Real Estate

30May

The Builder-Buyer Battle for Real Estate: Deciphering Post Covid-19 Psychology

[Authors are advocates, Krishnamohan K Menon, Managing Partner in Mimansa Law Offices, Advocate on Record Supreme Court of India, Chaitanyashil Priyadarshi, Partner and Somya Jaitley, Associate] INTRODUCTION 1. Since the early 2000s, the Real Estate industry in India started seeing significant changes. Now with multiple players, mushrooming projects, billboards, and advertisements offering myriad schemes with near impossible return promises, real estate seemed to be the magical stairway to financial heaven. Some industrial players were seasoned while many were wide-eyed rookies with a taste only for short term profit. Thelatters’ funds were mostly cash routed and dubious and the fund application was even more so. While the offers were tempting to the buyer, the contents of the contract usually secured the builder and builder alone. The offers were grandiose, but promises were seldom kept and clearly siphoning was the norm. Consequently, the number of delayed & incomplete projects far outnumbered the timely delivered ones. 2. The good old saying goes- “if it seems to be too good to be true, it probably is”. That is exactly what happened to a majority of the investors who went ‘all in’ with their investments into such schemes; most came out with their fingers burnt. Some builders claimed that this collapse was triggered by the radical Governmental interference in the form of the Regulatory law RERA, tax revamp by way of GST and the so-called demon of Demonetization. Subtly though, some builders also accepted that this was the consequence of crony capitalism and the bubble burst was bound to happen one day or other. Whatever be the reason, the real estate economy went on a downward spiral and continues to do so. 3. The buyers now faced their biggest challenge- enforcement of their rights in the middle of a tailspin. The Consumer Forums, although liberal in terms of relief, could not offer any expeditious solutions. It is interesting to note that for a forum which is expected to dispose of cases within a year, the National Commission was granting adjournment dates in excess of twelve months. RERA grievance redressal mechanism, although seemingly promising, was not effectuated timely and was not functioning efficiently. Project restructuring seemed a farfetched dream with the banks rolling down the shutters. 4. The only glimmer of hope for the buyers seemed to be the Insolvency and Bankruptcy Code, 2016, which after protracted litigation and multiple amendments recognized the position of property buyers as ‘Financial Creditors’[1]. This conferred upon the buyers the power to trigger Insolvency proceedings under Section 7 of the Code against the Real Estate Company. For the first time, panic set in amongst the builders. Not only was this a summary and expeditious proceeding, an unsettled claim of debt would result in replacement of the management and investigation into the affairs of the Company. 5. The consequences were Bipolar - on the one hand there was expeditious settlement of claims (either by way of refund or delivery of alternate property) and on the other, many a Real Estate  Company shut shop and resigned to Insolvency. Although the revival of the Companies Post Insolvency was a rarity, the interference of the Hon’ble Supreme Court in a few cases saw a revival of some projects and restoration of some degree of sanity amidst the chaos. THE BATTLE 6. The builders, not used to this treatment, protested. What followed thereafter, was a contest worthy of a movie script: i. Round 1 to builders:The amendment to Section 7 of the IBC, which gave the buyers the Status of Financial Creditors, was challenged by a builder before the Hon’ble Supreme Court in Pioneer Urban’s case[2]. While issuing notice in the matter, the operation of...

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