Sunday, October 30, 2016

REALTY FRAUDS WITH BANKS

In recent years, the real estate market has helped increase realty frauds and other phony real estate financing by the Banks. The recessionary trend in present realty scenario invariably has brought in many unscrupulous and unsavory Builders/Developers who, in connivance with certain corrupt Bank Executives and dishonest officers, secure bogus loans by allegedly executing spurious documents supported by fudged Balance Sheets, highly inflated/false data, fabricated information/statements and try to make some fast money through illegal routes.

Builder - Advocate - Chartered Accountant - Bank Executives - Branch Managers/officers nexus is believed to be the root cause of Banks falling prey to realty frauds involving non-viable loans in multi-crore of rupees resulting in many fold increase in non-performing assets of Banks. Quite a number of times, the approvals come from a single branch of a Bank for sanction of loan to a blue-eyed Builders/Developers of that Bank, are the results of lack of any thorough scrutiny of the project by the Bank officials.

It is worthwhile to point here that even Banks are under pressure to disburse maximum amount of loans to reach the given targets as per directives from various authorities and consequently, some of them conveniently skip the required in-depth scrutiny for sanction of loans.

Banks are supposed to be more vigilant and enforce appropriate due diligence before sanctioning loans to the unscrupulous Builders/Developers. Bank Officials hand in hand for occasional pecuniary benefits, later face the music of investigation against them for Realty frauds front also because of the dereliction of duty by some advocates and chartered accountants. When a fraud comes to light, Bank Officials are either charge sheeted or summarily dismissed or put behind bars. However, no action is taken against the top executives of the Bank or the professionals hired by the Builders/Developers.

It has also been noticed where a Bank Manager is transferred or posted from one branch to another, such immoral clients follow these Bank executives to continue their illicit relations to avail more and more loans in multi-crore of rupees which are sanctioned or got sanctioned from HO by such dishonest Bank Managers who act as carriers for the top bosses of that Bank.

Complaints about mortgage frauds and predatory lending practices in Banks have also grown many-fold as the economy has soured and increasing numbers of Realtors face financial strains and even foreclosure. Reserve Bank is taking mortgage frauds seriously with assigning the task of investigations and prosecutions to the Central Bureau of Investigation Dept. and Banking Section of Economic Offence Division against the corrupt Bank executives and dishonest Bank Officials for rendering undue favours to the Builders/Developers and acquiring disproportionate Assets to their salaried income.

There are numerous cases registered by Central Bureau of Investigation Dept. and Banking Section of Economic Offence Wing against the erring Bank executives/Managers for abusing their official positions and entering into a criminal conspiracy and fraudulently sanctioning and disbursing various limits to the Builders/Developers on the basis of false and forged balance sheets thereby causing loss to the tune of multi-crore of rupees to their Banks.

There are umpteen numbers of such realty frauds with height of violation of the ground rules and guidelines of Credit Policies framed by the RBI where the project loans in crore of rupees have been disbursed without proper assessments, without adherence of sanction norms, with no proper verification of genuineness of title documents/balance sheets/data/projections and ignoring the viability guidelines of the Bank.

Banks have begun stress testing their realty assets as delinquencies in loan service payments begin mounting up and are now asking the Builders/Developers to lower prices to clear their piled-up Realty NPAs. Additionally, The Banks are reducing the moratorium period on loan repayment from 9-12 months earlier to just three months now as many banks have begun facing overdue on some of the past realty loans. This puts an indirect pressure on the Builders/Developers to sell off their projects quickly to start repaying their installments in default.

Distress sales have increased. Some Builders/Developers are resorting to discounted sales with attractive gifts for meeting liquidity requirements. Analysts have expressed concerns over the financial health of the Real Estate Sector. City-based retail broking firm, India Infoline, fears the liquidity situation of Builders/Developers could worsen further if banks refuse to refinance maturing debts of Real Estate Companies and maintain the credit freeze on their accounts.

