NGT cracks whip on projects without Prior Environmental Clearance, real estate projects also in trouble

In a landmark judgment recently National Green Tribunal (NGT) has imposed a penalty of Rs 76.192 crore on seven private builders from Tamilnadu for raising structures without “ prior environment clearance”. NGT has also quashed two Office Memoranda (O.M.) dated December 12, 2012 and June 27, 2013, of Union Ministry of Environment terming them as 'ultra vires' the provisions of the Act of 1986 and the EIA notification of 2006.

This judgement is big blow to builders all over India  and specially for Pune being hub of illegal constructions where many residential and commercial projects are on without obtaining necessary “Prior Environment clearance” (PEC). As the big politicians and babus are indirectly involved in this racket earlier no project proponent of such activities was  scared of any law in India. However latest NGT judgment may  be a nightmare for builders who have cheated innocent property buyers for crores of rupees. The NGT is the institution that  has  dedicated jurisdiction in environmental matters to provide speedy environmental justice and help reduce the burden of litigation in the higher courts.

Last November list of real estate projectsin and around Pune against whom criminal cases had been filed, Environmentclearance had been rejected and notices were served for violation ofenvironment clearance norms was published on this blog. Even after list was published the projects were in full swing without any fear of law.

Actually builder can start the construction only after he obtains the environmental clearance. However many builders had started construction without even applying for it. When property buyers asked about EC Builders use to mislead them by telling that - the builder can construct up to 2 lakh sq.ft. Without obtaining EC.  We have applied for EC Or We will launch next phase only after obtaining EC. The NGT judgement may put some check on such builder’s gammon.

Earlier if project proponent was found to have started construction without “ prior Environmental clearance”, under the garb of above memorandum on recommendation of SEAC’s  SEIIA used to send  notices for such violation then Project Proponent used to file an undertaking to ensure that violations will not be  repeated. Then proposal would be considered for environmental clearance. However NGT has described this process as violation of law condoning illegal act.

The EIA  Notification 2006  mandates the requirement of ‘prior Environmental Clearance’ without exception. However as per NGT the entire mandate of prior Environmental Clearance has not only been diluted but completely rendered infructuous or ineffective by issuance of these  Office Memoranda dated

AS per NGT,  if construction is found to be started without prior environmental clearance. Authorities have to send stop work notice. Take penal action against project proponent. Demolish or regularize the construction as per NGT act. And then only proposal for fresh “Prior environmental clearance “should be heard.

Photo Courtsey www.zameen.com

The NGT  held Office Memoranda (O.M.) dated December 12, 2012 and June 27, 2013 under which violations of PEC were being condoned , to be ineffective and prohibited the MoEF and the SEIAA in the entire country from giving effect to these Office Memoranda in any manner, whatsoever.

NGT also levelled a fine of five per cent of the total cost incurred  i.e

Mr. Y. Pondurai: Rs. 7.4125 crores.

M/s Ruby Manoharan Property Developers Pvt. Ltd.: Rs. 1.8495 crores.

M/s Jones Foundations Pvt. Ltd.: Rs. 7 crores.

M/s SSM Builders and Promoters: Rs. 36 crores.

M/s SPR and RG Construction Pvt. Ltd.: Rs. 12.5505 crores.

M/s Dugar Housing Ltd.: Rs. 6.8795 crores.

M/s SAS Realtors Pvt. Ltd.: Rs. 4.5 crores.

All from Tamilnadu.

NGT also made it clear that The above environmental compensation was  being imposed on account of the intentional defaults and the conduct attributable only to the Project Proponents. NGT directed that the Project Proponents shall not pass on this compensation to the purchasers / prospective purchasers, as an element of sale.

The other key points of the judgment are

1) The impugned Office Memoranda (dated December 12, 2012 and June 27, 2013) were not only in conflict with the Notification of 2006, but in fact run contra thereto. What was not only intended but in fact was prohibited to be done, was being permitted by the impugned Office Memoranda. They had been issued without reference to any power or source of law and were neither pronounced nor authenticated in the name of the prescribed executive authority.

