Karnataka RERA (KRERA) Intervenes in Commune One Project, Orders Flat Buyers' Association to Complete Construction

In a significant move by the Karnataka Real Estate Regulatory Authority (KRERA), a flat buyers' association has been directed to take control and complete the construction of the delayed Commune One project in Anekal Taluk, Bengaluru. The project, initially promised for delivery in December 2019, has been mired in delays and financial mismanagement, prompting regulatory intervention.

Background of the Dispute

Commune Properties Pvt Ltd, the developer, had entered into a financial arrangement with Anand Rathi Global Finance Ltd., mortgaging unsold flats without the consent of the buyers. Despite collecting over 90% of the payment from buyers, the developer failed to deliver the flats, leading to a substantial breach of trust and violation of KRERA's prohibitory orders. These orders were initially meant to prevent the sale of additional apartments and to stop Anand Rathi from disposing of the mortgaged apartments to recover its dues.

KRERA's Ruling and its Implications

KRERA's investigative process revealed that the developer had sold 40 apartments after the mortgage to Anand Rathi for Rs 8 crore. Anand Rathi, in turn, sold 18 of these apartments, earning Rs 4.3 crore. Responding to the gravity of the situation, KRERA has ordered Anand Rathi to transfer the Rs 4.3 crore it collected from these sales to the flat buyers' association. This fund is to be used by the association to continue and complete the construction project.

The authority has provided a timeline of two years for the completion of the project under the stewardship of the buyers' association. Furthermore, KRERA's order allows the association to sell any unallotted apartments to raise additional funds necessary for the completion of the project.

Financial Discrepancies and Project Viability

The financial assessment presented during the hearings showed conflicting estimates about the required funds to complete the project. While the developer's latest budget document estimated around Rs 5.3 crore was needed, the association's estimates suggested that approximately Rs 22 crore would be necessary to fully complete and equip the project with the promised amenities.

The Role of KRERA and Ensuring Compliance

This ruling by KRERA underscores the authority's role in protecting the interests of homebuyers and maintaining the integrity of real estate transactions. The decision to enable the buyers' association to take over the project management is based on Section 8 of the RERA Act, which is designed to safeguard buyers’ interests against the malpractices of developers and financiers.

The Commune One case serves as a precedent in the Indian real estate sector, highlighting the potential of regulatory bodies to correct the course of troubled projects and ensure justice for affected stakeholders. The success of this intervention could very well determine future regulatory approaches towards resolving similar disputes in the burgeoning real estate market of India.

As the flat buyers’ association prepares to undertake this significant responsibility, the eyes of the real estate community will undoubtedly be watching, hoping that this could mark a turning point towards greater accountability and transparency in the sector.