CREDAI Accuses NBFCs for Arbitrarily and Unilaterally Increasing Interest Rates on Realty Projects
Crying foul about lenders 'arbitrarily and unilaterally' increasing interest rates and escrow requirements, the Confederation of Real Estate Developers' Association of India (CREDAI) has requested the finance ministry to issue necessary guidelines to non-banking finance companies (NBFCs) to keep rates in check. 
 
In a letter to the finance ministry, the developers' body says, the real estate sector is already under tremendous economic pressure and arbitrary and illegal practices lead to delays in projects and escalation of costs for the ultimate homebuyers.
 
"We, therefore, request you to have necessary guidelines issued to NBFCs that the interest rates on ongoing projects may not be revised upwards for as long as Reserve Bank of India (RBI) does not raise the benchmark rates. Secondly, the escrow amount being withheld by the lender must be well within the norms stipulated by Real Estate (Regulation and Development) Act (RERA) to ensure timely delivery to homebuyers. Thirdly, disbursements to ongoing real estate projects may not be stopped for next two years," CREDAI says.
 
The developers' body specifically accused Indiabulls of abusing its position and creating a situation where it was financially strangulating projects. It says, "Indiabulls being one of the largest lenders in the financial sector is causing undue hardship for developers by creating a situation of financial strangulation. On the one hand, in the past eight months Indiabulls has increased the interest rate by 4.5% to 6% for all developers. Since RBI has been lowering benchmark rates, it is clear that the interest rate has been increased by Indiabulls arbitrarily and illegally."
 
"...to add to the misery of the developers and home buyers, Indiabulls has also increased the escrow percentages from 30% to 100% for many developers. Such an increase in escrow percentages is totally illegal and against the norms of RERA which requires 70% of the collections to be used towards construction and land cost only. With 100% of the collections going to Indiabulls through the escrow account, no money is available with the developers for construction of the project.
 
Also disbursements are not being made by Indiabulls to carry out construction of the project," CREDAI says.
 
Indiabulls, however, have refuted the allegations made by CREDAI. In an email, a spokesperson of Indiabulls says, "As a result of Infrastructure Leasing & Financial Services (IL&FS) default, banks have suffered due to losses in lending and all NBFCs have suffered due to funds drying up for the sector and costs going up simultaneously for NBFCs, as being reported by the press every week. Indiabulls Housing Finance is still disbursing and did total disbursal of Rs11,000 crore in the past eight months. Also, escrow mechanism with our borrowers remains absolutely the same as before, and developers are free to prepay or refinance if they find interest rates high. We are waiving the entire prepayment fees for such cases. Quite a few developers have chosen to prepay and we have accepted the repayments without prepayment fees although it was a part of the agreement."
 
CREDAI says, escalation of construction costs or stopping of construction, consequent delays in completion of the project, beyond the agreed and intended completion date, results in the developer paying interest to the buyer for the period of delay. This sometimes also results in unwarranted disputes between developers and the buyers and customers.
 
Due to prevailing market conditions, CREDAI says, only a handful of projects have been launched in the recent past and, consequently, the government's ambitious initiative of ‘Housing for All by 2022’ may also be severely affected.
 
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    Lenders With Vested Interest Shouldn't Be in CoC : NCLT
    In a decision likely to have a major impact on insolvency proceedings, the Chennai bench of the National Company Law Tribunal (NCLT) has said that any lender with vested interest in, or having relations with, a corporate debtor should not be part of the committee of creditors (CoC) in a resolution process.
     
    According to media reports, on an application moved by the Asset Reconstruction Company (India) Ltd (Arcil) in a case relating to a corporate debtor, Anandram Developers, the Tribunal said that the decisions of the CoC must remain independent.
     
    A CoC is a group of persons representing a company's creditors in a bankruptcy proceeding. As such, a creditors' committee has broad rights and responsibilities, including devising a reorganisation plan for bankrupt companies or deciding whether they should be liquidated. The creditors' committee is usually further divided between secured and unsecured creditors.
     
    The bench noted that as the CoC's decisions will impact the debtor's survival or liquidation, as well as the debt realisation of all the creditors, the institution of CoC needs to be completely independent and free from any kind of influence, either of the promoters or their close relatives who may have stakes.
     
    The decision will have a significant and far-reaching impact on other cases in the insolvency process as it sets a benchmark for the lenders to become a part of the CoC. It is also likely to bring in transparency in the resolution process.
     
    The Tribunal held that the second respondent, Anandcine Services, is a 'related party', which would have no right of representation, participation or voting in CoC meetings. The first respondent in the case was the Insolvency Resolution Professional (IRP).
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Meenal Mamdani

    4 months ago

    Excellent. This would prevent the corporation from influencing the discussions at the meetings.

    RBI employees aren't government servants: Madras HC
    The Madras High Court has observed that the employees of Reserve Bank of India (RBI) cannot be referred to as "government servants" while identifying their employment status.
     
    The Division Bench, comprising of Justice K.K. Sasidharan and Justice P.D. Audikesavulu, said: "The fact that the central government has persuasive control over RBI would not make its employees central government employees... 
     
    "It is true that the RBI is a state within the meaning of Article 12 of the Constitution of India. Even then it cannot be said that its employees are all regular Government employees."
     
    The observation came after an RBI employee, E. Manoj Kumar, had moved the High Court seeking declaration of his result in the Tamil Nadu Public Service Commission (TNPSC). 
     
    While filling up the questionnaire in the application form for Combined Civil Services-I Examination, Kumar had identified himself as a non-government employee in 2016. 
     
    The Commission withheld his result on the ground of suppression of material particulars in the application form regarding his employment with the Reserve Bank of India.
     
    "Are you a Government employee?" was one of the queries in the questionnaire published by the TNPSC. Kumar answered it in the negative. 
     
    He cleared the written test, and was selected for the appointment to the post of Deputy Superintendent of Police. 
     
    However, his appointment met with a road block, and when he moved the court, a single bench at the Madras High Court dismissed his plea citing that the instruction on the application was very clear. 
     
    The instructions to the candidates contained not only government service, but there was also a provision to declare other services. It said that non-disclosure of the bank service is equivalent to suppression of information attracting disqualification.
     
    The Division Bench though observed that the application form did not have a separate column clearly indicating the candidates to declare their nature of employment. 
     
    Taking a contrary view on Kumar's plea, it observed that the column in the application form contained only one service for disclosure viz., "Government Service", and thus it would not be possible for a Bank employee to record that he is a Government employee.
     
    The bench noted that Kumar had correctly filled the application form for the examination. 
     
    It said: "Even the entry in question was correctly filled up by the appellant. He is not responsible for the preparation of an incorrect questionnaire by the TNPSC." 
     
    Setting aside the single bench's order passed on March 26, the Division Bench of the High Court directed the TNPSC to forward Kumar's candidature to the government to take action regarding his appointment within one week.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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