1

BUSINESS LAWS PROJECT REPORT ON Issues relating to Housing Sector

SUBMITTED TO:

Prof. Jagdish Shettigar

Birla Institute of Management Technology

Plot No. 5, Knowledge Park II

Greater NOIDA, UP - 201306

SUBMITTED BY:

S.No. Name Roll Number Email address

1. Deepjyoti Nath 14DM068 deepjyoti.nath16@bimtech.ac.in

2. Dishant Gupta 14DM078 dishant.gupta16@bimtech.ac.in 3. Ishan Biswari 14DM096 ishan.biswari16@bimtech.ac.in

4. Jasmine Singh 14DM099 jasmine.singh16@bimtech.ac.in 5. Kaveri Saronwala 14DM111 kaveri.saronwala16@bimtech.ac.in

DATE: 14 FEBRUARY 2015

2

ACKNOWLEDGEMENT Completion of a project and writing of the report is a satisfying and pleasing part of the

opportunity, for those who contributed towards it. While doing my project we were guided in

a way that not only showed us the right direction but also helped us to grow more rational in

our thinking and approach.

This project has been more of teamwork and its successful completion would have been

impossible without sincere cooperation of all those we have been associated with it. I feel

highly indebted to them.

I owe enormous intellectual debt towards my teacher and mentor Prof. Jagdish Shettigar whose suggestions and guidance was invaluable and helped us throughout our project.

Last but not the least we would like to thank all those persons and organizations who have

helped us directly or indirectly in the successful completion of this study.

3

TABLE OF CONTENTS

S. No. Content Pg No.

1. Introduction to Housing Sector 4

2. Structure and Laws of Housing in India 7

3. The Real Estate (Regulation and Development) Bill, 2013 12

4. Penalties 15

5. Housing Scams 16

6. References 20

4

Real Estate in India: An Introduction The Indian real estate sector is one of the most globally recognised sectors. In the country, it is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. It comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. According to a study by ICRA, the construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. It is also expected that this sector will incur more non-resident Indian (NRI) investments in the near future, as a survey by an industry body has revealed a 35 per cent surge in the number of enquiries with property dealers. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun. Private equity (PE) funding has picked up in the last one year due to attractive valuations. Furthermore, with the Government of India introducing newer policies helpful to real estate, this sector has garnered sufficient growth in recent times. Market Size According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received foreign direct investment (FDI) equity inflows to the tune of US$ 23,874.1 million in the period April 2000-September 2014. The Indian real estate market size is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the country's gross domestic product (GDP). Also, in the period FY08-20, the market size of this sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. According to a study by Knight Frank, Mumbai is the best city in India for commercial real estate investment, with returns of 12-19 per cent likely in the next five years, followed by Bengaluru and Delhi-National Capital Region (NCR). Also, Delhi-NCR was the biggest office market in India with 110 million sq ft, out of which 88 million sq ft were occupied. Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. Investments

5

The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Some of the major investments in this sector are as follows:

Assotech Realty has tied up with Lemon Tree Hotels to manage and operate its serviced residences. The first project, 210 apartments under the branding of Sandal Suites, will be launched in Noida in 2015. The companies will launch 8-10 similar projects in a phased manner over the next seven years with an investment of Rs 800-900 crore (US$ 129.37-145.57 million) approximately.

Blackstone Group LP is all set to become the largest owner of commercial office real estate in India after a three-year acquisition drive in which it spent US$ 900 million to buy prime assets. Blackstone has acquired 29 million sq ft of office space in cities such as Bengaluru, Pune, Mumbai, and Noida on the outskirts of New Delhi.

L&T Infra Finance Private Equity (PE) plans to raise Rs 3,750 crore (US$ 606.54 million) in an overseas and a domestic fund, and launch a real estate fund.

IDFC Alternatives Ltd has sold two of its real estate investments to PE firm Blackstone Group LP. The assets - a special economic zone (SEZ) in Pune and an information technology (IT) park in Noida - were sold for a combined enterprise value of Rs 1,100 crore (US$ 177.92 million).

Goldman Sachs plans to invest Rs 1,200 crore (US$ 194.1 million) to build a new campus in Bengaluru that can accommodate 9,000 people. The new campus is being developed in collaboration with Kalyani Developers on the Sarjapur Outer Ring Road, Bengaluru.

