SUPREME COURT OF INDIA PENALISED DLF – A REAL ESTATE GROUP – DIRECTED IT TO DEPOSIT RS.630 CRORES FOR UNFAIR TRADE PRACTICES IN REAL ESTATE TRANSACTIONS


The Supreme Court of India has penalized the real estate group DLF Rs. 630 Crores for indulging in unfair trade practices and exploiting its dominant position to the disadvantage of its customers in its projects and was slapped a penalty of Rs630 Crores by the Regulator Competition Commission of India.

The DLF agreements are one sided and totally unfair, like many other developers and builders across the country, but due its dominant position was singled out.

Majority of the Sale Agreements executed by major builders in Bangalore are totally one sided and unfair and contains clauses which are totally adverse to the interest of the buyers.

The buyers must wake up and modify or institute appropriate legal action against such activities of the builders.

492 HOUSING SOCIETY ALLOTTEES LAND UP IN MESS !!!! THE KARNATAKA STATE KHADI GRAMODYOGA WORKER`S HOUSE BUILDING CO-OPERATIVE SOCIETY`S ILLEGAL AND UNAUTHORISED LAYOUT BRINGS THEM TO HELL (BDA)


The Karnataka State Khadi Gramodyoga Worker`s House Building CO-Operative Soceity 492 site allottees are in trouble !

ANOTHER GIFT FROM BDA!

The housing society forms a layout (without approval from the planning authority-Illegal and unauthorized layout) and allots it to its members, in the meanwhile, the notorious BDA notifies the 19 acre land in Jakkur Village for Arkavathy Layout and as per the SC direction and under the re-do scheme the BDA denotifies or leaves the land and the land revert to the farmers in whose name the revenue record stands.

      The allottees had paid Rs50,000/- to Rs60,000/- (plus etc) and the sale deeds, it is learnt, had been registered by GPA holders and without the consent and confirmation from the sale agreement holders and the land lords, now these allottees are in serious trouble.

A civil suit in the making and may run for years.

TAX DEDUCTED AT SOURCE ON THE IMMOVABLE PROPERTIES EXCEEDING RS50 LAKHS


1% TDS IS LIABLE TO BE DEPOSITED FOR THE PROPERTIES VALUED ABOVE RS50 LAKHS, BEFORE THE REGISTRATION OR EXECUTION OF ABSOLUTE SALE DEED.

TDS IS NOT PAYABLE AT THE TIME OF ENTERING INTO THE SALE AGREEMENT.

WHY SCRUTINY AND EXAMINATION OF PROPERTY DOCUMENTS AND VERIFICATION OF THE TITLES REQURIED?


It is advised to conduct a thorough scrutiny/examination of the property documents, licenses, approvals, katha and related clearances from an expert advocate, before entering into an agreement of sale.

The Sale Agreement and The Sale Deed are very important documents, which must be drafted with utmost care and all relevant details regarding the acquisition of the property, flow of titles, approvals, consideration, conditions and clauses must be incorporated as per the prevailing and enforceable laws.

The entire exercise of this examination is to ensure that the titles are in order and also to avoid the futuristic litigation.  But, this process, if diligently conducted, will provide a picture of the property titles, whereupon the purchaser can decide either to buy or to withdraw from the purchase, based on the report or opinion.

The Advocate cannot/might not promise or assure that there will not be any future issues or litigation. 

The Advocate  can study, scrutinise and examine the documents submitted and explanations given/provided by the seller and REPORT HIS VIEWS OR FINDINGS to the purchaser.  Based on such a report/view/opinion, the purchaser can decide, whether to buy it or not.

This study and examination is intended to avoid buying properties with defective titles or properties with discrepancies.

WATCH OUT- BEFORE PAYING THE ADVANCE TOWARDS THE PURCHASE OF PROPERTIES


WATCH OUT!!!

BUYING A PROPERTY?

THE PROPERTY HAS BEEN SELECTED/CHOSEN!!!!

NOW THE NEGOTIATION REGARDING THE PRICE BEGINS!!!!!!!

BOTH BUYER AND SELLER MUTUALLY AGREE FOR THE SALE PRICE & DURATION TO COMPLETE THE SALE TRANSACTION !!!!!!!!!!!!!!!!!!!!!!

THE NEXT STAGE IS SET!!!!!!!!!!!!!!

THE SELLERS NORMALLY DEMANDS EARNEST MONEY DEPOSIT/ADVANCE/SECURITY DEPOSIT, TO HAND OVER THE COPIES OF THE PROPERTY DOCUMENTS.

EXERCISE UTMOST CAUTION:

1). DEAL AND TRANSACT WITH THE ORIGINAL/DIRECT OWNER 

2). ALL THE PAYMENTS MUST BE MADE ONLY THROUGH AN ACCOUNT PAYEE/NON TRANSFERABLE CHEQUE TO THE ORIGINAL OWNER

3). UNDERSTAND THE CONDITIONS and THE APPLICABLE LAWS OF THE SALE AGREEMENT

4). CONDUCT THE ENTIRE TRANSACTION WITH A REPUTED OR A CONCERN WHICH HAS A GOOD REPUTATION

5). DO NOT DEPEND ON BANK LOANS OR BANK APPROVALS. BANK APPROVAL DOES NOT MEAN, CLEAR TITLES.

