Does RERA order to Xander safeguard Serenity Victims?

Mumbai, 28th March, 2018: It appears on the face of it, that MahaRERA order on Xander's interest in Bhagtani Serenity dated 16th March safeguards the interests of Serenity allottees. Mumbai Mirror interpreted the order in a positive way, and said, "Maharashtra Real Estate Regulatory Authority... ruled that Xander Finance... will have to protect the interests of the home buyers." Is this positive interpretation 100% correct, 50% correct, or only 10% correct?

Before we start searching for answers to this question, let us acknowledge the efforts of Trivesh Pooniwala and other Serenity victims, and Adv Tanuj Lodha who ably represents them. This article is not intended to belittle their efforts and achievements; indeed, it is meant to support them in their quest for justice.

It appears that on the face of it, RERA judge BD Kapadnis has passed an order in the interests of Serenity allotees. But bear in mind that jo dikhta hai, woh hai nahin, aur jo hai, woh dikhta nahin hai. In the legal world, impeccable people like Dharmaraj Yudhisthir make dubious pronouncements that sound like, "Ashwattama hato -- narova kunjarova, Aswattama is dead -- be it man or elephant."

Serenity matter will almost certainly land before the High Court in the near future, and this order will almost certainly be cited. So we need to worry about the possibility that this MahaRERA order can be interpreted in ways that are favourable to Xander Finance and/or the builder who buys Serenity project in an auction or direct sale.

How things can play out -- a pessimistic picture

Imagine that two months later, a builder called Mogambo Constructions acquires Serenity through a transaction with Xander that MahaRERA clearly doesn't want to look into, as per the present order. Mogambo issues a public notice in a prominent newspaper inviting any persons having interest in Serenity project to contact them with all necessary documents within one month. Naturally, all Serenity victims will submit their allotment letters and proof of payment to Xander, and they will assume that Mogambo will soon approach RERA and declare that he has 389 allotees who he will allocate a flat. But imagine their astonishment when Mogambo declares, quite truthfully, that not even one single registered agreement has been presented to him, and therefore, he will complete the Serenity project exactly as it stands on the MahaRERA website today, i.e. with one building consisting of 86 flats and zero allottees! He can then proceed to sell the 86 flats at the current market price, and make a neat profit! Mogambo khush hua! And MahaRERA will flatly refuse to issue any injunctions against such transactions, arguing that there are absolutely no legal grounds for doing so!

You may ask: Is this possible? Yes sir, it is entirely possible. Because the present order of MahaRERA and Circular no 11 of 2017 can be read and interpreted in ways that would enable such a scenario!

Such a scenario is not inevitable, but Serenity victims should take adequate legal steps to prevent it from happening. Therefore, you need to understand what exactly Mr Kapadnis has said in his order.

In his order, Mr Kapadnis says: 

"7.... I am convinced that since the transfer of the ownership of the project has not taken place, it is not necessary for respondent no. 2 to make application for correction in the existing registration details. Respondent no. 2 cannot be restrained from exercising their legal rights conferred by section 13 of SARFAESI. Therefore, no injunction at this stage can be passed against them.

"8. I hope and trust that when the ownership of the project shall be transferred under sec. 13 to a third party or if it is retained by respondent no. 2 themselves, they shall follow the procedure laid down by Circular No. 11 of 2017. It is needless to mention that the new promoter acquiring assets will acquire the assets with all the legal liabilities of the promoter attached to the said project. Therefore the interest of complainants created in secured assets by the promoter will have to be protected by such third party or respondent no. 2 as the case may be. With this clarification, the following order: ORDER

"Complainants' prayer for interim reliefs including injunction is hereby rejected. The respondent no. 2 being interested in the project property, is a proper party. They may continue in the matter as the respondent no. 2, if they so desire."

Now let us dissect the order phrase by phrase. Let us understand what part of this order is actually "order" i.e. the operative part, and what parts are just introductory. And let us understand what interpretations can possibly emerge.

Reading between the lines

1) "With this clarification, the following order... ORDER..." Interpretation: Whatever is written BEFORE these words has no force in law. You can neither go in appeal against what is written in those words, nor press for execution of those words in any judicial forum, nor file a case of civil contempt if those words are not obeyed or complied by Xander Finance or any other party. Those words are only there for showing the High Court that Kapadnis has applied his mind to the particulars of this case, so that no one can allege that he has passed an unreasoned order.

2) "Complainants' prayer for interim reliefs including injunction is hereby rejected." This operative part is with reference to these lines in the second paragraph of the order, "The complainants have been praying relief for restraining the respondent No.2 from transferring the said properties pending the complaint as the respondent No.2 has not taken the consent of 2/3rd allottees and approval of MahaRERA as required by Section.l5 of RERA." Interpretation: (a) all contentions of the complainants are rejected (b) Xander is not restrained in any respect, it is free to take any action whatsoever.


3) "The respondent no. 2 being interested in the project property, is a proper party."  This part of the order is arguably the only tangible gain for allottees in the entire order. Interpretation: MahaRERA has jurisdiction over Xander in the matter of Serenity, even if no directions are passed against Xander for the time being.

4) "They may continue in the matter as the respondent no. 2, if they so desire." Interpretation: It is not necessary for Xander to send a lawyer henceforth, as no further arguments concerning Xander will be entertained. Future hearings in this case will only be about seeking refund of booking amounts from Bhagtani.

