BOMBAY HIGH COURT - The liability of refund falls upon all the listed promoters even if they may not have received the amount in consideration.

BOMBAY HIGH COURT - The liability of refund falls upon all the listed promoters even if they may not have received the amount in consideration.

Wadhwa Group Housing Private Ltd vs Vijay Choksi & SSS Escatics Pvt. Ltd

SECOND APPEAL (Stamp) NO. 21842 OF 2023

Decided on 26 February 2024

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

Time line of the Matter :-

1. Allottee approached MahaRERA U/s 12 and 18 of the RERA act and sought refund of amount of Rs.2,62,35,056/- along with interest as well as compensation and costs.
2. On 24/09/2021 MahaRERA passed the Order holding that Allottee could not claim any equity under the provisions of act and his prayer for refund was rejected, and directed parties to execute registered agreement for sale within 30 day failing which the entire amount was directed to be refunded to the Allottee within six months.
3. Allottee filed Appeal U/s 43 of the RERA Act before the Appellate Tribunal.
4. On 18/10/2022 Appellate Tribunal partly allowed the appeal and set aside the Order directing both the Builders to Jointly refund the amount paid by the Allottee with interest.
5. Aggrieved by the Appellate Tribunal’s Order to put the liability to refund the amount received by SSS Escatics Pvt. Ltd the other Builder Wadhwa Group Housing Private Ltd chose to file this appeal.

Question of Law Framed in Second Appeal

"Whether a promoter who has not received any consideration from an allottee can be made liable for giving refund with interest under Section 18 of the Real Estate (Regulation and Development) Act, 2016?"

Fact of the Case:-

1. Builder SSS Escatics Pvt. Ltd, launched a project called “The Nest” as a Slum Rehabilitation Scheme.
2. On 05/09/2012 A JDA (Joint Development Agreement) came to be executed between both the Builders SSS Escatics Pvt. Ltd and Wadhwa Group Housing Private Ltd.
3. Under the said JDA Wadhwa and SSS segregated the constructed area amongst themselves for being sold to customers.
4. On 19/07/2013, Allottee booked a 3BHK Flat bearing B-502 admeasuring 2385 sq.ft in the said project for agreed consideration of Rs.2,65,35,000/-
5. Allottee paid an amount of Rs.1,20,00,000/- towards part consideration.
6.  On 24/07/2013 SSS issued allotment letter to Allottee.
7. The project remained incomplete on the date of coming into force of RERA Act, 2016.
8. The project was accordingly registered as ongoing project under Section 3 of the RERA by SSS in which the Wadhwa was declared as a Promoter (Investor).

Submissions by Appellant

1. Wadhwa cannot be held responsible for refund of any amount to the Allottee as he has not paid any amount to the Wadhwa and that therefore there is no question of refunding any amount to him.
2. As per the JDA both builders identified their respective entitlements in constructed portion of the building and the flat in question falls in the share of SSS, and it  alone received the entire consideration from the Allottee thereby no question of Wadhwa refunding the amount which it did not receive.
3. Mere a change in law requiring reflection of name of wadhwa as Promoter does not create its liability, which did not exist prior to introduction of RERA.  

Submissions by Respondent

1. Wadhwa is undoubtedly covered by definition of the term ‘Promoter’ per se Section 2(zk) of RERA.
2. Definition U/s 2(zk) makes it clear that all promoters are jointly liable under the Act.
3. That a promoter cannot be permitted to defeat the rights of the flat purchasers by making internal arrangements with investors, land owners, etc 

observations made by the Hon’ble Court

1. There appears to be no dispute that the payments were made by the Allottee to the SSS.
2. it is necessary to determine whether Wadhwa falls in the definition of the term ‘promoter’.
3. While registering the project as ongoing project under Section 3 of the RERA, Wadhwa’s name has been included in the list of Promoters. Therefore, Wadhwa cannot run away from the fact that it is the promoter in respect of the project ‘The Nest’
4. Mere falling of flat in the share of the SSS under the JDA would not excuse the Wadhwa from the responsibilities and liabilities under the RERA, Rules and Regulations made thereunder qua that flat. 
5. RERA does not demarcate or restrict liabilities of different promoters in different areas and the liability is joint for all purposes under the Act, Rules and Regulations
6.  Since the Wadhwa is covered by definition of the term ‘Promoter’, it is also jointly liable to refund the amount along with the SSS.
7. Distinction between projects launched before and after coming into force of RERA cannot be a ruse to escape the liabilities as promoter under RERA.
8. The Wadhwa’s contention about absence of privity of contract between it and the Complainant is totally misplaced as it is a matter of indoor management between the Promoters and the flat purchaser who is not supposed to know the intricacies of the arrangements made between several promoters amongst themselves.

Court’s Order

Accordingly the Second Appeal is accordingly dismissed with costs.

