Cheating Assured

Beware of investing in properties for which you are promised “assured returns”. Lack of statutory provisions allow builders to get away scot-free if they default on payments.

‘Assured Returns’ in Real estate are almost like ponzi schemes tempting thousands of investors to put in their money in projects-mostly commercial. When a project doesn’t sell, the developer attracts consumers to invest. Unfortunately many retired professionals and senior citizens who want a regular inflow of money buy into these projects and find themselves trapped later, says a real estate broker. Desperate developers use desperate means to make money. “ One of them had a scheme in which consumers were told to buy any part of the project – a studio space, the front office area and even a fountain in the common area. Investors were told they would be paid assured returns at 12% of the costs till the projects was ready. It’s not that people are not campaigning for justice. Manish Jain, an investor who incurred losses in a project offering commercial office space, approached the Delhi High Court with the plea that such schemes be covered under the definition of a ‘deposit’ under the Reserve Bank of India Act 1934 and collective investment scheme (CIS) under section 11B of the SEBI act read with CIS regulations. If that’s done then builders would be forced to comply with RBI and securities and exchange board on india (SEBI) regulations.

Strangely according to SEBI and RBI, such schemes are not under their regulatory jurisdictions  Even EoW Delhi says it is just a violation of contract between two parties and doesn't amount to a criminal offence.

‘Now the investors need to tread very cautiously. Things have become very tough for those who have already invested. The only recourse is a civil suit and a decision on it might take years.

Promise made and not kept

Committed return : In an assured return scheme, a developer, while selling a commercial space to an investor, gives an assurance to make monthly payment at 12% to 14% per annum of his total investment till he constructs and hands over the unit.

Assured Rental : While assuring such returns during the construction stage, many developers promise that once the commercial unit is ready for possession, they will lease it out to companies on the owner’s behalf and pay a handsome rent at 12% to 14% per annum.

How it works : Developer running such schemes defend themselves by saying that instead of taking a loan from the banks for the construction of the project, they collect money upfront front investors by selling the units and pay back a share from their profits.

A Risky Scheme : Expert express reservations against these schemes as the developers’ promise for assured returns seem unrealistic. Rentals will not fetch more then 6 to 7 % per annum of the total cost of the unit.

Breach of MoU : Hundreds of investors have been alleging that many developers, after collecting money in such schemes, default in making payment and there is no redressal mechanism for their grievances. The statutory provision to regulate such investments is absent.

Legel View : Need to regulate assured return schemes

The legal opinion on assured returns’ scheme is that there is no statutory provision to regulate such investments. According to legal experts, when a contract between two people is violated it, becomes a civil offence. However, if such transactions are governed by statutory provisions, then the breach amounts to the violation of the provisions and is treated as a criminal offence.

Says supreme court lawyer SK Pal, “Generally a breach of contract is a civil matters. If however someone is contracted to do something for which he or she has a legal obligation, then the breach of contract may also be a criminal act, though the actual breach is not criminal.” Its high time Central and respective state governments passed a law to regulate such financial activities.