Karnataka High Court
M/S Nestoya Homes Pvt Ltd vs M/S Orchids Elite Developers Pvt Ltd on 5 July, 2024
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
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Reserved on : 21.06.2024
Pronounced on : 05.07.2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 05TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.21496 OF 2023 (GM - RES)
BETWEEN:
M/S. NESTOYA HOMES PVT. LTD.,
A COMPANY REGISTERED UNDER
THE PROVISIONS OF COMPANIES ACT, 2013
HAVING THEIR REGISTERED OFFIC AT:
NO.589, 1st FLOOR, "C" BLOCK
AECS LAYOUT MAIN ROAD,
KUNDANAHALLI, BENGALURU - 560 037.
REPRESENTED BY ITS
AUTHORISED SIGNATORY
MR. VIJAY KUMAR R.,
... PETITIONER
(BY SRI ANIL RAMACHANDRA, ADVOCATE)
AND:
1. M/S. ORCHIDS ELITE DEVELOPERS PVT. LTD.,
REGISTERED UNDER COMPANIES ACT, 2013
(FORMERLY KNOWN AS
PRISHA PROPERTIES PVT. LTD.,
2
HAVING THEIR REGISTERED OFFICE AT
NO.820, 80, 8TH BLOCK,
KORAMANGALA
BENGALURU - 560 095.
REPRESENTED BY ITS DIRECTOR.
2. M/S. HANGING GARDENS NAGAWARA FLAT
OWNERS CO-OPEARATIVE SOCIETIES LTD.,
REGISTERED UNDER CO-OPERATIVE SOCIETY ACT
HAVING THEIR REGISTERED OFFICE AT:
KHATA NO. 312/77/2/1
WARD NO.23, NAGAWARA VILLAGE,
BENGALURU - 562 108
REPRESENTED BY ITS
AUTHORISED SIGNATORY (MANAGER)
SRI ANIL NAVALI.
... RESPONDENTS
(BY SRI K.R.KRISHNAMURTHY, ADVOCATE FOR C/R-1;
SRI ARJUN RAO, ADVOCATE FOR R-2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED ORDER DTD 03.08.2023 PASSED IN
CMP.NO.201224/0007319 BY THE RERA AUTHORITY VIDE
ANNEXURE-A.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 21.06.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
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ORDER
The petitioner-M/s Nestoya Homes Private Limited is before this Court calling in question an order dated 03-08-2023 passed by the Karnataka Real Estate Regulatory Authority, Bengaluru ('the Authority' for short) in CMP/201224/0007319 allowing the complaint filed by the 2nd respondent/Hanging Gardens Nagawara Flat Owner's Co-operative Societies Limited (hereinafter referred to as 'the Society' for short).
2. Heard Sri Anil Ramachandra, learned counsel appearing for petitioner, Sri K.R. Krishnamurthy, learned counsel appearing for respondent No.1 and Sri Arjun Rao, learned counsel appearing for respondent No.2.
3. Facts, in brief, germane are as follows:-
The petitioner claims to be a Company registered under the provisions of the Companies Act, 2013. M/s Orchids Elite Developers Private Limited (hereinafter referred to as 'the Developer' for short) is the 1st respondent and the 2nd respondent is 4 the Society. The issue commences from a project that was sought to be initiated by the Developer for an apartment complex by name 'Hanging Gardens'. The project was initiated by the Developer on 10-03-2011 and commencement certificate was issued on 3-07-2014. Since the project was incomplete as on the date of commencement of the Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as 'the Act' for short), the target completion of the project was restructured to 30-06-2020 pursuant to registration of the project before the Authority. The project was required to be developed into a residential apartment unit consisting of 120 flats which was revised to 132 flats. There was no progress in the project since mid 2016 and the overall project was only complete up to 50%.