5)  "I am convinced that since the transfer of the ownership of the project has not taken place, it is not necessary for respondent no. 2 to make application for correction in the existing registration details." Interpretation: (a) MahaRERA isn't necessarily acknowledging that the registration details of Serenity on its website are wrong and misleading, and it is saying that even if wrong details were given by Bhagtani, Xander need not and should not correct them. (b) MahaRERA is saying that the present description on the website will be allowed to stand uncorrected until after Serenity is transferred or sold. The RERA website currently shows this:

According to RERA website, Serenity project has only one building consisting of 86 flats and zero allottees, although Bhagtani's affidavit before High Court talks about 389 allottees. (c) This line of the order may enable the project's buyer (i.e. a builder) to claim that he purchased Serenity land with permissions for 86 flats and zero allottees, and therefore no legal liabilities towards 389 allottees. (d) On the other hand, Adv Tanuj Lodha argues that this order is itself a future safeguard against any builder being able to claim this. Through this RERA case and its order, Xander has been forced to adopt a legal position that there are at least 21 allottees, if not many more.

6) "Respondent no. 2 cannot be restrained from exercising their legal rights conferred by section 13 of SARFAESI. Therefore, no injunction at this stage can be passed against them." Interpretation: MahaRERA is not imposing any conditions on Xander for taking over, transfering or disposing off the Serenity property in any way it likes. If allotees are deprived of their rights through this process, MahaRERA will wake up only after the fact.

7) "I hope and trust that when the ownership of the project shall be transferred under sec. 13 to a third party or if it is retained by respondent no. 2 themselves, they shall follow the procedure laid down by Circular No. 11 of 2017" Interpretation: (a) This line should not be mistaken for an order or injunction, it is only a hope expressed by Kapadnis. (b) The "third party" or Xander can ignore the circular with no adverse legal consequences, as it is merely a procedure, not a law or a rule. Kapadnis appears to be going out of his way to stress that his direction has no force of law. 

8) "It is needless to mention that the new promoter acquiring assets will acquire the assets with all the legal liabilities of the promoter attached to the said project." Interpretation: (a) This should also not be mistaken for an order, it is just a casual observation. (b) The term "legal liabilities" is pregnant with meaning. A registered sales agreement would have created a legal liability, whereas a letter of allotment creates a liability with doubtful legal enforceability.

9) "Therefore the interest of complainants created in secured assets by the promoter will have to be protected by such third party or respondent no. 2 as the case may be."  Interpretation: (a) If this line were in the operative part of the order, it might possibly have created a legally enforceable protection. Unfortunately, it is in the clarificatory part, not the operative part. (b) This statement may give a false sense of security to Serenity allottees. If they are lulled into inaction, they may face a rude awakening after the property is sold to a builder.

Key difference between registered agreement and allotment letter

One may argue that the legal validity of an allotment letter accompanied with proof of payment is almost the same as that of a registered agreement. But ask yourself: Will the rights of a flat buyer who has paid nothing to the government stand at par with another who has paid stamp duty of 5% plus registration charges? If so, it amounts to devaluing the importance of stamp duty and registration in the scheme of things. In law and judiciary, a registered agreement is like a proper registered marriage, and an allotment letter is like an engagement. A divorced wife will get maintenance and alimony  whereas a cheated fiancee will not, even if both women are equally fucked-up! In the famous words of Paro the prostitute in Devdas, "Ek chutki sindoor ki keemat aap kya jaano, Ramesh babu?"

What exactly does the circular say?

Circular no 11 of 2017 outlines the "Procedure for transferring or assigning promoter's rights and liabilities to a third party". It says, "Within seven days of the transfer being effected by the Financial institution or creditors, such Financial institution or creditor shall intimate to each of the Allottee(s) and Secretary MahaRERA on secv@maharera.mahaonline.gov. in of enforcement of the security which has resulted in the transfer of the ownership of the promoter organization or transfer ol the project. The Financial Institution or creditors (acting as new promoter) or new promoter (appointed by such financial institution or creditors) shall then apply for necessary corrections in the existing registration details. New Promoter shall also upload required supporting documents in its name like land title, building plan approval etc., upon obtaining the same from time to time. While making such application for correction, the new promoter shall upload on the website of RERA, a registered undertaking stating that they shall comply with all the obligations under agreement of sale executed by the erstwhile promoter with respect to the Allottee(s) of the project and has assumed all the obligations of the erstwhile promoter under the Act."

This circular clearly mentions "agreement of sale executed by the erstwhile promoter with respect to the allottees. The lawyers of Xander Finance or Mogambo Constructions can interpret this as meaning that they need not comply with allotment letters issued by the erstwhile promoter.

Yes, the circular also mentions "all the obligation of the erstwhile promoter under the Act", but it is necessary to remember that such broad phrases are subject to endless interpretations and judicial haggling. It can be argued that the term "obligations" refers to the entire Chapter III of RERA Act, and nothing else! Please try to pinpoint the exact section that requires Mogambo Constructions to give flats to the cheated victims of JVPD Properties, and you may discover, with shock and horror, that there isn't such a section!

And that is why we are saying, Darna zaroori hai. 

ISSUED IN PUBLIC INTEREST BY
Krishnaraj Rao
krish.kkphoto@gmail.com

9821588114