6). DISCUSS ABOUT THE CONDITIONS OF THE SALE AGREEMENT, DURATION, ADDITIONAL/MISC EXPENSES WITH THE SELLER AND THE FORFEITURE CLAUSE, IN CASE OF DEFAULT

7). DO NOT MAKE ANY PAYMENT OR TAKE DECISION IN A HURRY

8). FINALLY, IF YOU ARE TOTALLY SATISFIED WITH THE PROPERTY, PRICE, DURATION AND THE REPUTATION OF THE SELLER, MAKE THE PAYMENT, AFTER CONSULTING YOUR ADVOCATE/SOLICITOR

 

FORFIETURE OF EARNEST MONEY DEPOSIT/SECURITY DEPOSIT/ADVANCE PAID FOR THE PURCHASE OF PROPERTY


Advance/ Security Deposit/Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance, by the depositor.

It (Advance/earnest money deposit/security deposit)represents the guarantee that the contract (clauses in the sale agreement) would be fulfilled by both the parties.  In other words, ‘earnest’ is given to bind the contract, which is a part of the purchase price when the transaction is carried out and it will be forfeited when the transaction falls through by reason of the default or failure of the purchase.

To justify the forfeiture of advance money being part of ‘earnest money’/ `security deposit` the terms of the contract must be clear and explicit.

If the seller fails to perform the contract the purchaser can also get the double the amount/whatever the amount stated in the agreement, if it is so stipulated.

In case if the payment made is that of part payment of purchase price/consideration, then, it cannot be forfeited unless it is a guarantee for the due performance of the contract.

If the payment is made only towards part payment of consideration and not intended as earnest money then the forfeiture clause will not apply. 

 

SALE AGREEMENT AND CONSTRUCTION AGREEMENT


Generally, the developers, who are not builders, enter into agreement through works contract to build the apartments.  Wherein, such activities attract VAT and SERVICE TAX. The average buyer has to enter into two agreements.  One, for the undivided share of the land,( Agreement to sell)and the other, construction agreement.  Executing two agreements confuses the buyer.  Is it necessary? NO.

A single “Agreement for Sale” reflects the true nature of the transaction between the landowner/developer and the Purchaser. It can be argued that transactions involving transfer of immovable property attracting payment of Stamp duty cannot be subjected to tax on sale of goods or services attracting VAT or Service Tax. In order to strengthen one’s case, one could consider registration of the “Agreement for Sale” with the sub registrar. It is possible, that the department will contend the transaction to be taxable. In order to mitigate the impact of taxes it is advisable to have an all-inclusive price as far as the purchaser is concerned. The “Agreement for Sale” or any other documents / brochure etc., must not indicate any collections from customers towards taxes, since taxes are not being collected. In order to mitigate the hardship on account of levy of taxes, if any, by the department at any future date, it is advisable to maintain adequate bank deposits, equivalent to or higher than the tax amounts. Some developers also feel that an “undertaking” from the customer would suffice. Some others are also looking at escrow accounts wherein the monies collected as “deposits” can be deposited to take care of possible future litigations.

The concept of “single agreement” is yet to be tried and tested. Litigation is a certainty in this situation. The Courts are yet to lay down a sustainable guideline in a “single agreement” scenario. The matters are also yet to be tested by the developers. Therefore, the developers may be guarded. In adopting the “single agreement” concept. The builders/developers may also feel that indirect taxes are passable to the customers and therefore take a stand as to why look at a scenario which has to be litigated.

General practice followed by developers

Most of the developers are still following the two agreements concept- one for sale of undivided share of land and the other for construction. In the last few months some of the developers have started trying out the concept of “single agreement” theory. But was given to understand that the prices are determined by the developers by taking into consideration the possible future litigation and also on the premise that customers may not pay the taxes at a future date in case the litigation fails, and Courts fail to accept the “single agreement” concept.

a. Single agreement concept

A single “Agreement for Sale” reflects the true nature of the transaction between the landowner/developer and the Purchaser. This, in my view is the best option. However, the law, in this method is yet to settle down since we do not have a legal sanction. The risk is higher in this methodology but I believe that it must be a workable proposition. Litigation is a certainty in this model.

b. Regular method of paying taxes

This is a tried and tested method. It has the sanction of law and would be a cumbersome process but the impact of taxes can be minimized if properly planned at the project inception stage. It is a generally advisable method of payment of taxes.

c. Composition method of paying taxes

This is a hassle free method of paying taxes. It has the sanction of law but it is tied up with various conditions and restrictions. One needs to take a call on a case-to-case basis before opting for payment of taxes under this scheme.