4. The Developer, in order to facilitate entire control of the project, proposed to the petitioner to take over the project in the name of partnership firm consisting of the petitioner and the Developer as partners. Induced by the offer made by the Developer to the petitioner, the petitioner sought to take over the project. But the project did not get complete. The Society then 5 knocks at the doors of the Authority by filing the impugned proceedings against the Developer. An order is made on 03-08-2023 permitting remainder of the construction to be taken over by the 2nd respondent/Society in terms the Act. This has driven the petitioner before this Court in the subject petition.
5. The learned counsel appearing for the petitioner would vehemently contend that the petitioner has invested several crores in the subject project, as there is an agreement between the Developer and the petitioner. It had filed an application before the Authority to implead itself as a party respondent. The Authority without answering the said application, has permitted the 2nd respondent to continue with the construction. Therefore, the petitioner becomes an aggrieved party to challenge the order of the Authority before this Court. He would submit that if 4 to 6 months time is granted, the petitioner would complete the project and hand it over to the Society. Even the Society has to take up the construction which the petitioner itself will do. He would seek quashment of the order of the Authority and permit completion of the project by the petitioner.
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6. Per contra, the learned counsel for the 1st respondent/Developer would submit that there is a dispute between the petitioner and the Developer. The very agreement between the two is a product of forgery. Criminal case is registered against the petitioner by the Developer alleging cheating and forgery. Therefore, the Developer is in the same page as that of the petitioner. The 2nd respondent defends the Society.
7. The learned counsel representing the 2nd respondent/Society would vehemently refute the submissions to contend that what the Authority has done is strictly in consonance with law. The project having been defaulted/delayed for over 10 years, the Authority was constrained to hand it over to the Society, as it has suffered greatly for no fault of its.
8. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record.
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9. The afore-narrated facts are not in dispute. Certain dates and events are necessary to be noticed. The project by the Developer was taken up in the year 2011. Number of flats that were projected for construction by the Developer was 132; plan was sanctioned by the Competent Authority in the year 2011 for the project; commencement certificate was granted in the year 2014; even in the year 2016 what was constructed was only a skeleton. Since the Act comes into force in the meanwhile, the project was registered under the Act and restructured from 08-09-2017 to 30-06-2020. No progress took place. On 24-12-2016 the Society was constrained to knock at the doors of the Authority seeking a direction to hand over the project completely to the Home Buyers Association/Society. On 30-03-2021 registration of the project with the Authority expired. It became to be known in the category of "lapsed project". In the application/complaint filed by the Society before the Authority, the Authority grants an injunction and directs non-alienation, restricting the Developer to enter into any commercial agreement with any party. On 31-01-2023 the petitioner files an impleading application before the Authority. After 8 hearing all the parties, the impugned order comes to be passed on 03-08-2023.
10. The 2nd respondent is a Society of home buyers. Home buyers have invested their money in the project a decade ago. The petitioner appears before the Authority and submits that it has proposed a new partnership with the Developer and will complete the project by investing close to 5 crores. A meeting is held with the home buyers Society and the Developer. It is then the petitioner submits a letter to the Authority expressing interest in taking over the incomplete project and files an impleading application to the complaint filed by the Society. Certain analogous arbitration proceedings commence between the Developer and the petitioner which the home buyers are not privy. The Authority on the ground that the project has been marked as "lapsed project" in terms of law hands it over to the Society. Therefore, certain statutory provisions are germane to be noticed. Sections 7 and 8 of the Act are germane to be noticed and they read as follows:
"7. Revocation of registration.--(1) The Authority may, on receipt of a complaint or suo motu in this behalf or on the 9 recommendation of the competent authority, revoke the registration granted under section 5, after being satisfied that--
(a) the promoter makes default in doing anything required by or under this Act or the rules or the regulations made thereunder;
(b) the promoter violates any of the terms or conditions of the approval given by the competent authority;
(c) the promoter is involved in any kind of unfair practice or irregularities.