Bankers are resorting to moral suasion, persuading borrowers to settle their overdue payments. However, despite such efforts, RBI said that subsequent to the AQR, gross NPAs rose 79.7 per cent year-on-year in March 2016. The net NPA of the Banks also increased sharply to 4.6 per cent in March 2016 from 2.8 per cent in September 2015. Public Sector Banks' net NPA was 6.1 per cent while the ratio for Private Sector Banks was 4.6 per cent. For the last financial year, the average was about 2.5 per cent of advances. Natural justice demands that disciplinary actions must be initiated to book the erring officials of the Banks in an expeditious manner.

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Monday, October 17, 2016


IMPORTANCE OF SCRUTINY AND VETTING OF REDEVELOPMENT DOCUMENTS

In case of lawsuits, the legal documents related to redevelopment play very important role in all Court Cases under Indian Evidence Act. The definition of document has broader and wider meaning, including 'Deeds' and 'Agreements'. All the documents related to redevelopment are important components of evidence in all cases before judicial as well as quasi-judicial authorities.

The Documents must be drafted carefully making sure that they are drafted following all principles of redevelopment and perfect legal terms are being used in its content.

Section 3 of Indian Evidence Act: 1872 says "Document" means any matter expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter. 
Illustrations:

·         A writing is a document
·         Words printed lithographed or photographed are documents
·         A map or plan is a document
·         An inscription on a metal plate or stone is a document
·         A caricature is a document."
 
Evidence: "Evidence" means and includes-
(1) All statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry; such statements are called oral evidence; 

(2) All documents produced for the inspection of the Court; such documents are called documentary evidence."

General Clauses Act 1897: Section 3 (18) says; "Document" shall include any matter written, expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means which is intended to be used, or which may be used, for the purpose of recording that matter.

In redevelopment, it is a must that the Landlords of Tenanted Buildings and Housing Societies are required to get their legal documents theoretically scrutinized and methodically vetted by the legal experts/counselors who are well adept in integrated laws governing the redevelopment.

Documents like Feasibility Reports, Tender Documents, Draft of Memorandum of Understanding, Development Agreement, Power of Attorney, Bank Guarantee and Individual Agreement to be executed with each member of the Society that are generally provided by the Developers to the Housing Societies.

These documents are drafted by the Advocates of Developers in a deceitful manner with lack of transparency and thus, provide escape routes and full protection to the Developers by neglecting the vital terms and conditions that are protecting the interest of the Tenants and the Members of Housing Societies.

The venture of redevelopment of any property involves a massive volume of multi-crore of rupees as also the fate and future of all the Resident Members of the Society. Once the property is handed over to the Developer, the Society has only legal documents in their hand to rely and fall back upon in case of any adverse situation in accomplishing the successful task of the redevelopment.

The timely approach of legal experts/counselors, who are well versed in redevelopment laws in respect of drafting/analyzing all the legal documents pertaining to the redevelopment in a scientific and systematic manner, can save the menace of such unforeseen adversities.

We, as senior counselors, are well adept in the field of scrutiny and vetting all types of legal documents in most defined and methodical manner. After precise and meticulous study, these drafts are scrupulously vetted, scanned and scrutinized by us and the gray areas/pitfalls and shortfalls are exposed and a written report is given to our Client Societies/Landlords apprising them the areas of alerts and awareness and to impress upon and compel the Developer to correct/include/provide due coverage before finalizing all the legal documents of redevelopment in corporate interest and safety of the Societies and Landlords to achieve the desired results.

It is required that the Housing Societies/Landlords must study and understand and try to forestall the negative aspects under Financial/Legal and Technical areas to be termed principally in Development Agreement affecting the rights and interest of Members/Tenants.

Senior Counselors and Professionals can help you to understand the legal documents which require professional assistance. The Housing Societies/Landlords must consider the complexity of the texting and the potential risks and losses if the document is not prepared correctly. The cost of hiring an expert to vet the legal documents is justified by unfolding the potential risk of errors and omissions. Our most educative are websites are as under:

www.redevelopmentofhousingsocieties.com
www.redevelopmentofhousingsociety.com

Drafting of any document pertaining to the redevelopment is very important component of legal practice and advocacy; one must understand that perfection in drafting is not achieved, unless one understands the relevant provisions under the Acts, Laws and Rules as also facts and language. Many Housing Societies/Landlords suffer in course of litigation due to inferior drafting, lack of documentation skills and without proper understanding of redevelopment laws.