Snapdeal has entered into a strategic partnership with Tata Value Homes to sell the latter's apartments on its e-commerce platform, which marks the first time that an e-commerce company has tied up with a real estate venture.

6

Government Initiatives 'Under the Sardar Patel Urban Housing Mission, 30 million houses will be built by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership, interest subsidy and increased flow of resources to housing sector', according to Mr M Venkaiah Naidu, Union Minister of Housing and Urban Poverty Alleviation. The Government of India along with the governments of the respective states have taken several initiatives to encourage the development in the sector. Some of them are as follows:

The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable easier access to funds for cash-strapped developers and create a new investment avenue for institutions and high net worth individuals, and eventually ordinary investors.

The Telangana Real Estate Developers' Association (Treda) plans to host the Fifth Treda Property Show 2014 at Hitex Centre, Hyderabad. The show will be open to a mix of the populace, including prospective property purchasers, investors, architects and others.

The State Government of Kerala has decided to make the process of securing permits from local bodies for construction of houses smoother, as it plans to make the process online with the launch of a software called 'Sanketham'. This will ensure a more standardised procedure, more transparency, and less corruption and bribery.

The Government of India has proposed to release the Real Estate (Development and Regulation) Bill which aims to protect consumer interest and introduce standardisation in business practices and transactions in the sector. The bill will also enable domestic and foreign investment flow into the sector.

Road Ahead As the Indian economy grows, the real estate sector keeps benefiting. With the increase in foreign tourist arrivals (FTA) every year, there is demand for real estate in the tourism and hospitality sector. Also, with the entry of major private players in the education sector, the major cities, that is Hyderabad, Bengaluru, Mumbai, Delhi, Pune, Chennai and Kolkata are likely to account for 70 per cent of total demand for real estate in the education sector. Demand for improved healthcare facilities is also expected to provide a boost to the construction sector in the country. Exchange Rate Used: INR 1 = US$ 0.016 as on November 27, 2014 References:Ministry of Finance, Press Information Bureau (PIB), Media Reports and Publications, Department of Industrial Policy and Promotion (DIPP), CREDAI.

7

Structure of Housing Industry

Real estate laws in India

India’s largest landscape and huge land area covering distance area of 3,287,263 km2 has

always attracted large scale real estate development and the economic boon, the rise of

disposal income, rise of nuclear families and the rise of tier II and III cities and towns have

paved the way for further growth in the real estate industry. A recent survey from leading

magazine has declared India has a next popular destination of real estate development. These

circumstances coupled with the opening up of real estate market to FDI or Foreign Direct

Investment in 2005 had led to an increasingly growing interest of the investor in the real

estate market. However the investor is often faced with the serious issue of lack of clarity on

the practices that are prevalent in this highly unorganized sector.

Laws and policies of a country at the same time play a significant role in shaping the actions

of the investors or wish to invest in the real estate market and this article is aimed to describe

and give a crystal clear view of the norms, practices and policies that govern the real estate

sector and which thereby can help an Indian investor or a foreign investor who wish to invest

in India.

State of the Industry

Institutional Framework

Central

-MHUPA

- Govt Housing Finance bodies

State

Ex- HUDA, DDA

Major Acts and Regulations

Central

-Ownership of Land for

Development

-Nature of development

-Operations of

developers

State

-Rent Control Acts

-Urban Development

Acts

-Agricultural Development

laws

Policy Framework

Central

-NUHHP

-JNNURM

-FDI

State

Examples of states

8

REAL ESTATE:

This industry is constrained by archaic laws as well as government policies both at the central and state levels. There are more than 100 laws governing different aspects of this sector and most of these are dating back to the 19th century. E.g. the Land Acquisition Act 1894, Indian Contract Act 1872, Transfer of Property Act 1882, Registration Act 1908, the Indian Evidence Act 1872, etc. The states still exercise control through a variety of laws such as Rent Control Act and Urban Land Ceiling and Regulation Act. In 1992 the Central Government proposed a model rent control legislation but only a few states have introduced the model act. Some reforms have started happening in these acts due to the JNNURM projects since the Central Government had made it a condition for release of funds under the JNNURM. However in some states Stamp Duties is as high as 14 – 15% and in some these cases it is applicable in subsequent transactions triggering large scale tax evasions and benami transactions and money laundering. Processes for obtaining approvals to start construction are very cumbersome which includes obtaining the Environmental Impact Assessment Notification from the offices of the Ministry of Environment and Forests (MoEF). This has led to huge corruptions and almost no transparency.

