Is Xander's Serenity Mortgage faulty without consent of Flat-buyers?

Mumbai, 5th Feb, 2018: Lately, a hotly debated topic is: Does Xander have a legally enforceable lien on the project/land of Serenity? Some Serenity flat-buyers are arguing that Bhagtani should have sought the consent of two-thirds of the flat-buyers of Serenity. They claim that RERA and MOFA required Bhagtani to seek the consent of the allottees, and since that never happened, Xander has no claim. To this, they add that they booked their flats first, and Serenity was mortgaged to Xander at a later date, in mid-2015. And from this, they conclude that they have a right and Xander has no right over the project land.

Before we get analyze the merits of this argument, let us take a step back and understand some crucial facts about the judiciary: Civil courts are NOT forums for settling whether you have a certain right or not. You can't get very far if you go to a court and say, "This is my right, that is not his right!" Civil courts, including quasi-judicial bodies such as RERA and Debt Recovery Tribunal, are forums for deciding whether reliefs prayed for may be granted or not, and whether they should be granted or not in your specific case. Debating among ourselves in terms of our rights versus someone else's rights (or about who is right and who is wrong) can lead to us making poor legal choices.

Also, let us understand that the language of our discourse, the underlying assumptions and decision-making processes are critical.  If your advocate or legal advisor seems cocksure that he/she is always right, you should wonder whether you are in safe hands. It is safer to be guided by someone who seeks legal counsel from more experienced and wiser heads, and is open to course correction. Also, wisdom and charisma may not go hand-in-hand; charismatic leaders may be unwise and prone to errors in decision-making. Letting the majority decide is also a dangerous mindset, because the majority is often dead wrong.

Winning in court is not the same as winning an argument. Judges are not there to see who scores the best debating points. To even think in terms of "winning" and "losing" is a huge mistake if you are going to court. Rather, you need to consult and discuss in terms of what reliefs you can seek, and from which forum; and how to maximize your chances getting those reliefs. Also, if you fail to get those reliefs, what can you do next to attain your objectives?

For approaching a judicial forum, the correct ways of framing the issues are:

a) What are the applicable laws in this context? Which specific sections are applicable to us?

b) What is our desired outcome? What is our Plan A? If it fails, what is our Plan B?

c) If we want to execute Plan A, which forum is most suitable? And how to present our issues before that forum? What are the reliefs that we should seek, so that our desired outcome can be achieved.

d) Is it possible to switch from Plan A to Plan B? Is it possible to agitate our issues before Forum A or Forum B, or either, or both (sequentially)? If so, what should our game-plan look like?

Please decide on a legal course of action in a cool, analytical way.

What does Maharashtra Ownership Flats Act (MOFA) say? Click here to download the Act.

MOFA section 9 says, "No  promoter  shall,  after  he  executes  an  agreement  to  sell  any  flat, mortgage  or  create  a  charge  on  the  flat  on  the  land,  without  the  previous consent  of  the  persons  who  take  or  agree  to  take  the  flats,  and  if  any  such mortgage  or  charge  is  made  or  created  without  such  previous  consent  after the  agreement  referred  to  in  section  4  is  registered,  it  shall  not  affect  the right  and  interest  of  such  persons."

In the light of this MOFA section, THREE QUESTIONS:

1) Does even one flat-purchaser of Serenity have a registered agreement of Sale? Even one registered agreement can be a trump card, and it can help us to turn the fight around. Quick, find that person and get a copy of agreement!

2) Can we convincingly argue in court that majority of Serenity flat-buyers paid much more that 20% maximum booking amount stipulated under MOFA, and therefore, for the purposes of the law, the agreement should be deemed to have been registered? Section 4(1) of MOFA says: "4.(1) Notwithstanding anything contained  in  any  other  law,  a promoter  who  intends  to  construct  or  constructs  a  block  or  building  of  flats, all  or  some  of  which  are  to  be  taken  or  are  taken  on  ownership  basis,  shall, before,  he  accepts  any  sum  of  money  as  advance  payment  or  deposit,  which shall  not  be  more  than  20  per  cent.  of  the  sale  price  enter  into  a  written agreement  for  sale  with  each  of  such  persons  who  are  to  take  or  have  taken such  flats,  and  the  agreement  shall  be  registered  under the  Registration Act,  1908  and  such  agreement  shall  be  in  the  prescribed  form." Since MOFA casts a duty upon the builder to register the agreement after receiving 20% of the consideration value, his neglect of that duty cannot be interpreted as giving him the freedom to mortgage the project to Xander! 