Photo courtsey www.indianrealestatefordummies.in

2)The requirements of the Notification of 2006 are mandatory in character (PEC). Their default or non-compliance is liable to be punished. The intention of the Legislature is to protect the environment for which words of specific nature like ‘prior’ and ‘shall’ have been used. The impact of non-compliance of these provisions would be of serious consequence, not only on environment but upon the society at large. All these enactments are unambiguous and framed in no uncertain terms and this conveys that projects commenced without obtaining Environmental Clearance would invite the penalty postulated under the Act of 1986 the provisions of Notification 2006 are mandatory and not procedural simplicitor.

Photo Courtsey www.polyp.org.uk

3)The contention  that the Project Proponents were under a bonafide belief that they could start the construction without obtaining the Environmental Clearance which they were expected to obtain prior to grant of completion certificate only. NGT held This submission  fallacious at the face of it. Every person is expected to know the law. Ignorance of law cannot be a plea. The Project Proponents were not persons who can be presumed to be in ignorant of law, they were into this business for years and the Notification of 2006 came into the existence in the year 2006. All the projects in question commenced in the year 2010 and subsequent thereto

4)The illegal and indiscriminate development activity that has been carried out by the Project Proponents is bound to have serious impacts on environment, ecology and biodiversity and a very comprehensive and stringent study would be required to dilute or mitigate adverse environmental impacts of the projects in question

  

5)To obtain Environmental Clearance prior to commencement of any activity or project is the mandate of law. This language has to be given its proper and purposive meaning. It is undoubtedly mandatory. When the law mandates prior approval, it ought not to be averred as post activity approval or ex-post facto permission.

This judgement will have long term impact on real estate business in India. However that doesn’t mean builders will stop cheating property buyers. As public authorities in India are stooges in the hands of such notorious builders . they will find new ways to cheat. However if property buyers don’t want their hard earned money to go waste, they should take following precautions.

Photo Courtsey snagesh.wordpress.com

1) If you are booking or have booked a flat in new scheme and if that project requires prior environment clearance, ask for it..

2) If such project proponent (PP)  has started construction without PEC , then immediately lodge a complaint with concerned authority

3) If environmental clearance granted is conditional one. Then it is not clear recommendation. It becomes full clearance only after PP fulfills the conditions

4) In case of conditional recommendations adequate precaution should be taken. Because some times to comply with condition like water supply or sewage treatment PP provide fake or certificates from any tom dick and harry who do not have authority to issue such certificates. Especially in case of water supply PP produces certificates from village heads and authorities blindly believe in those certificates however in such cases nobody takes responsibility of actual water supply. In this case you have to obtain information on what grounds such certificate has been issued. It is fact that verifying such documents is responsibility of public authorities. But when they are hand in gloves with real state mafia’s property buyers have to take adequate precaution.

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Lust of gullible investors for heavy returns is the reason behind flourishing fraud investment schemes

What may restrictions and prohibitions SEBI, RBI or the government impose to tackle collective investment schemes or Ponzi investment companies.Financial scams and scandal rock the country on regular basis, promising quick money to gullible small investors. They find loopholes in laws and regulations, play different tricks, play with the words, give deceptive promises and so on. It is not the case that government official don’t understand or don’t know such cases but they hand in glove with promoters of such schemes and land mafias turn their eyes away from it.