Real estate is anything in relation to land, buildings which can either be residential or

commercial or may include any housing units, commercial office spaces, schools, shopping

complexes, etc. Real Estate development means anything in relation to construction or

development of land or buildings and includes residential complexes, commercial centers,

malls, shopping complexes etc.

Real estate is always in relation to an immovable property. Immovable property has been

defined under The Property Act and with the help from the general clauses act 1897, the

definition of immovable property can be summarized as “immovable property is not a

movable property and includes land or benefits arising out of land, things attached to earth

or permanently fastened to anything attached to earth means rooted in the earth or

embedded in the earth like walls or buildings.

The norms, Laws, policies governing Real estate:

The Central Acts, the local municipal laws of each state and union territory and the recently

issued consolidated FDI Policy 2010 are some of the norms that govern the various

transactions and practices in the real estate. Sale, lease, mortgage, license are some of the

transactions that are governed by the above mentioned laws and policies.

The laws and policies shall be accordingly described along with the transactions that come

into play when investor ventures into real estate domain.

The investor who wishes to invest in a land, building that is investor wants to buy land or

wants to sell, mortgage, let on lease etc, any immovable property as mentioned is required

to first foremost know whether he is competent to enter any of the above mentioned

transactions.

9

The investor is first required to check whether he is competent to contract because the first basis of

investment is being competent to contract.

The contract act governs the section 11 which states that a person is required to be:

A major i.e. above 18 years of age.

Of sound mind i.e. not insane.

Not prohibited under the law of country to contract.

A resident and a citizen of India are not prohibited to invest or buy an immovable property

in India. A non-resident is however prohibited to buy any immovable property in India. A non-

resident is though allowed to enter into a lease agreement in relation to an immovable

property for the purpose of residence in India for a period of not more than 5 years. This is

governed by FEMA and subsequent notifications issued by the same.

The lease agreement has to be executed in accordance to the provision of the Transfer

Property Act i.e. Section 105 that states that lease is an agreement to transfer only an interest

to enjoy the immovable property for a certain period of time for a fixed period and for a

consideration.

A non-resident cannot acquire any immovable property but can invest in Indian entity that is

involved in the real estate development by virtue of the recent issued consolidated FDI policy

by the RBI. The non-resident is permitted to invest in an Indian entity through the automatic

route as mentioned in the policy whereby the said investor is not required to seek any prior

approval for the for the said proposal from the RBI or The Department of Industrial policy

and Promotion (DIPP), Ministry of Commerce. The investor is however after the inward

remittance or issue of shares is required to inform about the same within 30days to RBI.

The investor secondly is required to get title check of the immovable property or know the

conditions upon which the investment can be made with respect to the land or immovable

property.

The registration act, 1908 mandates that all written document that are creating interest or

transferring interest in immovable property for a consideration of a value more than 100

Rupees is a mandatorily required to be registered in the land Registry. These documents or

deeds are basically deeds that are indicating the title to the immovable property in the name

of investor or transferee in the present case with the Registry.

A foreign investor can invest in real estate in India by virtue of the FDI policy but subject to

some conditions. The foreign investor can invest 100 percent FDI in townships, Housing, built

up Infrastructure and construction development projects which shall include but shall not be

restricted to schools, housing, commercial premises, theatres, etc. regional level

infrastructure like roads, bridges. However, these investments are subject to the following

conditions:

10

A minimum of 10 hectares that is 25 acres of land shall be required to be developed

in case of service housing plots.

Construction development projects shall be characterized with a minimum built up

are of 50,000 sq. meters.

The foreign investor is required to provide 10million US dollars as a minimum

capitalization that is 10million US dollars as minimum paid up capital in case of wholly

owned subsidiaries owned by the foreign companies and provide a minimum of

5million US dollars in case of joint venture with an Indian Partner.

