This article has been written by David Varghese Thomas, from Government Law College, Trivandrum.
The Guest Speaker: Chetan Priyadarshi is an alumnus of ILS Law College Pune. He is an experienced Partner with a demonstrated history of working in areas of law such as appeals, International Law, Real Estate Laws, Criminal Law, and Litigation. He is currently practicing in the Supreme Court of India and is a partner at Mimansa Law Offices, New Delhi.
The Host: Anubhav Garg completed his BBA LLB from Guru Gobind Singh Indraprastha University and is a management trainee at LawSikho.
He is also working as a content writer and an event manager with iPleaders.
Can you give a brief introduction about your journey as a Lawyer?
I passed out of ILS law college, Pune, and after that, I shifted to Delhi. I practiced with a few senior lawyers before going independent on my own. I started with winding up laws and the company laws in the company court in Delhi High Court, and then we shifted to the insolvency code. With Insolvency code came a lot of homebuyers who wanted to file their case under the NCLT. A lot of adventure has happened under the Insolvency code, so we gathered experience in going there and NCDRC. Overall we have gone to all forums which a homebuyer can go to or should go.
Can you tell us about the best forums for homebuyers, and what are the pros and cons of each? Since we are discussing the rights of Homebuyers, which forum can they resort to if their rights are infringed?
There are multiple forums that the Homebuyers can approach. The most important ones are the NCDRC or the consumer forum, the second is NCLT, and the third one is RERA (Real Estate Regulation Authority). These are the three forums that the homebuyers are interested in because of the speedy disposal of cases and the benefit they get from the order they get from each forum.
The Consumer Forum is where the consumers seek remedy. Homebuyers being consumers have been going to consumer forums since the coming of this Act. Overall the experience in Consumer Forum used to be good, but the number of filings has increased, which led to a massive amount of cases there and therefore delay in the part of the forum to adjudicate on these matters. So they started stalling on the final orders. The general date between two hearings would be around 6 to 9 months in the NCDRC. At the same time, for the state commission consumer forums it is between 4 to 5 months. It takes at least two to three years’ bare minimum for a case to be finally adjudicated. Then you have the long process of execution, which takes another 2 to 3 years once you have an order from the consumer forum. Then again, not all homebuyers can go to the consumer forum. You need to prove that this unit was for me and that I wanted to use it for my own good instead of renting it out. You can’t be an investor and go to the consumer forum. Your builders harp on the fact that you are not a consumer and that you are an institutional Investor. Hence, you have to pack your defense in such a way to prove you are a consumer and not an investor. The best compensation you get is from NCDRC. Other forums are not that great with the interest percentage; they can go as high as 18%, and the bare minimum is 10%.
Coming to insolvency, the code started in the year 2016. There were a bunch of matters.
First, the court dismissed the home buyer’s issues saying these are not homebuyers; these are not financial creators then went to appeal. In the appeal, it was decided that these are investors, and that took six months out of 2017, later the code was amended to bring home buyers into the quorum of Financial creators, but builders challenged it, so that’s another 6-8 months in 2018. In 2019 it was going well, and it became the primary place where home buyers could go for remedy. Then came another amendment which said that 10% or 100 homebuyers could go at once and not below that. The amendment was rechallenged, and due to the lockdown, we are looking at another 9-10 months before it is decided. Now you have a threshold of 1 crore applicable in new matters and not the old matters that will also be a challenge because now you have to bring 10%, which will be around odd 100 buyers together to file a single case, and you will have a threshold limit. According to our understanding, if there are five people and their Investment together crosses one crore, you have a good case in NCLT. We are safeguarded for now, but we don’t know where the adventure will go from here.
Thirdly there is the Real Estate Regulatory Authority [RERA]. All states have their tribunals. These are good tribunals. You have online filing and all the provisions that a new court should have. There is not much time wasted in the evidence stage. You file the complaint. There’s a reply. You can file the rejoint and adjudicate the matter. It takes around 3 to 6 months for the final adjudication. The issue there is the recovery certificate part; once the court passes an order, you have to wait around 45 days for the recovery certificate. It’s easy to execute recovery certificates for a few good builders. Still, if the builders run away fraud, then it’s tough to get a recovery certificate executed. So these are the issues in all three forums, and these are the choice in forums. Every place has its pros and cons, and I think it is up to the lawyer to tell them about the case, which is a good place to go to.