Recently CBI registered a case of criminal conspiracy and cheating under Sections 120B and 420 of IPC against Nirmal Singh Bhangoo, his two companies Pearls Agrotech Corporation Limited (PACL) and Pearls Golden Forest Limited (PGFL) and their director Sukhdev Singh. "Investigations have revealed that Bhangoo's companies raised investments from over 5 crore gullible investors through collective investment scheme under the garb of sale and development of agricultural land,

As well Mumbai  city economic offences wing (EOW) is probing a case involving PACL (formerly Pearls Agrotech Corporation) for allegedly duping investors by promising land. There are over 5 lakh investors in the state who invested money to get a plot or double their money in five years. Recently, the Securities and Exchange Board of India (Sebi) asked PACL to refund Rs 49,100 crore to the investors within three months. Sebi has also ordered the immediate closure of unauthorized collective investment schemes (CIS) run by the company.

In Pune and around also several such schemes are being run. Few days back my friend and real estate blogger Ravi Karandeekar  forwarded me email sent to him by Landson realties requesting him to remove the YouTube Video of company’s Suhas Phadnis and team. I appreciate that ravi didn’t do so. Now question is why company was insisting on him to remove the video. Before drawing any conclusion lets have a look on the email, it says

“Dear Mr. Ravi,

As we have sold out our Layout of Teak county totally, please Remove the YouTube video uploaded by you of Suhas Phadnis & Team. Secondly our Project name was changed from Teak County to Wood County so it is not legal to keep old video with that name. We request you to remove the video at earliest.”

Now first of all if they have sold the entire layout then they should be proud of it, they can easily and with pride tell customers that our project was so successful that all plots are sold. However there is no harm in keeping video on YouTube.

Secondly if the name of the project has been legitimately changed from Teak County to Wood County, it makes no difference, it is perfectly legal. However before changing name project has to be registered with some authority, There is nothing such thing mentioned in videos or company website about where the project has been registered.

Landson claims that it has 104 acre land in its possession however IGR record shows hardly around 20 acre land in its partner’s name. They should come clean on this issue before claiming sell of all the 104 acres.

So what could be the reason behind insisting for removing the said video? , After going through that video, Teak County, Wood County websites and other related videos, it becomes crystal clear that the many statements made by team suhas Phadnis and his company are daisy and deceptive.

Now if you look at the project highlights of the “wood county” it clearly says that “We are selling you an agriculture land with professional legal process. Teak Plantation is a feature where your planted trees will be registered with the Government. Plus, we will be maintaining Teak plant for you.”  But can any one purchase only land here? The answer is “no”. One has to go for plantation scheme. If he/she wants to purchase only land here, there is no other option.In its FAQ section in an answer to question ‘CAN WE HONOUR CLIENT’S DEMAND FOR LAND ONLY?” Company categorically says “The project offers land with teak plantation as a package.  It’s a two generation project and you can keep the land for your next generation by selling off the teak trees.” ( see FAQ no 30 ). In other terms whatever purchaser is paying under this scheme  is the contribution or payment made to such scheme or arrangement by the investors with a view to receive profits, income,  produce or property, whether movable or immovable from this scheme or Arrangement is a “Collective investment scheme” and is contrary to  Sebi regulations.

They pretend that Wood County is only selling the land, but that is not true going for teak wood plantation is compulsory. They also pretend that they are planting teak free of cost and will maintain it free of cost, but is that a truth ?. In fact, whether purchasers pays lump sum or on installment he has to sign an agreement of ten years for maintenance of the plot and water supply for the trees and has to pay Rs. 2/ sq. ft. for first five years and Rs. 2.5/ sq. for next five years or till the reaping of the trees whatever is later. Purchaser can not terminate this agreement,  if he does so,  he has to pay double the amount of remaining period towards liquidated damages.

What sort of land dealing is this?. This is nothing but a collective investment scheme (CIS).As per SEBI regulation Any scheme or arrangement made or offered by any company under which the contributions, or payments made by the investors, are pooled and utilized with a view to receive profits, income, produce or property, and is managed on behalf of the investors is a CIS. Investors do not have day to day control over the management and operation of such scheme or arrangement.