In case of combination of both, either of the baove mentioned are required to be

satisfied.

The funds are required to bring in within 6 months of commencement of business in

India.

50% of the project should have been developed within 5 years from the date of

obtaining all statuary clearances.

The investor must provide this infrastructure and obtain the completion certificate

from the concerned local body agency before being allowed to dispose of the serviced

housing plots.

The project shall conform to the norms and standards, including land use

requirements and provision of community amenities and common facilities as laid

down in the applicable building control regulation, rules and regulation of the State

Govt/ Municipal/ local body concerned.

A foreign investor is not subjected to above mentioned conditions in case he is

investing in construction and development of hotels, hospitals or investing in SEZs.

However, the investor is subjected to SEZs Act and is required to comply with

requirements while undertaking constructing and developing activity in SEZ.

The third requirement is execution of the agreement of sale or lease by the investor:

The transaction that the investor or the person dealing with real estate wish to affect that

may be sale or lease or mortgage is governed by the transfer of property act. The

transaction can be affected by written document that may either be transferring an

interest or transfer the whole interest that is property in whole to the transferee.

Transferee is the person in whose favour the interest is created and transferor is the

person who transferring the interest.

By virtue of the contract act and section 10 in this regard, the agreement to enforce as a

contract is required to be:

Between the parties who are competent to contract as mentioned.

There is meeting of mind that is both parties are aware of the contents of the

agreement and agree on the same.

11

There has to be valuable consideration that is consideration should be of

reasonable value.

Fourth requirement after execution of the document:

Stamp duty is required to be paid on all above mentioned documents and these

documents as mentioned are required to be registered with the registrar of land registry.

Stamp duty is governed by the stamp act and local prevalent rates of stamp duty imposed

by the states are paid accordingly on the documents. Some states have double stamp

incidence whereby first stamp duty is paid for the transaction of acquiring land and other

for development of it. These written documents effecting the transaction are required

to be registered with the Registrar of Land registry. As mentioned above any document

that is transferring an interest in immovable for a consideration of value above 100

rupees is required to be compulsorily registered.

The abovementioned document is required to be registered with registrar by virtue of

the registration act 1908. Non- registration of document does not affect the transaction

of sale or lease or mortgage that is effected by the instrument but is important as only

registered documents are admitted in the court.

The registration act prohibits a non-registered document that is transferring or conveying

title from being admitted as evidence in court. This registered document in fact acts as a

notice to all people that property has been conveyed to the person in whose name it is

registered and is notice of the transaction and thus it is advocated to register such a

document is preferred over a unregistered document in case in future if any challenges

comes against the transaction.

There are some regulations and norms that an investor is generally required to follow:

An investor who is constructing buildings or developing plots of land is required

to get necessary approval from the concerned authorities for embarking on

constructing the same.

The investors in case of construction of building are required to be keeping in

mind the local laws and bye laws governing the construction activity. The investor

is generally required to generally lay down construction in accordance to local

laws in connection to building plan, master plan, and zonal plans and is required

to see that construction is not harming any historical monuments or ceiling of

building in accordance to master plan.

Other clearances like fire safety, sewage lay out and permission for operation of

industrial unit are required to be taken from the local authorities.

The activity of constructing building etc. employs large scale labor and an investor

is required to comply with the various labor laws passed for the welfare of the

labor. The minimum wages act prescribes minimum wages to be given to the

labor employed in these construction activities and other labor laws providing for

safety, insurance and other guidelines.

12

The Real Estate (Regulation and Development) Bill, 2013

After much delay and deliberation The Real Estate Regulation and Development Bill, 2013 ["Bill"] has been approved by the Union Cabinet on June 4, 2013, though this bill is yet to be approved by Parliament i.e. lok sabha or the lower house of the parliament and the Rajya Sabha or the upper house of the parliament The bill will be notified as a statute once it receives the assent of the President of India for its implementation across all States and Union Territories in the country.

The passing of this Bill is best stated as a delayed step of the Indian government towards regulation of real estate sector. This Bill aimed to create a Real Estate Regulatory Authority and an Appellate Tribunal that will act as a watchdog for the housing sector, primarily towards protecting consumer interests while creating an alternative redress mechanism for any disputes that may arise.