What can homebuyers do differently now? What changes has the lockdown brought?
Insolvency Code has been diluted to a vast extent. Currently, except for RERA doing online hearing, the other two forums are closed for them. So, I would suggest that if you have an urgent need for money it would be best if you chose RERA. If you want to fight it out, go for better interest rates, better compensation, and go to either NCLT or Consumer Forum if you can wait it out. RERA will also take some time more than the usual time it used to take. RERA is coming up with a few amendments to safeguard builders instead of buyers, which might be an issue in the future. However, what they have done is that this default period of lockdown, whether or not they will consider it a default for the grant of relief, is awaited right now. We don’t know for sure how they are going to react to it. They are currently hearing out the old cases and doing everything that needs to be done, but for the new cases there might be a bit of a shocker value. So what we are suggesting to clients right now is that you team up and go to 2-3 forums at the same time. If the builder has defrauded you or delayed possession based on wrongful advertisements and marketing, then you have a criminal case made out. You should file a criminal case as well, and along with that, you can either go to RERA or NCLT if you complete the 10% or 100 homebuyers case. So, in that case, you do two things at the same time. Don’t worry about the money part because whatever the lawyer charges are 1 or 2% of the investment, so it doesn’t matter. I think you should go to 2 or 3 forums simultaneously and then try to corner the real estate builder.
You have discussed a bit about the suspension of IBC. Can you also elaborate a bit more on how the suspension of the code will affect the rights of the homebuyers and in what manner?
The suspension of the code is for a brief period of 6 months, starting from the 25th of March. Now, let’s say I’m a homebuyer and had a property ready for possession in April 2020. I knew that the property was not going to be prepared by then. I was looking forward to filing a case and getting money out of this Investment. In this case, the NCLT doors are permanently closed is what the interpretation is for now. This default between this lockdown period will never become a default under the insolvency code. You can never file a case for someone who had the possession between March to June. NCLT has perpetually closed doors for people who had just about to have that default in March to June. Currently, there is a challenge in the amendment made before the Supreme court, and we are hoping for the best.
How can homebuyers execute the order they received from a particular judicial forum?
In any consumer forum, once you get an order from the court, the builder will not pay you directly. He will go for an appeal or file an execution. The execution of the order is filed in the same court where the order is passed, and then you either wait for the attachment of his property or the attachment of his bank account by the court.
We have had cases in which the builder had gone entirely bankrupt with no assets or properties, so this execution matter has been going on for no reason for quite some time. We don’t know where to go from there. When you get an order from any court, you become a decree-holder. Once you are a decree-holder, you can go to the insolvency court as a separate class of financial creditors of decree holders. This has not been decided till now, and we are awaiting the decision of the Supreme court and NCLT regarding the status of a decree-holder as a financial creditor. Although we don’t have an answer right now about the interpretation that the court will take, I think in due course of time, we’ll know.
When you get an order, you can go to NCLT with that decree of yours or obtain the recovery certificate. You can go to the district magistrate’s office where he or a recovery officer appointed by him will take care of attaching the property, bank account, etc.
The Jurisdiction of the three forums appears to be overlapping. Could you brief us on the same and how the relief given by each forum is different?
The suits instituted in NCDRC and RERA are money suits where you ask for a specific prayer of refund of money while NCLT is a specific jurisdiction altogether, and if you succeed in the case, then the company goes to insolvency. So in the majority of real estate cases, the builder generally settles with the homebuyer. Only in a few instances where there has been a considerable amount of fraudulent transaction, and the builder has no money to settle the buyer will the company go into insolvency.
Can a Homebuyer approach RERA and Consumer forum at the same time?
No, RERA is very specific about this. If you have already filed a case in the consumer court, they won’t accept a complaint under RERA. Even during the online filing, you have to submit an affidavit stating that you have not filed any other complaint.
