep a person in the jail – 5 days? Then, once a person is sent to custody for 1 day, then whether it is 1 day or 5 days – I’m just talking from the mindset of a developer, he will say, “Fine, I mean it’s better to sit inside for 4 days – 5 days, get bail and then come outside.” So, once you are outside, the coercion does not work, so I think it will depend on how a person will use this as a remedy – the developers who want to protect their reputation, who want to remain for long term in the business, perhaps for them it will be a wake up call and they will ensure that they do not – there are so many unscrupulous developers I know who don’t mind going inside”

Soon, home buyers may have one more forum to approach… a real estate regulator!

Anil Harish
Partner, DM Harish & Co
Specializes in Real Estate Law

 “I think there is great need for a proper regulator. There are many kinds of activity which have a regulator. There's telecom regulator, insurance regulator and I see no reason why there should not be a real estate regulator. But, then it must be an effective one. We do not want a regulation which just adds to the confusion or issue regulations without understanding all the implications. Also, it must ensure that permissions also come within its scope that if a developer applies for permission and those are held up either at the Municipal corporation or the Environment Ministry for years and years and that isn't how it should function. There should be a time limit for everything and the regulator should be able to crack down not only on a developer but even on government bodies which delay.”
Unitech’s case has definitely served as a wakeup call for developers. It’s also emboldened home buyers to take on big developers, since courts and the government are finally taking some active steps to protect consumers.

In Mumbai, Aayush Ailawadi
 
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