Clearly affirming that it takes a lot to invest one’s life savings and future earnings to get a roof above one’s head, the Supreme Court today directed Parsvnath Developers to deposit Rs 12 crore within four weeks as compensation to the 70-odd buyers who had invested in its Ghaziabad project almost nine years ago. This order in favour of homebuyers is one among many passed over the last few months which according to real estate experts is in line with rules of the Real Estate Regulatory Act (RERA) and an attempt to win back homebuyers’ trust.
The Supreme Court has consistently been taking a stand against builders who have been selling false dreams to buyers, taking on the role of ‘Sapnon ka Saudagar’. “Builders cannot run away with the life’s savings of homebuyers and give lame excuses that they are battling a slowdown, had not received project approvals or this trend or do not have the money to refund buyers when they have collected over 95% from homebuyers,” says advocate M L Lahoty, who appeared on behalf of the aggrieved buyers in this case.
Arguing on behalf of homebuyers, Lahoty insisted that the developers should refund the money to homebuyers and told the bench that Ghaziabad Development Authority had even withdrawn the sanction for the project and that there was no possibility of Parsvnath completing the project in 12 months.
Realty experts also say that the apex court’s order is in line with RERA norms.
“This order is practically in line with RERA and is an attempt to make developers get into the self discipline mode. It is also an attempt to instill positivity into the market and bring back the trust and confidence of homebuyers,” says Sudip Mullick, partner, Khaitan & Co.
On August 27, Parsvnath Developers had expressed inability to refund homebuyers for not handing over possession of flats, saying that the company was suffering from a severe liquidity crunch but assured the court that the project will be completed in a year. The project Parsvnath Exotica was launched in 2007 with the promise of handing over possession by 2011. Over 800 families have put in their money but flats have not been delivered. The National Consumer Disputes Redressal Commission (NCRDC) had directed the company to refund money with interest to 70 homebuyers who had filed the case against the builder.
In a related case, the Supreme Court on September 7 had issued a stern warning to Supertech, when the builder expressed its inability to pay refund money to homebuyers who were not keen to hold on to their flats, saying it was not concerned whether the real estate major “sinks or dies”. “Whether you (Supertech) sink or die, we are not concerned. You will have to pay back the money to home buyers. We are least bothered about the financial status,” a bench of justices Dipak Misra and Adarsh Kumar Goel had said when it was pointed out that builders did not have funds to pay back consumers.
The apex court directed the company to pay 10% per month of the invested amount from January 5, 2015 to the buyers within four weeks. Seventeen buyers have filed a petition before the court, complaining Supertech is refusing to refund the money they paid for buying flats in the Emerald Towers project. The company will have to submit a chart of payments to the court before the next hearing, which is October 25.
On September 12 the Delhi High Court had granted an opportunity to beleaguered real estate major Unitech Ltd to complete its delayed housing projects and hand over possession of flats to buyers by opening escrow accounts and using the money deposited in it solely for these projects.
The bigger issue here is what happens if more builders claim that they do not have the cash flows to restart stalled projects? Till date, there are around 6,000 projects out of a total of 13,500 that have been delayed in the top eight cities of the country, as per estimates by real estate research firm Liases Foras.
Legal experts are of the opinion that in case a developer fails to pay up or deliberately flouts the court orders, contempt proceedings can be initiated against him. “The (Unitech) order sets a precedence. If a developer has promised a project, he had better deliver it. The country is not a banana republic and buyers cannot be taken for a ride. The order also emboldens the RERA Act under which there are stringent rules to deal with violations,” says S K Pal, a Supreme Court lawyer.
The basic principle of law is if a party breaches a contract he will be bound to pay all losses incurred in the natural course. The question as to whether the defaulting party can actually pay the compensation is a different matter. If the defaulting party does not have the money, it will be wound up (if it’s a company) or have to declare insolvency (in case of individuals) for which the consequences are grave. Usually, neither a company nor an individual would allow this to happen unless they are truly not in a position to repay. In case of liquidation, the assets of the company will go to a liquidator and under the supervision and process of court, such assets will be sold and sale proceeds will be distributed in the manner as provided for under the Companies Act, explains Sudip Mullick from Khaitan & Co.
The buyers’ claim against the builder is not only limited to the property or compensation in lieu thereof , they can also proceed against the builder under the applicable criminal law in case the builder intentionally defrauded them,says Mullick.