FIR by Maharashtra RERA Against Builder after forensic audit for Non Compliance and Misappropriation U/s 4,406,409,420

FIR by Maharashtra RERA Against Builder after forensic audit for Non Compliance and Misappropriation.

On the Date 23/02/2024 , On the Directions of the Maharashtra RERA, the administrative officer Lodged the FIR u/s 34,406,409,420 against the

1. PARAMVIR DEVELOPERS LLP
2. KUMAR KANAYALAL MORDANI (Director) and
3. KANAYALAL MORDANI (Director)

Timeline of the Matter

1. On Date 11/01/2023 Maharashtra Real Estate Regulatory Authority (Maharera) sent a letter to PARAMVIR DEVELOPERS LLP dated regarding non compliance of its rules.
2. Again On Date 27/02/2023 another letter was sent to Builder dated regarding non compliance.
3. No reply received from the Builder.
4. Due to No Reply by the Builder,  On Date 14/03/2023 ,a company named Neelam Arch Consultant was appointed as an investigator for the Builder's Project High street (Maharera Registration No. 51800005582)
5. The investigator was not allowed access to the site by the Builder.
6.  On the Intervention of Maharera only the Investigator was given access to the said site
7. After studying the site the Investigator submitted a report to Maharera on 23/03/2023.
8. On Date 24/03/2023, Maharera sent a letter to Builder regarding non-filing of any return but again the builder did not respond.
9. On Date 02/05/23, Maharera decided to appoint M/s BDO India LLP to conduct a forensic audit of Builder's high street project .
10. The company B.D.O. India. LLP submitted the report in this regard to Maharera on 25/08/2023.

The Forensic Audit Report revealed the Followings:-

• The Builder collected a total of Rs.19.82 crores from the customers and deposited the entire amount in the current account of his firm and not in the Separate RERA bank as mandated U/s section 4(2)(l)(d).
• Out of Total Rs.19.82 crores received by the developer from the customers, an amount of Rs.11.61 crores is given as Interest free loan and advance to other Sister companies/firms without any agreement and document.
• The Builder raised a loan of Rs. 202.33 crores  from Banks and Financial Institutions for the said project.

• Out of the total loan amount raised, Rs. 66.43 crores is given as Interest free loan and advance to other Sister companies/firms without any agreement and document.

•  A total of Rs 109.13 crore was repaid to the financial institutions even before completing the project.

• There by The Builder misappropriated a total amount of Rs 78.04 crore.
• Only an amount of Rs. 6.40 crores was used under the project expenses in the ledger books.

• The developer had taken bookings for the project from 34 customers. On verification of the customer ledger and sales ledger from the developer, it was seen that the booking amount of five customers was 220 crores, but due to cancellation of their bookings, the amount refunded to them was only Rs. 2.83 crores. This raised doubts about the refund amount.

• Since 2017 the developer did not submitted  any quarterly report.

• The developer constructed a thirteen storied RCC against a permission of a six storied building. 

• The developer only completed 30 % of the project by December 2022.

Thus Resulting in the FIR against the Builders and its Directors.

Supreme Court : the banks had failed to comply with their duties, and had in fact colluded with the developer in committing a fraud on the home buyers, and breaching public trust.

 Bikram Chaterjee vs. Union of India, [2018]147 SCL 154 wherein the Apex Court took cognizance of the fact that the banks had failed to comply with their duties, and had in fact colluded with the developer in committing a fraud on the home buyers, and breaching public trust. It may be useful to refer to paragraphs 69 and 127 of the judgement, which reads as under-

“69. In the instant matter, the question of larger public importance is involved. It is a shocking and surprising state of affairs that such large scale cheating has taken place and middle and poor class home buyers have been duped and deprived of their hard-earned money and lifetime savings and some of them had taken a loan from the bank and they are not getting houses. Bank has made payment to the builder, owners have the liability of making payment of amount with interest, homebuyers are still waiting for their dream houses to be completed.

127. The Forensic Auditors’ report makes it apparent that Bankers have failed to ensure and oversee that the money was invested in the projects. It was diverted elsewhere as rightly found by the Forensic Auditors. Even what was paid by the home buyers, had not been used in the projects and stands diverted. There was, in fact, no necessity for raising the loans from the bank. The money borrowed from banks was used to create other assets worth thousands of crores. Thus, the banks can realise their money from those assets  and from guarantors and not from the investment of home buyers, not from the buildings in which loans granted by banks have not been invested, which have been erected partially or some are at the nascent stage, for which hard- earned money has been paid by the home buyers”

Housing Finance Company (Reserve Bank) Directions, 2021 issued by the RBI on 17.02.2021

Housing Finance Company (Reserve Bank) Directions, 2021 issued by the RBI on 17.02.2021

88. Disbursement of housing loan to individuals linked to the stages of construction

88.1 Disbursal of housing loans sanctioned to individuals shall be strictly linked to the stages of construction of the housing projects/ houses and upfront disbursal shall not be made in case of incomplete/ under-construction/ green field housing project/ houses.