However, you can have several cases and still go to NCLT because it’s an insolvency jurisdiction. Hence, no other law is over this law.
When can homebuyers give a criminal complaint, and how much time does it usually take?
All the cases where the builder had false advertising and marketing and even for cases where you did not get the possession on time, you can go to a criminal court and get a case registered against them. You can’t have a time frame because when the matter is informed to the police, the charge sheet could be filed in 90 days, 120 days, or it could not be filed at all and then you have to go to court. If the FIR is registered, the charge sheet will be filed, and it will then take some time to investigate, attach properties, etc., and the police will take a few months. The charge sheet once filed. The accused might be absconding and has to be arrested. Like that, a lot of things can happen, and so you can’t have a fixed time frame.
How effective can Civil-suits, Arbitration, conciliation, and mediation be for Home-buyers?
In civil suits, there is a prolonged evidence stage, which takes a lot of time. A civil suit is something that you can opt for, but most builder agreements have an Arbitration clause. So first, you need to be satisfied that you can go to a civil court. In a civil suit due to the prolonged evidence stage and the order to be passed, we are looking at 3 to 4 years. Even after an order is passed, you have to file an execution petition and get the property attached, which can take another 2 to 3 years.
Regarding arbitration, we don’t suggest arbitration because, in the olden days, the arbitrator was appointed by the builder, and the arbitrator was not always sincere and sometimes biased. This has changed, thanks to a few judgments, and now the arbitrator is appointed by both parties. However, still, the arbitration fee is very high in comparison to any other forums. The maximum you pay in a consumer forum is Rs 4000 court fees, for NCLT it is Rs 25,000, but it can be divided between all the investors if they are filing the case together, for RERA it’s only 1000 rupees. The Arbitration fee would be around 1 or 2% of the property’s total price or the amount you are claiming, the same goes for Civil suits. The bigger the property, higher the court fee. Regarding mediation, if it works out will be great, but it’s still in a nascent stage right now.
Can a case stand in Consumer forum or RERA if the arbitration clause in a contract between the builder and the home buyer is bypassed?
Yes, the case in the Consumer forum or RERA will stand even if there is an arbitration clause. It can be easily bypassed. There was a judgment by the consumer forum, which states that if a builder tries to initiate arbitration, you have the right to go to a consumer forum, so you can choose not to appear before the arbitration forum.
How can lawyers be of help to expedite the lengthy proceedings of the court?
The duration of the court proceedings can depend on a lot of factors, but what a lawyer can do is, be proactive and ensure that the builder is not trying to delay the proceedings, which is also not entirely under the control of the lawyer. Still, it’s one of the things he can do. One other thing a lawyer should do is stick to a forum; then again, at times, you can’t help it but always try to take a conscious call on which forum is better.
If there are no bars on using multiple forums, why not use all of them and pressurize the builder into a settlement?
You can do that. There is no bar on it. If there’s a massive fraud that is happening, you should go to the criminal court along with the different forums, and one day, the builder might get tired and want to settle with you. The builders, in most cases, love litigation; they have a lot of paneled lawyers. For example, imagine I have invested one crore with a builder, and this guy is asking me for a return. If I delay it for 36 months, then I get a good amount as interest from that Investment itself before refunding that money. By that time, the home buyer himself will be tired of litigating. He’ll be happy with the low-interest rate or no interest rate. So if you want to fight it out, you go to multiple forums.
According to you, in which places are lawyers indispensable as far as cases with homebuyers are concerned, and how can legal, due diligence help the homebuyers?
