Real Estate Project Can be Deregistered if Violation Found: UPREAT

UP Real Estate Appellate Tribunal (UP REAT) has passed an order in Appeal No.48 of 2020 upholding the deregistration of a Real Estate Project.

The Order has been passed by the Bench of Hon’ble Mr. Justice (Dr.) D. K. Arora, (Chairman), Hon’ble Mr. Rajiv Misra, (Administrative Member), Hon’ble Mr. Kamal Kant Jain, (Technical Member).

Brief Facts of the Case are as follows:

The appellant company was the developer and Promoter of the Project Festival City, Phase 1, NOIDA, U.P. in collaboration with M/s Anand Infoedge Pvt. Ltd. which is also the parent company of the appellant company. 

Appellant company undertook to develop a Project namely, “Festival City” (“Project”) on Plot no. 1 Sector 143-B, NOIDA, Uttar Pradesh. Earlier, M/s Mist Avenue Private Limited, the erstwhile developer of the Project, and M/s Anand Infoedge Private Limited (lessee of the project land from NOIDA) entered into a Collaboration Agreement on 28.07.2014 having the retrospective effect from 26.10.2012.

Thereafter,  certain dispute arose between the erstwhile developer and M/s Anand Infoedge Private Limited with respect to the development of the said Project. M/s Anand Infoedge Private Limited cancelled the development rights executed in favour of the erstwhile developer and the Collaboration Agreement was cancelled vide Cancellation Deed executed on 27.07.2017. 

Subsequent to the cancellation of the above, M/s Anand Infoedge Private Limited had appointed its wholly-owned subsidiary company M/s Mist Direct Sales Private Limited i.e. (appellant) to develop the said Project and new Collaboration Deed was executed on 27.07.2017 between M/s Anand Infoedge Private Limited and M/s Mist Direct Sales Limited in which erstwhile developer (M/s Mist Avenue Pvt. Ltd.) was also a “confirming party”. 

The appellant also informed all the parties including allottees involved in the said project with respect to the cancellation of development rights in favour of M/s Mist Avenue Limited and transfer of the same to the appellant company as a new developer of the said Project. 

Thereafter, in compliance of provisions of the Real Estate (Regulation & Development) Act, 2016 (hereinafter referred to as ‘Act of 2016’) the appellant had applied for registration of the said Project and had proposed 11.07.2022 as the date of completion of construction of the said Project.

On examining the details submitted by the appellant company including the date of completion as 11.7.2022, the Regulatory Authority consciously approved the application for registration and extended as well as revised the date for completion of the said Project to 11.07.2022. The allottees of the Projects were requested by M/s Mist Direct Sales Pvt. Ltd. (the appellant) on several occasions to sign the agreement with the appellant, however the allottees failed to do so. Some of the allottees had totally refused to execute the agreement on the ground of no privity with the appellant.

M/s Anand Infoedge Pvt. Ltd. also approached the Hon’ble Allahabad High court against NOIDA Authority by means of Writ Petition No. 15503 of 2019 wherein, the M/s Anand Infoedge Pvt. Ltd. sought possession of the full land leased out for the said Project from the NOIDA Authority.

The U.P. Real Estate Regulatory Authority, Gautam Budh Nagar by menas of order dated 07.12.2019 cancelled the UP RERA Registration No. UP RERA PRJ 2873 of the appellant company.

An appeal was filed by M/s Mist Direct Sales Private Ltd., New Delhi (Appellant) against the order dated 07.12.2019 passed by U.P. Real Estate Regulatory Authority (Regulatory Authority) through which the Regulatory Authority has de-registered the Project of the appellant company, namely, Festival City, Phase 1, NOIDA (U.P.) as well as frozen the bank account of the appellant company.

Issues Raised By The Appellant

  1. The impugned order is non-est as it has been passed in the absence of jurisdiction by the Secretary of Regulatory Authority.
  2. The Regulatory Authority ought to have given the benefit to the appellant due to the delay caused on account of the dispute of title of the Project land with NOIDA.
  3. The revocation of registration was unwarranted, unreasoned and an extreme order, whereas the Regulatory Authority should have exercised powers taking into consideration the provisions of Section 7(3) of the Act of 2016.