This bill also aims to provide a uniform regulatory environment in the real estate sector which is laced with black money, corruption, red tapism, land mafias and corruption. The core objective of this Bill are twofold i.e. to ensure sale of immovable properties in an efficient and transparent manner and to protect the interest of consumers in the real estate sector.

Applicability of the bill

The proposed Bill has limited its applicability to residential real estate only i.e. housing and any other independent use ancillary to housing. The Bill defines

"real estate project" as the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of a colony into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments or plots or buildings and includes the development works thereof

''apartment" whether called dwelling unit, flat, premises, suite, tenement, unit or by any other name, means a separate and self-contained part of any immovable property located on one or more floors or any part thereof, in a building or on a plot of land, used or intended to be used for residential purposes, or for any other type of independent use ancillary to the purpose specified and includes any covered garage, whether or not adjacent to the building in which such apartment is located which has been provided by the promoter for the use of the allotter for parking any vehicle, or as the case may be, for the residence of any domestic help employed in such apartment

13

Major Highlights of the Bill

The provisions of this Bill are applicable only to residential projects.

Prior approval before launch and advertisement- This bill contains provisions restricting launch of projects or advertisements unless all approvals are received and all the agents are not expected to facilitate the sale of immovable property which are not registered with the Authority and to maintain books of accounts, records and documents.

Mandatory deposit of fund- It makes mandatory upon the promoters to deposit 70 per cent or such lesser per cent as notified by the government to cover the construction cost of the project of funds in a separate bank account to ensure timely completion and prevent fund diversion.

Registration of real estate project and real estate agent - The bill also ensures mandatory registration of real-estate projects and real-estate agents with the Authority, except when the land proposed to be developed is less than 1000 square meters. This provision is likely to provide another level of protection to buyers while also preventing concerns regarding money laundering by the non-organised broker community.

Disclosing of mandatory information - The real - estate agents / developers are now required to disclose material information such as details of the promoters, project, layout plan, plan of development works, land status, carpet area (as opposed to super area) and number of the apartments booked, status of the statutory approvals and disclosure of proforma agreements, names and addresses of the real estate agents, contractors, architect, structural engineer etc on the Authority's website.

Restriction on taking advance - Prohibition on taking more than ten percent as advance from the buyers without a written agreement and also the developers/ agents are required to refund to buyers the full amount in case of delay of projects.

Liability/ Penalty – The Bill prescribed for Civil and criminal liability for the contravention of various provisions of the Bill, such as, imprisonment up to three years or a penalty up to ten per cent of the estimated cost of the real estate project for projecting out misleading information in advertisements or prospectus

Real estate regulatory authority – The Bill give the power to establish one or more Real Estate Regulatory Authority in each State/UT, or one Authority for two or more States/UT, by the Appropriate Government, specifying their functions, powers, and responsibilities to exercise oversight of real estate transactions. The Bill shall also appoint adjudicating officers to settle disputes between parties, and to impose penalty and interest.

14

Real estate regulatory authority – powers and functions

The Authority will act as a nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector.

The authority shall ensure compliance of the obligations cast upon the promoters and the allotters and to cause an inquiry to be made into compliance of its orders or directions made in exercise of its powers

To host and maintain a website of records of all real estate projects within its jurisdiction as database, with all details as provided in the application for registration under the Act, for projects, for which registration has either been granted or cancelled as the case may be;

To make recommendations on protection of interest of the allotters, measures to improve the processes and procedures for clearance and sanction of building plans and development projects from the Competent Authority; and construction and maintenance of structurally safe, environmentally sustainable, and low cost buildings, apartments and properties and any other form of assistance or advocacy to promote competition and efficiency in the real estate sector.

Regulatory Authority shall have the power to call for information, conduct Investigations, and make inquiry in the affairs of promoters where it considers expedient so to do it

Regulatory Authority has the power to Issue directions to promoters and allotters from time to time and such directions are binding on all concerned.

Powers of the Regulatory Authority consequent upon lapse of or cancellation of registration of the promoter to recommend to the Competent Authority to have the remaining development works, carried out from the proceeds of the enforcement of bank guarantee and recover charges incurred on the said development works due from the promoter.