3) Now that Bhagtani has flagrantly violated at least two sections of MOFA, can we convincingly argue before the judicial forum that it is against judicial principles to allow Xander to profit from such violations? Can we argue that Xander failed to perform due-diligence before taking Serenity as a security for its project loan to Bhagtani? And therefore, the cost of its failure must be borne by Xander and not by Serenity flat-buyers?
The answers to the above questions (no. 2 and 3 especially) may uphold those who argue that Xander does not have a lawfully enforceable lien. If so, then Xander's lien can be challenged. However, practical difficulties arise.


Difficulty no. 1: Appropriate forum for appeal against the order under SARFAESI Act (in favour of Xander) is NOT MahaRERA. Debt Recovery Tribunal (DRT) also may not have jurisdiction in our matter, as we are neither secured creditors nor debtors. An outright challenge to Xander's lien can probably only be filed before High Court, and that also, by means of a civil suit that is precisely worded and reasoned. (Don't even think of a PIL or Writ Petition, because no instrumentality of State is involved in our cause.)

Difficulty no. 2:  Appeal against Xander's proceedings under SARFAESI Act may already be time-barred, owning to our inaction till date. Or maybe not. We need to check the Act and rules to understand this. Secondly, while litigating for assets, one is typically required to deposit some percentage of the asset value with the court, to rule out a frivolous and vexatious claim to such assets. Suppose the asset is worth Rs 50 crore, are Serenity flat-buyers willing to deposit 10% i.e. Rs 5 crore with the court? And finally, high court litigation for assets etc. is generally costly. Do people have the stomach for a prolonged and costly legal battle against Xander? If or when the time comes to raise such amounts, can they be relied upon to participate?

Difficulty no. 3: Let us assume that the best-case scenario happens, i.e. Serenity flat-buyers get a favourable order from Bombay High Court and even Supreme Court within one year, does it mean that the land automatically belongs to Serenity victims? No, because overturning the SARFAESI order does not automatically give Serenity flat-buyers title and possession over the project land. To get the land, appropriate proceedings will have to be taken up before MahaRERA, to invoke RERA section 18 and take over the project land from Bhagtani. This will not necessarily be a cakewalk.

Difficulty no. 4: Again assuming the best case scenario, Serenity buyers' association will have to take physical possession of the project land with all its shortcomings (reservation, etc.), and then either sell it and monetize it, or give development rights to a builder to construct flats and give it to the allottees. Do we know what the land is really worth and how much FSI it has? It may be desirable to engage with an architect or Project Management Consultant to understand the value of the land before entering into legal battle.

The main point of this article is to strengthen the hands of some flat-buyers who are applying their mind methodically to the issues. There is some food for thought for the serious-minded. Winning arguments on WhatsApp groups may not help you take the right legal decisions for recovering your losses.

One hears a lot of I-want statements like, "I don't want a flat after many years, I want my money back! With 15% interest! And with compensation on top of that! And I want it NOW, not after years of fighting in court! What do I have to do with Xander? I don't know Xander! I gave my money to Bhagtani, and I want it from Bhagtani! Why should we go after Xander and let Bhagtani go scott-free? That is exactly what Bhagtani wants!" People who apply their mind in this way should consider writing off their losses, because they may not be psychologically suited for a legal battle.

Bottomline: The current default position is that Xander has a legally valid lien over the Serenity project, unless proven otherwise. Proving otherwise may not be easy. Establishing the legal rights of allottees within the framework of that default position would be relatively easy. Let us look at MOFA section 9 one more time, and focus on the second part: "No  promoter  shall,  after  he  executes  an  agreement  to  sell  any  flat, mortgage  or  create  a  charge  on  the  flat  on  the  land,  without  the  previous consent  of  the  persons  who  take  or  agree  to  take  the  flats,  and  if  any  such mortgage  or  charge  is  made  or  created  without  such  previous  consent  after the  agreement  referred  to  in  section  4  is  registered,  it  shall  not  affect  the right  and  interest  of  such  persons." If the judiciary can be persuaded to overlook the bit about registration of agreement (because it was the builder's default, not ours), and to consider the allotment letters in place of agreements, then the rights and interests of allottees will remain unaffected by Xander's mortgage. This means that no matter which builder Xander sells the project to, the rights and interests of the allottees will have to be honoured by him. 

Krishnaraj Rao


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