NEW DELHI: Assuring that large-scale financial fraud, such as cheating of homebuyers in the Amrapali case, will not happen in the real estate sector in future, the Centre told the Supreme Court on Thursday that a mechanism had been put in place to check diversion of funds by builders.
Additional solicitor general Madhavi Divan told a bench of Justices RF Nariman, Sanjiv Khanna and Surya Kant that it was now mandatory for real estate companies under the Real Estate (Regulation and Development ) Act to deposit 70 per cent of the money raised from homebuyers in a separate bank account which would be used only for construction and land cost and builders would not be able divert the money for other purposes.
Referring to the Amrapali case in which homebuyers’ money was diverted to pay endorsement fee of cricketer MS Dhoni, the ASG said such cases would not happen in future as a builder can withdraw money only after it is certified by an engineer, an architect and a chartered accountant that the withdrawal is in proportion to the percentage of project completion.
She also said the Insolvency and Bankruptcy Code was amended to ease insolvency proceedings against real estate companies.
The ASG was arguing on a batch of petitions filed by more than 150 real estate companies challenging the constitutional validity of the IBC amendment by which homebuyers were given the status of financial creditor in the insolvency proceedings. The real estate companies challenged the validity of Section 5(8)(f) of the IBC which ensures inclusion of homebuyers as financial creditors and said the provision was draconian and unconstitutional.