The Regulatory Authority shall have powers to regulate its own procedure and shall be guided by the principles of natural justice and shall have all the powers as are vested in a Civil Court under the Code of Civil Procedure,1908

15

Penalties

1. Any promoter who fails to register in accordance with the provisions of the Real Estate (Regulation and Development) Bill, 2013 shall be punishable with imprisonment for a term which may extend to three years, or a penalty which may extend to ten per cent of the estimated cost of the real estate project, or with both.

2. If any promoter contravenes any other provisions of this bill, other than that provided above, or the Rules or Regulations made, he shall be liable to a penalty which may extend to five percent of the estimated cost of the real estate project.

3. Any promoter who wilfully fails to comply with orders of the Authority shall be liable to a minimum penalty of one lakh rupees for every day during which such default continues, which may extend to five percent of the estimated cost of the real estate project.

4. Any promoter who wilfully fails to comply with the orders of Appellate Tribunal shall be punishable with imprisonment for a term which may extend to one year or with a penalty which may extend to ten percent of the estimated cost of the real estate project, or with both.

16

Housing Scams in India: A few examples:

1. The 2010 fake housing loan in India was uncovered by the Central Bureau of Investigation (CBI) in India. CBI arrested eight top-ranking officials of public sector banks and financial institutions, including the LIC Housing Finance CEO Ramchandran Nair, in connection with the scam.

CBI investigations

CBI alleged that the officers of various public sector banks and financial institutions received bribes from a private financial services company, which acted as a mediator for corporate loans and other facilities from financial institutions. The bank officials sanctioned large-scale corporate loans to realty developers, overriding mandatory conditions for such approvals along with other irregularities.

The Central Bureau of investigation arrested number of high official from the several financial institutes in India in connection with the housing scam in November 24, 2010. Smith (2010) stated that findings are shocking where the head officers of several banks and financial institutes are involved in corporate corruption. Precisely, the banks and financial officials were from the public sectors including LIC, Bank of India, Central Bank of India and Punjab National Bank. However, stated that since the matter was related to the erosion of funds from the LIC housing and Finance Limited, event was named as the LIC housing and Finance Scandal. Lamont (2010) cited that the officers from the high rank including the secretary of LIC Investment, general managers, directors and deputy managers of banks were involved in taking out the funds from LIC in appropriate and unethical way. Smith (2010) said that these officials were acting as the middleman to provide the funds to the main parties and in return they were having hefty amount of funds from the real investors, insurers and other consumers. Smith (2010) regarded this as the distortion of the corporate governance system where the business ethics were neglected to sustain the core business activities of the public sector banking firm. Meanwhile, Economic Times stated that the officials were charged with the exploiting of funds, looting, corrupting corporate loan process and manipulating and overriding with the regulations of the LIC Housing and Finance Limited in regard to the approvals and other rules and regulations. Nonetheless, The loans provided through this manner were estimated to be worth of 85 Billion Dollars, comes as the biggest scandal in the Housing Finance in Asia However, the stock price took a sharp dip soon after the event. Apparently, LICHF had a good run till September 2010 when it reached Rs.299 and the growth rate undoubtedly, received the appreciation by the investors and other shareholders. The stock recorded no significant changes thereafter but the appearance of corporate scandal shook the stock price chart and the price dip to Rupees 150 by the end of year 2010. At present the stock price is stands at around rupees 190 and gaining its momentum over a period of time but however, Lamont (2010) felt that the combination of factors that happened in the last quarter of FY10 were accountable for the sharp decline in the LIC Housing and Finance Share price. Reuters stated that LIC Housing and Finance is looking forward to raise the capital to the tune of Rupees 25000 Crores in 2011-12 through debt. Eventually, the technical experts believed that company is developing its core competencies and capabilities and undoubtedly, investors would revive the stock price and current Market changes and company’s development will be seen through the price momentum. However, experts