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Monday, September 26, 2016

FILE FIR AGAINST BUILDER IF CHEATED – SAYS MAHARASHTRA POLICE

Are you cheated by the builders? Are your flats not delivered in time? Despite amounts received towards the cost of flat, builders did not execute and registered the flat agreement? Builders did not form Society and not conveyed the land in favour of Society within stipulated time as per the provisions of Maharashtra Ownership Flats Act, 1963 (MOFA)? Mandatory Building Occupation Certificate (BCC) not procured? The answer to all these questions is given hereunder.

You can now file FIR against such unscrupulous builders. According to a recent circular issued by Maharashtra Police, the flat buyers who have been cheated by any reason as stated above can file a police complaint against their errant builders. The State Police has directed all the police stations across the State of Maharashtra to register complaints against such criminal builders who cheat flat buyers and violate norms under MOFA. In a recent circular issued by the Special Inspector General of Police, Prabhat Kumar instructed all Police Commissioners in the entire Maharashtra State to take action according to the provisions of law when aggrieved flat or property buyers file such complaints.

Earlier, many flat buyers victimized by con builders, went to the police station many times in the past but the police used to refuse to register the complaint against the builders under the MOFA and they were denied stating that their cases were a civil ones directing them to Consumer Court. This circular will now definitely bring relief to buyers who have been cheated by their builders.

It has been reported that there have been numerous cases of harassed flat buyers having a harrowing time at police stations when they went to file complaints. They also experienced that some police officers were being hand-in-glove with unscrupulous builders extracting ungrateful benefits. This circular is certainly a proactive step by the police, a strong push from the top to take such complaints seriously.

However, the builders’ lobby opines that holding builders solely responsible for the reasons beyond their control is a bad sign for construction business, especially when there are frequent changes in building rules and regulations and such circular shall subject the builders to blackmail them from all sections.

The builders’ lobby expresses that there are chances in the area of Redevelopment, the Managing Committee Members shall trouble builders by lodging false complaints and blackmail them for their personal gains. The circular mentions that action can be taken against builders under the MOFA, 1963. However, a senior government official stated that MOFA had been scrapped by the state government and the police had erred by mentioning it in the circular since the MOFA has been superseded by the new Real Estate (Regulation & Development Act) 2016 (RERA).

It is feared that after the implementation of RERA, the agreements will not be covered under MOFA as the new act doesn’t have the same provisions. However, Section 13(2) of the MOFA states that violation of Section 5 is punishable with five years. As per the Criminal Procedure Code (CrPC) First Schedule Table II, the offence is cognizable and an FIR can be filed by the police and should be as per the law. However, for other MOFA violations, the police may not be able to take cognizance as the punishment is less than three years. The RERA has mentioned punishment for three years, if a project is sold without registration and is not cognizable and thus, the police cannot register an FIR. In a few years, most MOFA agreements will be extinct and this will affect the circular.
Some industry players, however, feel that this move is irrational and will discourage the builders since the circular is ‘disturbing’ and it holds the builder solely responsible for delays but there are many issues, which are not in his control. Cornering the real estate sector like this, will spread a negative signal within the industry which is trying to recover and that the onus should also be on the concerned officials of civic body who delay granting the permissions.
City builders are lobbying with the state to withdraw the circular issued by the State Special Inspector General of Police directing every police station to take action against errant builders by registering complaints and further initiating penal action against them. Builders claim the circular is just another ploy that would help police officers to extort money from them for any small reason.

After Prabhat Kumar, the Special Inspector General of Police, issued the circular, several top builders had meetings with officials from the Housing and Home Department at Mantralaya. The builders also met Mr Kumar over getting clarification from him on the circular that was issued. The circular states that complaint should be registered against builders who fail to hand over possession on time to buyers or deliver flats without obtaining occupation certificate (OC). It was further cited that after a delegation of activists had made representation to the police and highlighting various laws under which the police could initiate action against builders.

Meanwhile, a Home Department Official said that the law is already in
place and there is no point even if the circular is withdrawn. It was just a communication sent to all the police commissioners and nothing more should be read out of it. There is no question of withdrawing the circular.
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