However, experts feel that it won’t be easy for SLB Welfare to complete the project on its own. Let’s understand how this came about and the difficulties homebuyers may face in completing the task.
UP Rera cancelled the registration of Sampada Livia project after complaints of project delay and alleged irregularities by promoter PSA Impex Pvt Ltd.
The project was to be completed in November 2019 but till September, when Rera cancelled its registration, only 10% of the work was completed. During its investigation, Rera found out that the work was stuck for almost two years and the promoter had diverted ₹47 crore from the project fraudulently and had even sold a few units twice.
When a project is deregistered, the homebuyers’ association has the first right to refuse to carry out the development work. In that case, Rera needs to invite new private or public developers to carry out the remaining work. In this case, homebuyers decided to take it up.
Akansha Agarwal, a doctor and president of SLB Welfare Association, said they asked Rera to carry out the work but that was outside the authority’s purview. “If we went with the developer Rera chose, we would have to abide by the terms and conditions set by the new developer and may not have had a say in that. Therefore, we decided to take it up on our own,” she said.
Balvinder Kumar, member, UP Rera, believes this option will work as homebuyers will act in their best interest as they have the maximum stake involved.
The developer has the right to file a remedy appeal against the deregistration order in the appellate tribunal within two months. But if the developer fails to do that, Rera may hand over the project work to the homebuyers’ association, provided at least 51% of the buyers agree to it and provide a financially feasible plan that the authority will review and approve.
SLB Welfare has the required mandate and has submitted a detailed project report (DPR), with an estimated net construction cost of ₹243.59 crore and completion deadline of February 2024. The project has 726 sanctioned units, out of which 355 have been sold so far. As per the DPR, the project is cash flow positive, with a surplus of about ₹5 crore. The total estimated receivables from sold and unsold units are ₹248.49 crore.
The project will be re-registered in the name of SLB Welfare. The association will need to open a bank account in its name, where all the money received from allottees will be deposited.
The association will determine the sale price of the unsold units, but this price can’t be lower than the floor price determined by the construction consultant appointed by Rera. The consultant will help the association prepare a new DPR. SLB Welfare will also execute a revised agreement for sale with all existing allottees and new agreements with prospective buyers.
A subcommittee constituted by Rera will monitor the project on a daily basis. SLB will also have to upload relevant details and documents along with the quarterly update of the construction work on Rera’s website.
Finding a developer: The key will be to find the right developer.
“Homebuyers will have to figure out the developer whom they can trust and give the task to. Finding such a developer, especially amid the current covid-19 crisis, will be difficult,” said Anil Goel, founder and chairman, AAA Insolvency Professionals LLP, a Delhi-based insolvency professionals’ entity.
Lack of expertise: “The association may lack requisite experience to complete the project,” said Sonam Chandwani, managing partner, KS Legal, a Mumbai-based law firm.
In the past, some homebuyers’ associations refused this option as they felt they didn’t have enough experience. When three phases of Unnati group’s Aranya project, located at Sector 119, Noida, were deregistered by Rera last year, their homebuyers’ association were given the same option but they didn’t take it up. Arun Gupta, member of the homebuyers’ association, said they wanted a professional to do it as they felt they didn’t have the expertise and time. Eventually, they approached the National Company Law Tribunal.
Arranging for funds: The Sampada Livia project, as per the DPR, is cash positive as of now but what if the actual cost exceeds the estimates or the receivables are less than the estimates?
Although UP Rera has asked the association to work out a Plan B for bridging the shortfall in cash flows in the fresh DPR, there are no clear guidelines on the same. For now, the association has been asked to undertake phase-wise construction.
“In case of Rera, there is no provision for waiver of liabilities, including bank loans, statutory liabilities or liabilities towards landowners or land development agencies in case of an asset-liability mismatch, and it is difficult for homebuyers to arrange funds for payment of all the liabilities,” said Goel.
“If the project was cash flow positive, then why would a developer abandon the project and let someone else profit from it?” asked Abhay Upadhyay, president, Forum for Peoples’ Collective Efforts, a homebuyers’ body.
Only time will tell whether SLB Welfare will succeed in its endeavour, but the case could show the way forward to buyers of other unfinished projects.