88.2 HFCs while introducing any kind of product shall take into account the customer suitability and appropriateness issues and also ensure that the borrowers/customers are made fully aware of the risk and liabilities under such products.

88.3 In cases of projects sponsored by Government/ Statutory Authorities, HFCs may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects.

88.4 HFCs shall desist from offering loan products involving servicing of the loan dues by builders/ developers etc. on behalf of the borrowers.

88.5 HFCs shall have in place a well-defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower(s) prior to release of payments to the builder/developer.

circular dated 09.07.2019 issued by the NHB,

 circular dated 09.07.2019 issued by the NHB, 

“3. Based on a review of the matter, HFCs are advised to desist from offering loan products involving servicing of the Loan dues by builders/ developers etc. on behalf of the borrowers. The prevalent products of HFCs, if any, should also be reviewed on the above lines. It is clarified that the above stipulation shall also be effected in cases wherein the HFC is yet to commence disbursements under the sanctioned cases.

Further, reference is also drawn to the Circular No.NHB(ND)/DRS/Policy Circular No.75/2016-17 dated July 01, 2016 whereby HFCs were again advised that disbursal of housing loans should be strictly linked to the stages of construction and no upfront disbursal should be made in case of incomplete/un-constructed projects. It is reiterated that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses. In cases of projects sponsored by Government/Statutory Authorities, HFCs may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects.

HFCs should have in place a well-defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower(s)

prior to release of payments to the builder/ developer. Merely obtaining borrower consent and release of funds by the company without linkage to the stage of construction will be seen as dereliction of duty of the HFC.”

RBI circular dated 01.07.2015, pertaining to the issue of subvention schemes or “innovative housing loan schemes”

RBI circular dated 01.07.2015, pertaining to the issue of subvention schemes or “innovative housing loan schemes”. Paragraph 3 (d) (e) and (f) of the same which read as under:

“(d) It has been observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers / builders, e.g. upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project, Interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/ specified period, etc. This might include signing of tripartite agreement between the bank, the builder and the buyer of the housing unit. These loans products are popularly known by various names like 80:20, 75:25 schemes

Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. in case of dispute between individual borrowers and developers/builders, default/ delayed payment of interest/ EMI by the developer/ builder during the agreed period on behalf of the borrower, non-completion of the project on time etc. Further, any delayed payments by developers/ builders on behalf of individual borrowers to banks may lead to lower credit rating/ scoring of such borrowers by credit information companies (CICs) as information about servicing of loans get passed on to the CICs on a regular basis. In cases, where bank loans are also disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/ developers without any linkage to stages of constructions, banks run disproportionately higher exposures with concomitant risks of diversion of funds.

Banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project / houses and upfront disbursal should not be made in cases of incomplete /under-construction / green field housing projects.”

NCDRC - The builder ought not to have accepted money and entered into agreement with the buyers without approval of the building plans

 In the Matter of Yogesh Sharma & Anr., vs M/S Unitech Limited Complaint no.Consumer Case No. 267 OF 2014  decided on 26.11.2015 before National Consumer Disputes Redressal Commission

The NCDRC in the case observed that the builder ought not to have accepted money and entered into agreement with the buyers without approval of the building plans by GNIDA (Greater Noida Development Authority). If the opposite party chose to accept money from the flat buyers and enter into agreements, undertaking to give possession within a particular time frame, without having possession of the land and without approval of the building plans, it is only itself to blame for a situation in which the construction got delayed on account of the delay in approval of building plans and physical delivery of the land to it on the spot.

If the Redevelopment project involves the Sale of flats to outside parties, then the builder becomes promoter under the act and the project is to be registered

 In the Matter of Indira Nagar Kaveri Apartments Owners Welfare Association v/s Navin Housing & Properties Pvt. Ltd. Complaint number 433/2019 ,

The Hon’ble Tamil Nadu  Real Estate Regulatory Authority observed that 

• an Agreement between existing flat owners and Builder intending to do redevelopment of the Society where the sale of flat to outside parties are also involved., “Very much constitute the standard joint development agreement for redevelopment  which is entered into between the existing flat owners and the promoter builder for demolition of the existing flats and construction of new flats in the said property. Therefore the day existing flat owners sign the deed of agreement with the promoter builder, the existing flat owners become an allottee and the respondent builder becomes the promoter under this act.”

• The Hon’ble Tribunal further added that it is the responsibility of the promoter to get the consent from the remaining flat owners to take up the redevelopment project.

• The Hon’ble Tribunal further declined to transfer the matter for arbitration adding that  “after the commencement of the Real Estate (Regulation and Development) act, 2016 the real estate disputes and complaints will have to be adjudicated by the authority constituted under the act.”