From an investment point of view, lawyers can help before the investment as well, only if 90% of my clients had approached me before making the investment. A small fee for due diligence would have saved them from spending lakhs of rupees. The builder will say that he has the necessary provisions. He has everything needed and you don’t need to worry about it. But in reality, that is not always the case. Something I have noticed with some homebuyers is that they are happy to pay lakhs to a builder but not very happy to pay fees to a lawyer. Lawyers can start from the very first phase of due diligence by making a due diligence report on the property that the builder wants to invest on and then of course throughout the period, things like whether the construction is happening, has he applied for the occupancy certificate, has he applied for the necessary permissions, sanctions, approvals all of that. Many builders offer a possession quite early without getting any of the required documents, and some of the buyers are gullible enough to accept it. This is a problem a lot of buyers have faced for a long time in the past. They will continue to face it if they don’t approach or take into consideration that a lawyer’s advice should be from the beginning and not at the end when the money is stuck.
The two different forums where a class action suit works out are the NCDRC and NCLT. The NCDRC in which you can file a case under section 12(1)(c) of the Consumer Protection Act. In this case, the court orders you to publish a notice in the newspapers, and this allows a lot of people to follow up and implement in the case. In the case of NCLT, where there is a 100 person or 10% threshold to the number of people, there have been cases where the 10% threshold had been met. In those cases, they used Instagram, Facebook pages, WhatsApp, Telegram to connect to more people. Social media allows people to team up and go against the builder.
Are there specific formats to be followed for filing a complaint to these forums?
UP RERA has an online form that you need to fill up, Haryana RERA has a proper petition that you need to make for NCDR. Also, there is an appropriate petition that you need to make.
Only for UP RERA can a homebuyer file his case. For other forums, you need a lawyer because you don’t know what pleadings to have. Even for UP RERA, in that matter, you can file the case online. Still, I’d suggest taking up a lawyer because you eventually have to go to a lawyer for his services, so why not give it to him/her in the first place.
All the financial properties are already subjected to due diligence by the bank. What is the need for a lawyer in the first place?
Do not trust banks. I’ll tell you about a fraud which happens which is so massive yet not reported. The process is called profile funding. It happens when let’s say I have a good cibil score, and I have a good profile for banks to give me loans, so what they do is banks partner up with builders to give loans to buyers who are investing in their project. In this case, there are people with good profiles. Their brokers will get to these banks. They’ll allow these banks to issue loans of crores of Rupees, and the money goes directly to the builder. The buyer receives around 5-8% of that total money, and all the EMI’s are paid by the builder. He does that because the interest rate for a home buyer loan is 8% or less, while the interest for a loan taken by a real estate builder is more than 15%. So he prefers this illegal route to get loans and raise money from the markets. If banks were good with their due diligence, they would not have issued such loans. We have had 20-30 of our clients who had gone through the same phase. Initially, the EMI’s were paid by the builder now the builder has defaulted, and now their cibil score is gone, they have cases in DRT, they have check bounce cases from banks. So it would be best if you didn’t blindly trust the bank branch, and you should do excellent due diligence work when it comes to giving loans to builders.
According to you, what is the most active forum?
The most effective for me has always been NCLT. The 2nd would be RERA, and if you are not in a hurry and want more significant interest, then I would suggest NCDRC.
What to do if you are stuck in a profile funding case?
If you are stuck in a profile funding case, you can get an injunction from the court for not paying the EMI; then, you can go to either RERA or NCLT. In a profile funding case, you have to go to the criminal forum, RERA or NCLT and thirdly get an injunction from the court saying that I can’t pay the bank EMI’s anymore.
DRT is involved when you have defaulted on a bank loan; this applies to a lot of profile funding cases where the loan has been defaulted either by the homebuyer or the builder.
DRT is a dangerous forum because if you don’t appear on time, they can attach your personal properties.
Where do you think these forums can improve for smooth and speedy disposal of the cases?
NCDRC was initially pretty good, dates were given for 3-4 months at max, and they were really against builders and pro homebuyers. But because of the number of filings, they now have to provide dates after 9-10 months. What they can do to surpass this is:
(i) Get more judges (something the Government has to decide).
(ii) Get rid of the whole evidence stage because RERA and NCLT do not follow it. Instead, have a complaint, a reply, and list it to a final argument.
(iii) Have a timeline and decide that within a year, we have to decide that matter. There was a Supreme Court petition which was filed, which ordered NCDRC to decide on a manner in which they can run the business smoothly and in a better way.
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