Courts have been upholding the rights of customers in case after case and real estate developers who have taken their money — life savings and future earnings in most instances — are finding that justice can be harsh, perhaps even terminal.
Supreme Court lawyers, the best of whom represent the industry, say companies are battling a slowdown and a liquidity squeeze and could find themselves getting buried as rulings go in favour of home buyers.
Senior advocate Kapil Sibal articulated these concerns recently as he pleaded with the top court not to order a company to refund all those who wanted to exit a project. Sibal has represented Jaypee Group and Unitech, both of which have taken money for projects that are running years late.
“We will be over, finished,” he said. “It will only prompt a run on the company. We will sink. Who will it help?” Instead he sought more time to complete the projects so they could be delivered.
“If you have taken money, deliver or pay back. You cannot run off with the lifetime savings of a person,” he’s said. “Either give him a roof over his head or give back his money so he can buy elsewhere.”
Realty developers say some projects got stuck over environmental clearance or issues beyond the their control, making it difficult for them to service loans. They also hold local authorities, especially in the National Capital Region, to blame in some instances.
“The builders are not the only ones to blame for the mess,” Supertech lawyer R Chandrachud said. “There is a genuine liquidity squeeze, with the government cracking down on black money. Not every builder gets a loan from the banks. Some of it is from the private sector and individuals…at very high interest rates.”
In some cases, increased compensation for land acquisition was passed on to developers. Chandrachud cited the example of a Supertech project in Noida that ran into trouble despite getting all approvals.
“This is because the Noida authority read the rules and bye-laws in one way and the builder in another,” he suggested. The authority should have conducted surprise inspections to ensure that construction was along the lines of what it wanted, instead of waking up later, Chandrachud said.
Senior advocate ML Lahoty, who has fought cases for buyers, begged to differ. He contests the claim that real estate majors don’t have money. “In some cases, buyers have paid 95 per cent of their money. Where has it gone?”
He accuses the industry of deliberately delaying projects to profit from the mismatch between what it has to pay customers for delays — less than 1 per cent penalty – and what it can charge from buyers for late payment — 18 per cent. “So they don’t build projects, they build their business,” he said.
All lawyers agree that the sector has to take corrective measures and adopt best trade practices to tide over the storm. One such suggestion came from the Delhi High Court last week – set up escrow accounts and deposit funds separately for every buyer.
ATS, for example, one lawyer said, was a success where big players have failed because it finishes one project and moves on to the next. The big ones spread themselves thin and scramble for funds. “These are the ones which will be hit big time and may even sink,” the lawyer said.
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