And, as per Section 11AA of the SEBI Act, A Collective investment scheme is any scheme or arrangement, which satisfies the following conditions:

 (i) the contributions, or payments made by the investors, by whatever  name called, are pooled and utilized solely for the purposes of the scheme or arrangement;

(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income,  produce or property, whether movable or immovable from such scheme or

arrangement;

(iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;

(iv) the investors do not have day to day control over the management and operation of the scheme or arrangement.

Ladson realty satisfies all above conditions and in FAQ no 18 they also admit that “This indeed is our first Teak project and is just the beginning.  We have many more in pipeline”.This is clear confession that landson is attracting investors to invest in teak plantation and not in land.

Landson  also claims that they will plant 140 Teak wood ( In FAQs they say 100 Plants, see FAQ 25) saplings free of cost i.e. without any consideration whatsoever being paid by the Purchaser and there is no sale and/or any other like transaction of any nature. But is it really so? , then why they collect annual maintenance charges from purchaser after selling the land and why there is condition of double the maintenance charges if purchaser discontinues with the plantation scheme ?. This is nothing but contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement and illegal as per SEBI regulation

Ladson also claims that they are giving saplings free of cost as companies Corporate Social Responsibility (CSR).When did Landson became a listed company?. If they are a company they have to be registered with SEBI. And as per Companies Act, 2013, any company having a net worth of rupees 500 crore or more or a turnover of rupees 1,000 crore or more or a net profit of rupees 5 crore or more should mandatorily spend 2% of their net profits per fiscal on CSR activities. Landson is not a listed company, it’s a partnership firm, And to deceive investors they are naming only CSR, actually they have nothing to do with CSR, also they are giving nothing free to the investor ( in landson’s language “purchasers”) Now look at the profit range of landson . In April 2014 they purchased 1.93 hector ( Two lakh eight thousand sq. ft. ) land at the cost of 18 lakh i.e. around nine rupees per sq. ft. and immediately started selling it under the name of teakwood plantation at the rate of 100 rupee per sq. ft. 11 times more than purchase price in just few days. plus recurring maintenance charges. Is there any other such lucrative business?

Not only this after so called sale of land, Landson also reserves right of amalgamation of all the plots with itself. There is one condition in an agreement “The purchaser hereby exclusively entitles to the vendor to specifically to do all that is required for amalgamation of entire holding of the vendor. It is further agreed that the purchaser is aware of the fact that the vendor shall amalgamate his entire holding and that the purchaser hereby authorizes to the vendor to do all that is necessary for the same.” How can one keep any rights with himself after selling the property?

Landson also claims 1 cr income after reaping of teak but refuses to give any written commitment, says “As per the guidelines issued by RBI and SEBI, we cannot offer any such written commitments.” (FAQ 39).

The project name initially was Teak County; it was later changed to Wood County. As Teak County they were selling same plot of 10890 sq. ft. with same built-up area

 ( http://www.commonfloor.com/teak-county-pune/povp-23lnui?f=sem_Teak-County-02&gclid=Cj0KEQjw7b gBRC45uLY_avSrdgBEiQAD3Olx41ERhz97AuABrZWf33EmFPauOdC6LwJHwoy8fcSq9waAkcX8P8HAQ ) . Ad was saying “Teak County is one of the popular residential developments in Talegaon, neighborhood of Pune. It is among the ongoing projects of its class. It has lavish yet thoughtfully designed residences.”, Lanson always advertised that  the project is in Talegaon , kanhe ,Takwe  but actual project is in kashal. Why so?

Landson has published video of one Maharashtra Forest official Mr. kashinath Rathod who was praising the project. The search of this name and designation in government website yielded nothing.It will interesting to know which law has permitted this public servant to praise such private collective investment project. What details of the project did he check before doing so?

In the nutshell the investors or purchaser in such projects must take adequate care before investing their hard earned money, there is no point in crying fowl after loss. They should always insist for all the documents from the developers and take guidance from reliable lawyer in such cases. And developers should also come clean before launching any scheme any ambiguity may lead to serious consequences.

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