Submissions of Appellant

  1. RERA has failed to consider the reply made by the appellant before it from time to time, pursuant to the various show-cause notices and orders passed by the respondent authority. 
  2. The appellant had submitted an Engineer’s Certificate from the approved Government Valuer, namely, M/s K.S. Agarwal & Associates, wherein the approved Valuer, vide its report dated 18.03.2019 had clearly and unambiguously declared that the Project is complete by more than 42 % in terms of estimated cost.
  3. Appellant company has also shown full intention to complete the Project as per time frame provided in the Registration No. UP RERA PRJ 2873
  4. Findings given by the respondent authority in the impugned order dated 07.12.2019 with respect to status of the construction are not factual
  5. Regulatory Authority has chosen to cancel the RERA registration of the appellant company instead of imposing penalty as provided under the provisions of Act, 2016.
  6. Regulatory Authority has failed to appreciate the fact that appellant company is ready to adjust delayed interest of allottees in future payments.
  7. Section 7 of the Act under which show-cause notice was given by the Regulatory Authority has never been adopted by State of UP and this is apparent from the show-cause notice dated 08.03.2019 issued by Regulatory Authority itself.
  8. Regulatory Authority failed to consider that dispute with regard to the title of land on which Project of appellant is standing, is under active consideration of Hon’ble Allahabad High court.
  9. Impugned order is “nonest” as it has been passed in the absence of jurisdiction. The Secretary of Regulatory Authority was not the competent authority to pass the impugned order.
  10. While passing the impugned order respondent authority has failed to consider the past history and reputation of the promoter and the fact that promoter has completed various Projects and has a sound financial status.

Analysis by Real Estate Appellate Tribunal

Title Of The Land Of The Project And Legal Status Of Promoter/Appellant Company.

On the basis of available records submitted by promoters/appellant, the Tribunal found that it is not clear as to how a conveyance deed will be executed by the appellant/promoter when the owner of leasehold land is not a party to the builder’s buyers agreement (BBA). 

Moreover, in the instant case it will be a sublease which is to be executed by the lessee, allottee along with the authorized signatory of the lessor (NOIDA), and especially when the project in question has been processed without the permission of the lessor (NOIDA), in violation of the terms of lease deed & sanction letter and further huge dues of the lessor are pending. Also, the owner (lessee) has not complied the terms and conditions of the lease deed, allotment letter, sanction letter, etc. imposed by the lessor i.e. NOIDA.

Analysis Of The Information Submitted By Appellant/Promoter To The Regulatory Authority

Appellate Tribunal observed that it is evident from the perusal of the record of registration of Phase- 1, Phase-2 and Phase-3 that in all the Phases, Bank Account No. 001661900001330 of YES Bank is mentioned in Project Bank details disclosed before the Regulatory Authority at the time of registration. Whereas, Bank Account No. 917020078349181 of Axis Bank Ltd. is mentioned as the designated account of the Project as per C.A. Certificate dated 31.07.2018 in respect of Phase-1, Plot no. 1, Sector-143-B, NOIDA and the designated bank account (Escrow Account) number 917020078339524 of Axis Bank is mentioned as per C.A. Certificate dated 25.03.2019 submitted to Regulatory Authority (Respondent No.1) vide letter dated 04.04.2019. 

Hence, the designated bank accounts are different as per C.A. Certificate for the same Project. The account provided to the Regulatory Authority frozen by the Regulatory Authority through impugned order dated 07.12.2019 is YES Bank Account No. 001661900001330, which is apparently not the designated bank account of the Project. The appellant has also not uploaded REG-5 Form as prescribed by U.P. RERA Regulations, 2019. 

Quarterly progress reports uploaded by the appellant are not complete and details provided therein are not matching with the certificates and the amount spent by the appellant in the Project. It is further evident that the land owner of Plot no. 1, Sector 143-B, NOIDA, namely, M/S Anand Infoedge Private Limited is not shown as a promoter of the Project anywhere in the documents filed for registration.

Analysis Of Violations Of The Provisions Of Act Of 2016 & Rules Of 2016 As Well As Terms And Conditions Of Lease Deed. 

