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Big Builders’ Transfer Fee is Unlawful Extortion

10 March 2012, Mumbai: Well-known Mumbai builders like Niranjan Hiranandani, Sukhraj Nahar (S B Nahar) and Rustomjee are extorting large sums of money from flat-owners in new buildings, before the cooperative housing society (CHS) is formed. A builder’s No Objection Certificate (NOC) for apartment sale is routinely demanded in places like Nahar Amrit Shakti, Chandivali, Powai. This not only violates many laws, it encroaches on flat-owners’ fundamental rights. It makes it very difficult and costly to dispose off your flat in such localities.

If you sell your apartment (i.e. second sale) in new townships like Nahar Amrit Shakti without the builder’s NOC, he will unlawfully refuse to transfer the apartment in the name of your buyer, and the watchmen may prevent your buyer from entering the premises. To avoid this, you have to get an NOC by paying a “transfer-fee” at the rate of Rs 500 to Rs 1000 per square foot. The amount, often paid in cash, is between Rs 3 lakh and 15 lakh. Mumbai builders like Nahar also impose unlawful and exploitative pre-conditions before giving their NOC.

ALSO READ:

Housing finance institution HDFC and its brokering arm, HDFC Realty Ltd knowingly support such illegal practices in Mumbai property. The Prevention of Money Laundering Act 2002 casts a duty on them, as well as their such as direct sales agents, to report such transactions to Union Finance Ministry’s Financial Intelligence Unit. [Read this] Sadly, such duties are ignored, and owners of Mumbai properties incur heavy losses at the rate of many hundred crores every month.

The argument used by builders like Sukhraj Nahar is, “In this building project, I am the king, and you must obey the terms that I impose. The sale price or rent rate of your apartment appreciates because of my ongoing activities. What is wrong if I ask you to share a small part of your gains? Pay up, or else.” In places like Assam, the same argument is used by Naxalites and Maoists, who say to corporates, “You are making profits on our turf. So share it with us, or else!” MUCH LIKE THE TAXES IMPOSED BY NAXALITES & MAOIST PARALLEL GOVERNMENTS, TRANSFER FEE IS A SLAP ON THE FACE OF THE STATE MACHINERY. How long will the government allow Mumbai builders to grow stronger by undermining its authority in the city? 

We have specimens of receipts for such illegal charges, issued by Roma Builders (Niranjan Hiranandani Group, famous for massive development of Powai) and SB Nahar Group (famous for developing Nahar Amrit Shakti as a massive township with over 5000 flats). We have details of the modus operandi and intermediaries used by Rustomjee Builders for collecting this amount. Also, we have specimens of Nahar Group’s NOCs, which force the buyer to forfeit all his rights and accept many unfair and unlawful conditions. For example, the NOCs are only valid for one month. So if the apartment sale fails to happen within one month, the seller has to go back to the builder and pay him whatever he demands.

SEE THESE SPECIMENS:

1. a. Illegal transfer charges receipt of Niranjan Hiranandani group company: http://tinyurl.com/Hiranandani-Transfer-Fees 

b. A revealing exchange of emails unlawful transfer fees with Hiranandani’s DSA: http://tinyurl.com/Hiranandani-Fees-Emails 

2. Rustomjee Builders modus operandi for collecting unlawful transfer-fees: http://tinyurl.com/Rustomjee-Transfer-Fees 

3. Illegal transfer charges receipt of S B Nahar Group: http://tinyurl.com/SBNahar-Transfer-Fees 

4. S B Nahar Group’s NOCs & receipts with unlawful points highlighted: http://tinyurl.com/SBNahar-NOCs-letters-receipts 

After we blew the whistle on such practices, S B Nahar Group was raided by the Income Tax department in February 2012, many irregularities were revealed, and a I-T demand for a couple of hundred crore rupees was raised. Rustomjee Builders, Lodha Group (owned by MLA Mangal Prabhat Lodha) and other big builders of Mumbai were similarly raided by I-T officials last year. Sadly, they continue with cash dealings at the rate of crores of rupees every month. Can we complain to the I-T authorities with fresh evidence? No, say I-T insiders. We will not get warrants to raid them again so soon, they say. Repeated raids will amount to undue harassment, they say. 

LOOK AT THE RAMPANT ILLEGALITIES INVOLVED:

1. BUILDER’S TRANSFER FEE VIOLATES INDIAN CONTRACT ACT. It is an extra-contractual demand, made by the builder after the sale, seeking to unlawfully fetter the buyer from exercising his ownership rights. When someone buys the flat from the builder, the flat ownership is transferred to him. The flat purchaser becomes its absolute owner, and the builder cannot retain any lien, encumbrance or interest in that property. Being an owner of a thing means having the unconditional right to sell it or rent it out. From where does the builder derive the authority or locus standi to impose any fresh conditions? Why should the flat-owner need the builder’s NOC, when the builder has no right to lawfully object? The flat owner only has to inform the builder, and ensure that his maintenance dues are cleared till the date of sale.

