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The great building fraud in Zirakpur: Builders take loans, buyers pay the price
Builders take loans against projects already sold to buyers, and when they default on payments, banks stake their claim on the flats, leaving the owners high and dry
Zirakpur, the fastest growing realty destination in the tricity with its array of affordable housing options, is also proving to be a trap for unsuspecting buyers, who are finding themselves embroiled in legal disputes with banks and builders. This takes place when unscrupulous builders mortgage to a bank a project they have already sold to individual home buyers. So when the builders default on loan repayment, the banks try to take possession of the property, and the home buyers, who in many cases are living there, have to fight a legal battle to claim their property.
One such dispute in which the Central Bureau of Investigation (CBI) has filed a first information report (FIR) involves a project called Royale Apartments in Peer Muchalla. It is on the complaint of Anil Kumar Loothra, chief regional manager, Indian Overseas Bank, regional office, Chandigarh, that the CBI booked M/s Royale Empire, M/s Garg Contractors and others under Sections 120b and 420. It was alleged that M/s Royale Empire, a partnership between Jeewan Garg and Prince Garg, which was constructing the flats under the name of ‘Royale Apartments’ at Peer Muchalla, had diverted the loan amount.
The FIR charges the builders with “diverting the loan amounts and submitting exaggerated valuations in collusion with the valuers in respect of two securities, selling the house flats without obtaining authorization from the complainant bank” which had “first right over the properties.” As per the complaint, the alleged, “fraudulent activities of M/s Royale Empire and M/s Garg Contractors caused the bank a loss of more than Rs 16.24 crore, plus the interest amount.”
Currently, the bank holds the possession of Royale Apartments in lieu of unpaid loan even though most of the flats in the project have already been sold to individual buyers. “When a property is mortgaged to a bank, a builder cannot sell it,” says Loothra. The buyers contend that the project was already sold to them before it was mortgaged to the bank. Buyers quoting the sale agreement alleged that they were assured that the property was free from all encumbrances such as sale, gift, mortgage, claims, charges, litigation, etc. One of the allottees, Jayshal Sood, alleged, “The property was already allotted to me when it was mortgaged to a public sector bank. The builder kept taking payments for the property from me while getting loan disbursements from the bank. Today, the project stands incomplete.”
Jeewan Garg and Prince Garg couldn’t be contacted for their response to the FIR and allegations.
Different story, same fraud
Not far from Peer Muchalla, buyers of Aero Homes Residential Project, Ghazipur Road, were in for a shock when they received a notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) on July 29, 2016. PK Sharma, general secretary, Aero Homes Resident Welfare Association (AHRWA), says the notice stated that the land, including the flats constructed thereon, was the property of Punjab National Bank, Branch Office, LCB, Sector 17-B, Chandigarh, with whom it stood mortgaged.
“The developer had taken a huge loan of Rs 14 crore from Punjab and Sind Bank, Sector 17-B, Chandigarh in May 2012. Later in April 2014, the developer took a loan of Rs 27.55 crore from Punjab National Bank, Sector 17-B, Chandigarh, by transferring the earlier loan of Rs 14 crore and also by mortgaging the entire land and flats in favour of the bank,” reads one of the eight FIRs registered against the developer at the Zirakpur police station.
Sat Paul Bhatia, president, AHRWA association, says meanwhile home buyers had become the flat owners after obtaining the offer of possession letter in 2013, paying the entire amount, and taking possession of the flats. “Thus, the land and the flats should not have been hypothecated or mortgaged further in any manner.”
Blaming the banks for the problems faced by residents, Ashok Khanna, chief spokesperson for AHRWA, said, “The two banks never affixed any notice on board, nor published any ad/notice in pamphlets, brochures, newspapers or magazines proclaiming that the land/property belonged to them. Further no objection certificate (NOC)/ permission of the mortgagee bank for the sale of flats/property was to be issued by the mortgagee bank, not by the developer, which is a clear violation of RBI guidelines. The District Attorney in the FIR has suggested an investigation into the bank’s role.”
Nitin Bansal of NH Matcon, however, refuted these allegations and said, “There is a loan against the project, but, there is no loan against individual flats. There are a few individuals in the society who are creating this issue.”
Muck Deep Down
Chinar Homes in Peer Muchalla, which is not far from the multi-storey building that collapsed in April, is yet another example of unfair trade practices in Zirakpur. BCL Homes Limited run by Managing Director Baldev Bansal and his son Gopal Bansal, planned Chinar homes in 2010 and convinced people to buy their flats. They promised to build 300 flats, and took money in advance from buyers besides raising a bank loan of about ₹25 crore against the project.
Today the multi-storey building with several blocks has been reduced to a skeleton as the builders are yet to complete the project despite assurances of possession in 2014. Over 200 buyers who had invested in the project have moved the consumer courts, seeking refunds while promoters are on the run due to police cases and notices from the bank.
Advocate DK Singhal, who is fighting a legal battle for several buyers, said the problem in this case is that the bank, which financed the project, began the procedure to auction the land to recover its loans, and the buyers are yet to get either the refund or their flats. Many of them have now got a stay against the bank’s auction process.
Blaming the bank for this mess, Singhal said generally the dispersal of the loan is linked to construction of the project, but here the entire loan was disbursed in one go. Meanwhile, the builder could not complete the project, jeopardising both the buyers and the bank.
Singhal said the builders also moved application for insolvency with the National Company Law Tribunal. He informed that while the matter will be decided later this month, buyers have already filed their objections against this move, as they want the builders to either complete the project, give them flats, or refund their money with interest.
In March, Varinder Mohan one of the buyers from Panchkula, got a case registered against the builders for cheating. Mohan rues that despite the FIR, the police have failed to trace the accused and put them behind bars.
United they stood
Surya Towers near Chandigarh-Ambala highway in Zirakpur is yet another example of home-buyers being defrauded by defaulting promoters. The builders constructed 204 flats of which 50 were built on land, against which the builders had taken bank loans.
The occupants got a shock of their life in 2015 when they saw a bank notice in newspapers, which was later pasted on their flats for the recovery of the amount from the builder. They were unable to get the flats registered in their names and had to approach various enforcement agencies, including the police, to get the matter sorted out. After much pressure, the builders were forced to clear the liabilities to one of the banks. The occupants also helped the bank in auctioning the unsold flats in the society to clear its dues.
Dinesh Kumar, a member of the residents’ welfare association, said the matter is resolved to the extent that they have now got ownership of their flats. “Two-three banks were involved in financing the project. Now the matter is between them and the promoters. The only downside is that the entire maintenance liability of the project has fallen on residents. But we are cooperating with each other to run the society,” he said.