Explanation.--For the purposes of this clause, the term "unfair practice means" a practice which, for the purpose of promoting the sale or development of any real estate project adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:--
(A) the practice of making any statement, whether in writing or by visible representation which,--
(i) falsely represents that the services are of a particular standard or grade;
(ii) represents that the promoter has approval or affiliation which such promoter does not have;
(iii) makes a false or misleading representation concerning the services;
(B) the promoter permits the publication of any advertisement or prospectus whether in any newspaper or otherwise of services that are not intended to be offered;
(d) the promoter indulges in any fraudulent practices. (2) The registration granted to the promoter under section 5 shall not be revoked unless the Authority has given to the promoter not less than thirty days notice, in writing, stating the grounds on which it is proposed to revoke the registration, and has considered any cause shown by the promoter within the period of that notice against the proposed revocation.
(3) The Authority may, instead of revoking the registration under sub-section (1), permit it to remain in force 10 subject to such further terms and conditions as it thinks fit to impose in the interest of the allottees, and any such terms and conditions so imposed shall be binding upon the promoter.
(4) The Authority, upon the revocation of the registration,--
a) shall debar the promoter from accessing its website in relation to that project and specify his name in the list of defaulters and display his photograph on its website and also inform the other Real Estate Regulatory Authority in other States and Union territories about such revocation or registration;
(b) shall facilitate the remaining development works to be carried out in accordance with the provisions of section 8;
(c) shall direct the bank holding the project bank account, specified under sub-clause(D) of clause (l) of sub-
section (2) of section 4, to freeze the account, and thereafter take such further necessary actions, including consequent de- freezing of the said account, towards facilitating the remaining development works in accordance with the provisions of section 8;
(d) may, to protect the interest of allottees or in the public interest, issue such directions as it may deem necessary.
8. Obligation of Authority consequent upon lapse of or on revocation of registration.--Upon lapse of the registration or on revocation of the registration under this Act, the Authority, may consult the appropriate Government to take such action as it may deem fit including the carrying out of the remaining development works by competent authority or by the association of allottees or in any other manner, as may be determined by the Authority:
Provided that no direction, decision or order of the Authority under this section shall take effect until the expiry of the period of appeal provided under the provisions of this Act:11
Provided further that in case of revocation of registration of a project under this Act, the association of allottees shall have the first right of refusal for carrying out of the remaining development works."
(Emphasis supplied) Section 7 deals with revocation of registration and Section 8 deals with obligation of the Authority consequent upon lapse of or on revocation of registration. The Authority, on a complaint or suo motu, can revoke registration granted under Section 5, if the promoter makes default in doing anything required under this Act. The promoter violates in the terms and conditions of approval given by the Competent Authority. Since the project was termed as a lapsed project, registration that was granted was sought to be revoked by initiating proceedings under Section 7 and taking further appropriate steps in achieving completion of the project under Section 8. Section 8 mandates that upon lapse of registration or revocation of registration, the Authority may consult the appropriate Government to take such action for carrying out the remaining development works. The proviso would indicate that in case of revocation of registration of a project, the Society will have the first right of refusal for carrying out the remaining development 12 works. The Authority noticing all the facts that have led to the registration of the complaint, has passed the order under Section 8 of the Act supra. Now it is germane to notice few paragraphs of the order and they read as follows:
"22. The proposal of respondent promoter started as "release of 71 apartment units that comprises 60 unsold units, 6 pre-EMI scheme units and 5 cancelled units", has never been agreed by the Association of Allottees. With this distribution it is practically not a viable option for the Association of Allottees to take over the project and with so much of customer liabilities.