17

believed that the Housing and Finance Scandals by the top officials in LIC and other banking institutes will always stand to harm the future potential of such companies but however, the future and the endless opportunities lies in the hand of ultimate investors. Eventually, online newspaper, Rediff quoted as saying that most of the brokers are taking up the stock of LICHF after the scam as related to the current project being performed by the company. Namely, IIFL, Aditya Birla, IL&FS are impressed by the current progress by the company and building up the stock ay higher rate. However, Reuters stated that the Financial Budget introduced by the Indian Planning Commission had slightly adverse effects on the stock of banking, insurance, mortgages and other related sector in the industries. However, the company has been quoted as saying that they would include the margin between 2.8 to 3% in relation to the rising interest rates and their effects on the share price. However, In response the scam, the Reserve Bank of India and other regulatory and financial bodies attempted to reform the housing finance sector by making several supervision and security measures in this regard. Eventually, the corporate scam destroyed the interest and confidence of investors and thus, the monetary and regulatory authorities must execute their task in relation to safeguarding the interests of investors. Apparently, Smith (2010) stated that the Central Bureau of Investigation exposed the stock price dip to 18% of the prevailing market rate after the scam and other banks who were involved saw a decline between 5 to 15% during the time. Hence, it was anticipated that investors believed in the core values and company’s relation with the investors and the stock changes occur in the short span of time however, the stock is futuristic for the long term.

CBI's Economic Offences Wing (EOW) raided offices of the public sector banks and LIC Housing Finance in six cities (Mumbai, Delhi, Chennai, Jaipur, Kolkata and Jalandhar), to recover incriminating documents.

According to CBI, the companies to which the loans in question were given include:

Lavasa Corp., a unit of Hindustan Construction Co. Oberoi Realty Ltd. Ashapura Minechem Ltd. Suzlon Energy Ltd. DB Realty Ltd., a part of the Dynamix Balwas Group Emaar MGF Land Ltd. Mantri Realty Kumar Developers Ltd.

The CBI EOW also suspected that the companies may have inflated their assets value and balance sheets in order to make themselves eligible for the loans.

According to CBI, an employee of the financial services firm had expressed his willingness to turn witness in the case.

18

Reactions

Most firms, including BGR Energy and Oberoi Realty denied any role in the scam.[5]

The scam was discovered shortly after the 2010 Commonwealth Games corruption controversy and the Adarsh Housing Society Mumbai scam. The investors were rattled as news of the arrests broke in Mumbai. The share of the LIC Housing Finance, Central Bank of India, Punjab National Bank, Bank of India as well as other banking and real-estate stock declined.

The Union finance ministry initially claimed that the case was a bribery incident, and not a large-scale scam. The CBI officials had indicated that the size of the scandal could be worth over Rs 1,000 crore, but the finance ministry officials claimed that the magnitude of the scandal was too insignificant to have an impact on the Indian financial sector.

The income-tax (IT) department decided to investigate the books of those involved in the scam, after receiving primary reports from CBI. However, many political analysts believe innocent bankers were implicated in this falsely created scam to defuse attention of the common man against the much larger and serious scams done by the ruling Indian government, notably of corrupt politicians like CWG minister Suresh Kalmadi and ex-telecom minister A Raja.

2. Emaar Properties scam

The alleged scam started back in 2003 when Dubai-based real estate group Emaar Properties merged with the government run Andhra Pradesh Industrial Infrastructure Corporation (APIIC). Under the partnership clause, 75 percent of equity granted to Emaar Properties and the rest percentage to the APIIC. The actual plan was to develop an ultra-luxury township including villas, golf course and a hotel on 535 acres of land in Gachibowli. But in 2006, another Dubai-based infrastructure company, MGF got involved in the partnership and due to which the stake of APIIC reduced to 6.5 percent. However, during this time BP Acharya was serving as the Managing Director of APIIC and allowed the revised terms rather than obtaining clearance from government. CBI suspected that the new partnership helped Emaar-MGF to gain excessive benefit of 2500 crore.

Many top-notch figures including politicians and celebrities had come under CBI scanner for buying villas sold at 5000 per square yard, whereas the actual market value was no less than

60,000 per square yard. This had brought huge loss to the government, with NDTV inputs.

