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Shiv Kala fraud: RBI, NHB tightlipped

Financial institutions yet to take action against their officials in a case of multiple finance fraud

realestate Updated: Jan 03, 2014 19:02 IST

Regulators of financial institutions in India – the Reserve Bank of India (RBI) and the National Housing Bank (NHB) – seem to be completely oblivious of the plight of the 400 homebuyers who were defrauded by a builder in a case of multi-financing of apartments in a Greater Noida housing project three years ago.

Hindustan Times, on November 18, 2013, had exposed the housing scam in which a developer, Mahim Mittal, allegedly colluding with officials of banks and housing finance companies, sold apartments of a real estate project, Shiv Kala Charms, to multiple buyers, and banks extended home loans to three to four parties for one apartment.

In question are the diligence processes of banks such as HDFC, Axis, Oriental Bank of Commerce along with housing finance companies such as LIC Housing Finance Limited, Dewan Housing Finance Corporation Limited, Punjab National Bank Housing Finance and Indiabulls.

The NHB, in a preliminary probe, had said the main reason for the scam was probably the lack of proper due diligence by the housing finance companies (HFCs) concerned, while approving the captioned project/sanctioning the loan to the individual borrower.

The HFCs had been asked to apprise NHB of the action taken against the officials involved. “More than two years have gone by, no action has been taken against the officials of any housing finance companies. When we talk to the officials of NHB, they say that since the matter is being investigated by the Economic Offences Wing of the Delhi Police, they will not comment on the issue,” says Ravi Srivastava, a homebuyer in the Shiv Kala project.

When contacted, the chairman and managing director of NHB, R V Verma, refused to comment. RBI, too, has maintained a studied silence over the issue. Despite repeated emails from HT Estates to the RBI asking for information on any disciplinary action taken against the bank officials involved, the apex bank, apart from acknowledging receipt of mails, did not respond to the queries.

Senior banker Bhaskar Niyogi says that in such cases buyers get protection but only when it is proved in a court of law that a bank official is working hand in glove with the developer or where the project has been approved by the bank.

“Banks do have a well laid down machinery to do investigation and carry the same to its logical conclusion. This is one of the reasons why public sector banks have the policy of job rotation once in every three to five years as a preventive measure against formation of vested interests. Regarding recovery of loans, banks will always proceed against the borrower as per the loan documents. Only in cases where the underlying transaction is fraudulent and hence void, will protection be available to the borrower. Even then, the borrower will find it difficult to disprove his ignorance as by law ignorance cannot be a defence,” says Niyogi.

Banking experts say that problem of multi-financing has minimised after the formation of a central registry. “In March 2011, the government formed a central registry which keeps the data of all the dwelling units mortgaged to various banks and financial institutions. Banks can cross-check the status of a property from the central registry website. This has taken care of the problem of multi-financing which used to be a serious issue,” says a senior NHB official.

He adds, “However, both RBI and NHB must compel the financial institutions to take action against the officials involved.”

First Published: Jan 03, 2014 18:57 IST