The complainant Association stated in their memo that they have agreed to take over the project only if 71 unsold units, admeasuring minimum of 1.72 Lakhs Sq.Ft. of saleable area, zero-liability units and fully unencumbered PLUS 45 already sold to existing customer units that includes pre-EMI Scheme units PLUS all of receivables from existing customers in total, 116 apartment units shall be handed over to Association of Allottees. Remaining 16 apartment units, measuring and not exceeding 42000 Sq.Ft. of super built up area or saleable area can be allowed to be retained by respondent/ promoter at their discretion and control, which can help to address the respondent/promoter's liabilities. The Association of Allottees has agreed to post-handover responsibilities as stated by the Respondent/Promoter as mentioned in the above point #3 except (iii) Addressing liabilities for 6 pre-EMI customers. The Association of Allottees had stated in their complaint, post transfer of the project any of undisclosed liabilities, pending bills, statutory payments or any other claims due to Respondent Promoter's past transactions shall continue to be the responsibility of the Respondent Promoter in accordance with the Section 11(4) (g) of the Act.
23. From the materials available on record, it is apparent that the reports submitted by the respondent/ promoter bear the signature of an Engineer but not of a qualified Architect. There are inconsistencies in both the versions of estimations submitted by the respondent/ 13 promoter. On the other hand, estimation reports submitted by the Association of Allottees are supported with detailed workings of quantity measurements and respective cost estimates in greater details. They are prepared and certified by qualified Architect, Civil Engineer and Chartered Accountant. Hence, the estimates are lots more convincing although they appear to be on the higher side. Considering spiraling inflation and specifications promised to the customers which are on record, the estimates prepared and submitted by Association of Allottees are acceptable.
24. On going through the quarterly updates it is apparent that at the time of registration of project in the year 2017 out of total 132 units 45 were sold and 87 were unsold. As per quarterly report of Q4 of 2019 i.e., January 2019 to March 2019 it is reported as 51 units were sold and 81 units were unsold. In Q4 of 2021 i.e., Jan 2021 - Mar 2021 it is reported as 55 sold and 77 unsold. In Q1 of FY 2022 i.e., April, 2021 - June 2021 and all subsequent Reports the inventory reported as 65 units sold and 67 units unsold. It is pertinent to note that the Act mandates all registered projects with the Authority to follow the provisions of the Act and Rules in letter and spirit. Section 3(1) states that "No Promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building as the case may be, in any real estate project or part of it, without registering the real estate project with the Authority established under the Act". Hence, having Project Registration expired on 30-03-2021 including COVID extension, the Respondent Promoter has not taken any steps to get extension of the registration of the project with the Authority. Further, it is apparent from the CA certificate for quarterly update the unsold units as on to-day stands 67.
25. During the proceedings on 30-01-2023 the respondent/promoter has submitted before the Authority that they are willing to hand over the said project to the complainant Association. As per registration before RERA the respondent/promoter was supposed to complete the 14 project in June 2020 and with COVID extension in March, 2021. As already discussed above, he has failed to complete the project within stipulated period. With regard to the Revocation of Registration prayed by the Association of Allottees, the Authority has evaluated in the totality of facts and circumstances of the case and the failure on the part of the Respondent Promoter in complying with the duties and obligations as per provisions of the Act. Defaults attributable to the Respondent Promoter include non-completion of the project even after seven years after entering into agreements with the allottees, not achieving requisite progress after the registration of the project with the Authority, non-compliance with the provisions of Section 4(I)(C) and in addition the Quarterly updates as per Rule 15(D), unsatisfactory submissions with regard to the utilization of the amounts collected from allottees before reporting becomes due. Having regard to the defaults on the part of the Respondent Promoter in achieving the project progress commensurate with the amounts collected from the allottees of the project and hardship caused to the allottees consequent to the promoter's failure in taking effective steps to complete the project over a period of 7 years. It is pertinent to note that initial registration of the project was for a period of 3 years commencing 08-09-2017 ending with 30-06-2020. On account of COVID-19 extension certificate issued for this project and registration ended on 30-03-2021. These relevant facts also indicate that the registration of the project has lapsed with effect from 30-03-2021. The progress achieved is till date stated to be almost same while registering the project in 2017. The Authority has taken into consideration the relevant facts such as no significant further progress in the project, since the time of registration of the project. The facts of the case clearly indicate that the defaults attributable to the Respondent Promoter are significant and have cumulatively impacted the project and consequently the allottees have been subjected to severe hardship. Such events and circumstances do form substantive basis for initiating the proceedings u/s 7 of the Act and taking further appropriate steps achieving project completion in accordance with Section 8 of the Act. 15
26. Having regard to all these aspects, we proceed to pass the following order.
ORDER I. The Authority hereby permits the Association of Allottees u/s 8 of RERA Act to take over the project and to achieve completion of the project within a period of 18 months with grace period of 6 months, commencing from the date of taking over of the project. This direction of the Authority shall take effect immediately after expiry of the period of appeal of 60 days provided under the Act.