The Tribunal was surprised that when lessee M/s Anand Infoedge Pvt. Ltd. or developing companies M/s Mist Avenues Pvt. Ltd. and M/s Mist Direct Sales Pvt. Ltd. were advertising and taking/accepting money from the customers and promising assured return against sale of residential/commercial/IT Units without complying the provisions of lease deed or without amendment of the lease deed of Plot no. 1 Sector 143-B, NOIDA, no firm/strong action was taken by NOIDA against lessee/developing companies.

Further both the companies i.e. M/s Mist Avenue Private Limited and Mist Direct Sales Private Limited have received an amount of about Rs.260 Crores from the customers, and there is nothing on record to show the details of the amount collected by both the companies from customers and also no record regarding ownership of the land in the name of Promoter/Appellant or a legally valid registered collaboration agreement or registered power of attorney on behalf of owner of lease hold Plot no. 1 Sector 143-B, NOIDA. 

Also, as per lease deed executed between NOIDA and owner of lease hold right M/s Anand Infoedge Pvt. Ltd there are specific terms and conditions of lease deed which are not complied by the owner company and developing companies. Therefore, the entire activity is against the provisions of lease deed and receiving the money by the appellant from prospective buyers on the basis of the unregistered and unauthorized deed with M/s Anand Infoedge Pvt. Ltd. (lessee) may also attract the provisions of Section 2(8) and Section 2 (9) of the Prohibition of Benami Property Transaction Act, 1988 as amended by Benami Transaction (Prohibition) Amendment Act, 2016 and Banning of Unregulated Deposit Scheme Act, 2019. 

However, since the violation of the provisions of the aforesaid Acts does not fall in the domain of the Tribunal, therefore, the Tribunal restrained itself from examining the issue in depth.

Revocation Of Registration Of The Project Of The Appellant Company By Regulatory Authority 

The Appellate Tribunal found no force in the submissions of Appellant and rejected the same as the decision was taken by the Regulatory Authority in its 28th Meeting dated 29.11.2019 and the impugned order was issued in pursuance to the authorization of the Regulatory Authority by Secretary, being a Principal Executive Officer of the Regulatory Authority.

After examining the submissions of the appellant the Tribunal found that the physical and financial progress submitted by the appellant through various certificates before the Regulatory Authority is not matching. 

Apart from that there is not only violation of the provisions of Section 4 and 15(1) of Act of 2016 read with Rules 3,4 & 14 of Rule of 2016, but also the violation of the Clauses 11A, 14, 15, 17, 18, 19, 20, 21(c) of lease-deed dated 21.08.2008 and conditions 12 & 19 of the Sanction Letter dated 26.10.2012. 

The Regulatory Authority taking note of the assurance given by the appellant through letter dated 04.04.2019 and representations made before the officials of the Regulatory Authority on 03.05,2019, 17.05.2019 and 20.05.2019, kept the final decision on the show-cause notice on hold vide order dated 11.07.2019 for the period of four months, keeping in view the interest of allottees in mind as provided under Section 7(3) of the Act of 2016.

Since the appellant failed to abide by the terms and conditions and directions of the Regulatory Authority specified in the order dated 11.07.2019, the Regulatory Authority passed the impugned order in order to protect the interest of the investors.

Ultimately the Tribunal found that the order of Regulatory authority was well reasoned and the due procedure has been followed as well as ample opportunity has been given to the appellant before passing the said order. Therefore the Tribunal could not find any illegality, infirmity or perversity in the impugned order. Accordingly, the appeal has been dismissed.

However, the protect the Interest of allottees who have lost their hard-earned money on the assurance of getting their dream house/unit based on mis-information and misrepresentation by the appellant, the Tribunal directed the Regulatory Authority to take up the issue with NOIDA Authority to resolve the land issue; and in case the issues relating to land title and its usage are not resolved, then the Regulatory Authority would take appropriate steps for refund of the hard-earned money of the allottees.

Further looking into the background of this case, in order to protect the interest of prospective buyers/allottees, the Tribunal directed the Regulatory Authority to ensure the compliance of Section 16 of the Act of 2016 by the promoters at the time of registration of the real estate projects, which cast an obligation on the promoter regarding the insurance of the real estate project.

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