2. IT IS UNLIKE COOPERATIVE SOCIETY’S SHARE-TRANSFER FEE, WHICH IS SOMEWHAT LIKE A TAX. The CHS is the “legal owner” of the building and plot of land. The flat-purchaser, having voluntarily surrendered his sovereignty at the time of the society formation or of his flat purchase, becomes its shareholder. So the society may impose a share-transfer fee at rates specified under its by-laws. This is in the nature of a tax imposed by CHS, which is like a local-self-government. This is where the transfer-fee imposed by a CHS derives its legitimacy and maintainability under law. However, please note that THERE IS NO REQUIREMENT OF NOC EVEN FROM THE SOCIETY under the MCS act, Rules or Byelaws (Bombay High Court 2004 judgment on Sneh Sadan Co-Op. Hsg. Soc. Ltd. vs State Of Maharashtra And Ors., 2004). A prospective member-seller of a flat is only required to inform the society of his intention to transfer the membership by serving a notice in a prescribed form 15 days prior to the actual transaction and execution of transfer deed. Also, making payment of more than Rs 25,000 as transfer fees to society would make the agreement null and void, since a contract involving an unlawful object or consideration voids the contract, as per Section 23 of Indian Contract Act. (Bombay High Court 2010 Judgment on Bharatiya Bhavan Co-Operative … vs Smt. Krishna H. Bajaj & Ors).

3. THE BUILDER IS NOT ACTING ON BEHALF OF THE FUTURE CO-OP SOCIETY. Mumbai builders pretend that they are acting on behalf of the CHS that will be formed. They argue: “We are maintaining the lifts and building amenities, and therefore, we are acting in the place of the society. After some months, we will have to hand over the accounts, along with these works, to the society. Until then, we are collecting maintenance charges and transfer fee on its behalf.” This is a lie. Most builders actively obstruct the formation of the CHS in order to continue collecting transfer fee and other unlawful charges (such as advance cheque of several lakhs towards one-time maintenance fee for 18 months to 3 years). They continue theft of power and water, and encroachment of open spaces and right-of-way. For details, read ‘Nahar Amrit Shakti Township in Powai — a Scam with thousands of Victims’: http://tinyurl.com/Krishs-blog-Nahar-Amrit-Shakti 

4. TRANSFER FEE IS NOT BROKERAGE, BUT BROKERS IMPOSE IT. An estate agent or broker renders a service to the flat-owner by facilitating sale of the flat, and thereby he earns a fee called brokerage. The builder renders no service to the flat-purchaser. However, estate agents often act as henchmen by collecting transfer fee on behalf of the builder. They make the Builder’s NOC seem like a mandatory paperwork, and the transfer fee as a normal give-and-take, without which the transaction cannot be completed.

5. IT IS AN EXTORTION, PUNISHABLE U/S 383 AND 384 OF INDIAN PENAL CODE. The logic of builder’s transfer fee is, “Either you pay, or I will not allow your house sale to happen.” This is actually a criminal offence. See http://tinyurl.com/IPC-Sec-383-Extortion As per IPC section 384, this is a non-bailable and cognizable offence, and therefore an FIR should be lodged against the builder.  We don’t usually approach the police stations as the police doesn’t register FIR in such matters.

6. IT IS PROHIBITED BY COMPETITION ACT 2007. Imposition of unlawful transfer fees by builders is ‘ABUSE OF DOMINANT POSITION’ as defined under section 4 of Competition Act 2007. Since many builders, estate agents and banks such as HDFC are forming a cartel to impose transfer fee, it also amounts to an ‘ANTI COMPETITIVE AGREEMENT’, which is prohibited by section 3 of Competition Act. Read http://tinyurl.com/Competition-Act-2007 Proceedings have already been initiated in the Competition Commission against Sukhraj Nahar (S B Nahar). See this legal notice: http://tinyurl.com/Legal-Notice-Sukhraj-Nahar  

