In February this year, the National Consumer Dispute Redressal Commission (NCDRC), the consumer court, sentenced the managing director and directors of real estate development firm Parsvnath Developers to a three-year jail sentence. This was the first time when directors of a firm were sentenced to jail for cheating the consumers because the penal provisions used under the consumer law were always monetary.
“So far, only the top court took a harsh stance against builders who were sent to jail, but those cases were not under the consumer law. They were either in a criminal case registered against them or when a developer approached seeking SC protection from insolvency proceedings,” said Sukham Ahluwalia who argued the case for consumers.
During the construction boom, many builders, especially in Noida and Greater Noida, started many projects on which they could not deliver. Due to lax real estate regulatory laws before RERA, a builder could start a project with very small capital than what was needed for the completion of the project.
So, the builders asked for advance payment from homebuyers for dream homes and promised possession in the next few years. Given the fact prices were attractive, most of the consumers fell for it and paid in advance. But, with the decline in demand for real estate and the cost of capital getting cheaper over time, most of these builders could not complete the project and were not able to pay back the loans which they had taken from banks at very high rates.
This led to many big infrastructure firms including Jaypee Infratech Limited (JIL), the original builder of Greater Noida township, becoming bankrupt. And, this left many large ghost townships which were left uncompleted because the builder was bankrupt.
So, the savings of the homebuyers, who invested their hard-earned money in their dream homes, was left in the lurch. Parsvnath Builders was one of such builders and the court has set a precedent in the arena of consumer protection by sending its management behind the bars for three years.
In the last few years, the Modi government has taken many pro-consumer steps, especially in the real estate market. Apart from the RERA Act, the government amended the IBC act in 2018 to treat homebuyers on par with institutional lenders like banks and NBFCs.
According to the amendment which is yet to get presidential assent, the homebuyers who had given money to builders in advance will be considered as financial creditors and will be given priority in recovering their debt from the bankrupt companies.
Earlier the homebuyers, many of whom used to pay in advance to builders like Parsvnath Developers to book their homes were not considered as financial creditors like banks and other lending institutions. Therefore, despite the fact that many of the building projects were majorly funded by homebuyers’ money, they were nowhere in the resolution process if the project was abandoned.
In 2019, the Modi government came up with the SWAMIH scheme to finance the completion of stalled projects to ensure that the money already invested in the projects is not wasted and the consumers who pumped lifelong savings to purchase a house do not feel cheated. Under the scheme, the government appointed a special purpose vehicle to generate funding (with initial capital provided by the government), and this body managed to raise 3.5 billion dollars so far to finance various stalled projects.
In the last two years, many projects were completed under the scheme, and in the next financial year, more than 4,000 homes will be awarded under 16 projects. Many of these projects were completed amid the widespread pandemic and given the exponential rise in demand in the post-lockdown – because many families which did not lose the source of income saved a lot of money due to cut in expenditure – these houses are being purchased by a large number of people.
The real estate market has been cleaned up to a large extent and homebuyers are now safe compared to the last five years. Thanks to the pro-activeness shown by the Modi government and the courts, builders like Parsvnath Developers who fooled the consumers are being jailed and the homebuyers are getting justice.