By Accommodation Times News Services
There have been several loopholes in the real estate sector and has overflowed in housing finance as well. Navi Mumbai is one such prime example for the need of regulation of real estate in India.
Provision in Section 58(f) of the Transfer of Property Act, 1882 does not notify the town of Navi Mumbai to provide finance against the security of immovable properties.
The Section states, “Mortgage by deposit of title-deeds: Where a person in any of the following towns, namely, the towns of Calcutta, Madras and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.”
Navi Mumbai is on a lease-hold basis from City and Industrial Development Corporation of Maharashtra (CIDCO) for a term of 60 years with restrictions against the transfer or assignment of the right, title and interest in the property which also includes mortgage.
This implies that the transfer of NOC in favour of purchaser is not issued by CIDCO until a lease deed is executed, even when transfer charges are offered. Since the lease is termed by CIDCO, initially while allotting a plot as a “License” and an Agreement to lease as “Not a Demise”, the title deed in the form of “Lease Deed” is executed by CIDCO on completion of construction and issuance of the Occupancy Certificate which allows the transfer. However, the loans are required by the purchasers to pay developers during the construction itself. This is a breach of the terms and conditions of the lease in Navi Mumbai.
This means that without the Occupancy Certificate the land belongs to CIDCO. Hence, finance cannot be issued against the property in the said borrower’s name. This means that the basis on which the loan was obtained by the purchaser is invalid.
Jesse Cornelious, an advocate, opines, “It seems to be a mutual agreement between the financial institution and the borrower. Even if the land belongs to CIDCO, with prior permission obtained, it only connotes that the financial institution is willing to take that risk.”
Furthermore, when CIDCO issues a mortgage NOC, it places conditions such as disallowing parting of the possession of the mortgaged security to the financial institution and also by allowing any default security to be auctioned off by the concerned financial institution.
However, Act 54 of 2002 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 states that “If the borrower makes any representation or raises any objection to the notice, the Authorized Officer shall consider such representation or objection and examine whether the same is acceptable or tenable.” Lending institutions in case of a borrower default, on the other hand, can proceed treating such cases as Non-Performing Assets (NPAs) as per the guidelines of the Reserve Bank of India (RBI). This is contradictory.
This uncoordinated fiasco opens a Pandora’s Box. A borrower can obtain finance on the basis of an immovable property that may be under construction on a plot of land. Not much of a security when you dig deep. A plot of land that belongs to CIDCO which is not notified under Section 58(f) and finance options that a financial institution is not entitled to provide. It is around this that a flat in Navi Mumbai was financed by around 20 banks and involved a fraud of Rs 1 crore.
Even if a borrower defaults and appeals a probable consequent of the auctioning of the property, his appeal under the provisions of the SARFAESI Act 2002 will be entangled in a decade plus legal tangle.
Two wrongs do not make a right. Financial institutions will bear a risk if such finance is provided. Something they can recover through a successful auction assuming that the borrower does not object. It’s a lose-lose situation. A deadlock.
Industry experts feel that it is advisable for the Government to simply notify Navi Mumbai under Section 58(f). It is also a furtherance to enforce a regulation to oversee the crumbling marriage between property laws and housing finance.