5. IT USUALLY EVADES INCOME TAX. In nearly all cases, transfer fees are collected in cash in order to avoid the tax net. The collection is not done directly by the builder; it is done through estate agents, direct sales agents (DSAs) and other intermediaries, in order to distance the builder from this corrupt practice. Wherever these are brought on the books of account, it is under other head such as “legal fee”, as in the case of Niranjan Hiranandani’s Roma Builders. If so, it is written off against some imaginary expenditure head, and used for paying bribes etc. Quite often, the cash receipt given for Rs 11 or 21 is a disguised receipt for cheque payment of, say, Rs 7.5 lakh. The wording of the receipts issued by S B Nahar Group shows how this is done: http://tinyurl.com/SBNahar-NOCs-letters-receipts 

7. IT INVOLVES MONEY-LAUNDERING, CRIMINAL DEALINGS & CORRUPTION. The black money created by such transfer-fee is later converted into white by specialized chartered accountants, who use charitable trusts and temple funds for bringing it on the books. Or it continues as cash, and is used for bribing politicians and government officials, paying for muscle-power for forcibly encroach on lands, etc. 

Victims of such illegal practices and my activist friends and often say to me after reading some of my articles, “OK, so you have amply elaborated the problem. Now tell us the solutions also. Shouldn’t we file a PIL now?”

To this, my response is that we first need to fight this battle at the level of the administration, quasi-judicial bodies, the media and the public. Otherwise, the courts will say that we have not exhausted all our remedies, and dismiss our PIL. 

SO I SUGGEST A TWO-PRONGED STRATEGY:

A. EVEN IF IT SEEMS INITIALLY USELESS, WE MUST COMPLAIN IN WRITING TO PROPER AUTHORITIES. We may have helplessly paid large amounts by cash or cheque to Mumbai’s builders, but we must not fall silent after shedding tears in private. Please complain in writing to: 

(i) POLICE COMMISSIONER, MUMBAI. Cite IPC sections 383 and 384 i.e. Extortion. You can do this even if you made payment by cheque, and got a receipt for something else, such as “legal fees” etc. 

(ii) CHIEF COMMISSIONER OF INCOME TAX, MUMBAI. To demand or give cash payment of more than Rs 20,000 is a violation of Rule 6DD [http://tinyurl.com/Rule-6DD-Income-Tax-Act ] of the Income Tax Act. Even if the payment is by cheque, but it is shown as a different head e.g. “legal expenditure,” please complain. File a complaint with whatever evidence you may.

(iii) COMPETITION COMMISSION. Study Sections 18, 19 and 27 of the Competition Act 2007 to understand the powers of this commission. http://tinyurl.com/Competition-Act-2007 Support your complaint with arguments and documents.

(iv) FINANCIAL INTELLIGENCE UNIT OF UNION FINANCE MINISTRY.  File a complaint with reference to Prevention of Money Laundering Act (PMLA 2009), which derives wide and sweeping powers with reference to many existing laws, including Indian Penal Code. 

(v) CHIEF MINISTER OF MAHARASHTRA. While the CM is not directly an authority, complaints pouring in will force him to sit up and take notice. The CM is empowered to direct multiple multiple authorities to carry out a drive against builders, estate agents and other henchmen. He can also ask the government departments to review various policies concerning the building industry.

(vi) MAHARASHTRA CHAMBER OF HOUSING INDUSTRY (MCHI): Although this is basically an association of builders, it is trying to earn credibility in the eyes of the government and the public. Most of the big builders guilty of such malpractices are MCHI managing committee members. Holding a mirror to their face will force them to clean up their act. Peer review of each builder’s work is important. So, send complaints to them also. 

B. PUT SUCH COMPLAINTS, SUPPORTING INFORMATION & DOCUMENTS ON THE INTERNET. By sharing secrets on public domain (even at the cost of our privacy), we can destroy the conspiracy of silence, and exert great pressure on authorities and wrongdoers. Don’t be afraid of threats; putting things into public domain reduces your risk. If he attacks you, the wrongdoer will not be able to hide the connection between you and him, and he is much more likely to make himself a prime suspect. 

My guru Shailesh Gandhi told me in 2008: “The battle for good governance will have to be fought in the minds and hearts of the public, as well as in the halls of the administration”. In the end, our solutions will come from our ability to bring the problems to a boiling point in the collective consciousness of the people, and forcing the administration to act on them. 

Warmly,
Krish
9821588114
building.rti.union@gmail.com

PS: My deepest gratitude to many victimized citizens, building-industry whistleblowers, I-T department sources and fellow activists for their valuable documents and insights. 

Posted in Activism, Governance & Administration, Our Future.

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2 Responses

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  1. Ashish Agrawal says

    I find it completely unacceptable that either builder / society charges money for providing NOC. This is nothing short of extortion… What additional cost society has to incur to provide NOC ?

  2. Naveen Gupta says

    Awasome article Krishna. I hope the authorities wake up to what is happening. This level of exploitation is unacceptable.

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