3. Cooperative group housing scheme Scam

In the Rangmahal cooperative group housing scheme (CGHS) scam of 4000 crore, 11 people were reported to be allegedly involved in the corruption scam that included seven public servants. The public servants who were found to be convicted include ex-Registrar Cooperative Societies Narayan Diwakar-the key player of this scam, Jt Registrar Jasbeer Singh,

19

Assistant Registrar (Audit) Jitender Sharma, Assistant Registrar Ramesh Chandra, Dealing Assistant Rakesh Kumar and Inspector RCS Faiz Mohd and one P K Thirvani. Also, these people were declared guilty of criminal conspiracy under the Indian Penal Code, cheating, forgery and for under the Prevention of Corruption Act, reports PTI.

The Cooperative group housing scheme Scam started when the plot was fraudulently allotted by the convicts for Rangmahal CGHS in Pitampura area of North West Delhi.

According to CBI, people who are involved in CGHS case, "on the basis of forged and false documents" and "also successfully misrepresented the DDA and induced it to allot huge land on subsidised rates to the society" reports Indian Express.

4. Karnataka Wakf Board Land Scam

Karnataka Wakf Board Land Scam is one among the named scandals in India. Karnataka Wakf Board Land Scam involved the alleged misappropriation of 200, 000 crore in Indian property funds and the scam is unearthed by Karnataka State Minorities Commission’s report that brought out in 2012.

Karnataka State Minorities Commission’s chairman, Anwar Manippady submitted a report to the Chief Minister of the state, D.V. Sadananda Gowda in March 2012, suspected that Karnataka Wakf Board controlled land of 27,000 acres has been misappropriated or allocated illicitly. Besides, the estimated value of the land is 2 lakh-crore.

The Muslim charitable trust, Karnataka Wakf Board, manages property that has originally been donated for the poor to utilize. But, the report alleged that the Wakf Board has permitted around 50 percent of its land to be misappropriated by board members and politicians in involvement with the real estate mafia for a fraction of its actual market value.

5. Noida land scam:

Noida land scam is another multi-crore real estate fraud took place in India. In this scam, top scientists of the Indian Council of Medical Research (ICMR) have transferred the government land worth around 70 crore to the name of a private group to develop society flats by spending just a small part of its actual market value.

Originally Noida land scam started way back in March 1992 when the tract of government land was allotted to develop staff quarters for ICMR affiliated ICPO (Institute of Cytology and Preventive Oncology) at sector 39. The ICPO spend around 2 crore to get possession of the land but failed to develop the quarters till March 2006, due to which the penalty amounted to almost 2.28 crore. And from this stage, it is to be believed that officials started using the plot of land for different purpose.

20

The plot of land that came under scanner spans over 2.5 acres which is around 9,712.62 square meters and the society building is located on Noida’s prime location where the sector 32 Metro station and Noida City Centre is nearby.

6. Adarsh Housing Society scam

Adarsh Housing Society Scam is the biggest housing scams of Mumbai, the financial capital of India. It is one of the multi-crore housing scam in India. This housing scam started way back in the year 2002 when a request for the construction of housing complex was put forward to the Chief Minister of Maharashtra. The request was to allot land for housing complex for “the welfare of serving and retired personnel of the Defence Services," in the city of Mumbai. Surprisingly, over the period of ten years, top politicians, bureaucrats and military officials have come under the scanner for violating several norms including land-use rules and environmental laws and misusing the houses originally built for martyrs' widows and Kargil heroes. In fact, these aforementioned figures have pounced on flats in this property at low prices, which is located in South Mumbai’s Colaba area in prime defence land.

"The episode of Adarsh Co-operative Housing Society reveals how a group of select officials, placed in key posts, could subvert rules and regulations in order to grab prime government land- a public property- for personal benefit,” according to the report of the Comptroller and Auditor General of India to the President of India in 2011.

REFERENCES

1. Ministry of Finance, Press Information Bureau (PIB), Media Reports and Publications, Department of Industrial Policy and Promotion (DIPP), CREDAI.

2. mhupa.gov.in 3. www.prsindia.org 4. http://www.hg.org/realest.html 5. www.siliconindia.com/realestate/ 6. www.indianrealestateforum.com 7. www.propertyscam.in 8. http://articles.economictimes.indiatimes.com 9. http://www.indianexpress.com 10. http://www.thehindubusinessline.com