Following conditions apply.
a. The balance sale consideration with regard to initial 39 customers with whom agreements of sale have been executed shall be collected and managed by the Association of Allottees.
b. Any liability on the sold units including the title transfer shall be the responsibility of the respondent/promoter. c. The Association of Allottees shall have the obligation to utilize the sale proceeds received from unsold units and the same shall be utilized for completion of the project. d. The existing designated account maintained by the respondent/promoter hereafter be freezed and the Secretary of RERA hereby take note to comply with the same.
e. Any further financial transaction shall be maintained through a separate designated account by the association of allottees.
II. The respondent/promoter shall cooperate with the association of allottees as and when required for transfer of the entire project which includes entire built up area/flats, common areas and title of the project land to the association of allottees.
16III. As regards the statutory approvals/renewals/ permissions the same are deemed to have been extended, so as to facilitate the Association of Allottees to achieve the completion of the project."
(Emphasis added) The Authority permits the Association of Allottees/the Society to take over the project and achieve completion of the project within 18 months with a grace period of 6 months. This is questioned by whom is the issue.
11. The petitioner is neither the Developer nor the Promoter. Its claim is based upon an agreement with the Developer/1st respondent. The further contention of the petitioner is that it has spent few crores to get to the project and has started work of beginning for completion of the project. Therefore, since it has invested money, it should be permitted to complete the project. In the statutory scheme, the petitioner is nowhere. It has an alleged private contract with the Developer. The lis is between the Developer and the Society. The Society is before the Authority against the Developer. Any private contract between the Developer and the third party, petitioner in the case at hand, would not mean 17 that the rigour of the statute should be halted by the Authority. It is besides the fact that between the Developer and the petitioner there are several proceedings - criminal, arbitration and so on and so forth, which is not a fact to be considered in the subject lis. Vehement submissions are made by the Developer that against the petitioner it has registered a private complaint alleging offences of forgery and cheating. What the Authority/RERA has done now is in strict consonance with the statute.
12. The Developer has been dodging the home buyers for over 10 years now. During seven years, only skeleton progress is made in the project. Therefore, in terms of the Act, the project gets into the bracket of 'lapsed project'. In the private dispute between the petitioner and the Developer, the home buyers are caught in a cross fire, as they neither have home nor their money. Therefore, no fault can be found with the Authority permitting the Society/Association of Allottees to continue and complete the project. A private dispute between the petitioner and the Developer would not in any way impede the flow of rigour of the statute. If the petitioner has spent crores on the project, it is for it to deal with the 18 Developer and not cause a stumbling block to the construction by the home buyers/Society.
13. It is ununderstandable as to how long the Developer or any other developer who is developing apartment complex would dodge home buyers and leave the fate of home buyers marooned in thin air. Therefore, no fault can be found with the order passed by the Authority. Finding no merit in the petition, the petition deserves to be rejected, as merely because the project is named Hanging Gardens, the fate of those home buyers cannot be left hanging in thin air. But, the rejection of the writ petition will not come in the way of the petitioner and the Developer working out their remedies before any fora in a manner known to law. The observations made in the course of the order are only for consideration of the impugned proceedings.
14. For the aforesaid reasons, the Writ Petition lacking in merit is dismissed. Interim order of any kind operating, shall stand dissolved.
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Consequently, I.A.No.1 of 2024 stands disposed.
Sd/-
JUDGE bkp CT:MJ