The Lex Witness Real Estate and Construction Legal Summit 2012 - A Curtain Raiser

As a precursor to the Real Estate and Construction Legal Summit, speakers share their view points on state of current laws and why there is an urgent need for reforms.

“Presently most of the central laws governing various aspects of real estate and construction sector are antiquated and more than a century old. Despite the existence of numerous central and state laws, situation appears to be far from satisfactory and major amendments to existing laws are required to make them contemporaneous and relevant to modern day requirements.” says Lalit Bhasin, President, Society of Indian Law Firms.

“The state should not abdicate its responsibility. It should front end all developmental projects, be they public purpose or not, and institutions should be legislated which bring together all contributors to that project to carry it forward as co-owners and risk sharers. Our laws don’t even remotely take this view right now. We are colonial and expropriatory in our approach as opposed to liberal, democratic and development oriented” says Ranjeev C. Dubey, Managing Partner, N South Advocates.

“It is advised that a simplified and cost efficient mechanism to be provided for the Land Acquisition which supports the momentum of the economic growth of the country” says B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited.

Panel Contributors:

B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited

Lalit Bhasin, President, Society of Indian Law Firms

Ranjeev C. Dubey, Managing Partner, N South Advocates

Suggested Reforms and Views:

Approvals for new projects should be made available on the single window basis and the authorities should act pro-industries, B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited.

Need of the hour is availability of easy finance avenues, liberalization of finance and investment policies by RBI and single window project clearances, Lalit Bhasin, President, Society of Indian Law Firms

India’s inability to see the owner of land as a partner in our developmental endeavor is single biggest challenge, Ranjeev C. Dubey, Managing Partner, N South Advocates

What are the current challenges in legal and regulatory compliance? 

Real Estate Sector is regulated by multi facet mechanism in India. For any new project, developers need to obtain series of approvals even before actually starting a project. Developers are obligated to obtain these approvals, which are usually delayed beyond expectation, thereby causing business loss, B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited.

Presently most central laws governing various aspects of real estate and construction sector are antiquated and more than a century old. Despite existence of numerous central and state laws, situation appears to be far from satisfactory and major amendments to existing laws are required to make them contemporaneous and relevant to modern day requirements, Lalit Bhasin, President, Society of Indian Law Firms.

The biggest problem in real estate industry is that it has no regulation to speak of and no regulator. The second biggest problem is that it is highly opaque. Finally, it is highly disorganized with the result that repertoire of skills necessary to run a successful real estate business includes ability to behave like a hood. Not every businessman has that skill, Ranjeev C. Dubey, Managing Partner, N South Advocates. 

The Challenge of Land Acquisition:

The scope under Chapter VII of the Land Acquisition Act, 1894, which provides for acquisition of land for Companies is restricted and subject to fulfillment of certain conditions. Even though companies decided to proceed with acquisition made by competent authorities, the fate depends upon resistive nature of these acquisitions. Recent acquisitions in Greater Noida and Noida Extension are glaring examples, B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited.

Government land acquisition has now become a major political issue.  Efforts by state to acquire land for public-private partnerships and SEZs have been marked by intense political disputes, media outrage and sadly, loss of lives. Three clear examples stand out, Nandigram, Singur and Taj Expressway. Government is using its ‘eminent domain’ powers for benefit of private firms and has been able to classify virtually any acquisition of land as being in public interest. To ensure equitable wealth generation, the government has to ensure a level playing field in terms of regulations and use of government power, Lalit Bhasin, President, Society of Indian Law Firms.

India’s inability to see the owner of land as a partner in our developmental endeavor is single biggest challenge. We continue to have a paternalistic and hostile aggressive approach to problem of land acquisition. We continue to legislate such that on other side of due process, landowners are reduced to mere ‘claimants’. Thus, we are excessively politicizing an economic activity that should benefit all stakeholders., Ranjeev C. Dubey, Managing Partner, N South Advocates

What are the changes you suggest in land acquisition process? 

There have been strong objections to the proposed Land Acquisition and Rehabilitation & Resettlement Bill 2011 by the real estate sector. While considering flaws of 1894 Act and inherent ability of its provisions to be misused, the proposed new law, emphasizes more on wretchedness of land owners and farmers. However, due to inadvertence, necessities required for healthy survival of Industry, has been virtually ignored. Hence, the draft may have significant adverse impacts that will spill over on other factors namely Capital and Enterprise, B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited.

There is a clear-cut difference between acquisition of lands for a public purpose and acquisition of lands for purposes of a company. Such acquisition of lands for a company always had to be in larger public interest and clearly was never meant for private purposes of a company. Courts in India are now by pronouncing landmark judgments safeguarding rights of land owners and focusing their attention on the concept of social and economic justice. Courts have emphasized that any attempt by State to acquire land by promoting a public purpose to benefit a particular group of people or to serve any particular interest at a cost of interest of a large section of people especially of common people defeats the very concept of public purpose, Lalit Bhasin, President, Society of Indian Law Firms.

All land acquisition entails some degree of coercion. This is true everywhere. Coercion of the minority is acceptable if the asset owned by minority cannot be dispensed with majority of stakeholders in project wish to vote in favor of project. The state should not abdicate its responsibility. It should front end all developmental projects, be they public purpose or not, and institutions should be legislated which bring together all contributors to that project to carry it forward as co-owners and risk sharers.  Our laws don’t even remotely take this view right now. We are colonial and expropriatory in our approach as opposed to liberal, democratic and development oriented, Ranjeev C. Dubey, Managing Partner, N South Advocates.

Progress of many projects has been stopped due to disputes, what are most common causes for disputes?

Disputes between buyers and developers for the matters concerning payment, forfeiture of earnest money, delay in possession, hidden charges and other arbitrary clauses of the agreement and its applicability, B. Sai Chandravadhan, Managing Director, Sand legal Services Private Limited

Complex and ambiguous contracts, litigious attitudes, no trust among parties, variations to terms of  contract and dissatisfaction with respect to definition and valuation of variations, External Events like an abnormal rise in certain input costs,  escalation claimed for increase in scope of services and wages of employees, handover of land and timely communication of drawings and approvals not being met, subcontracting, delay in project schedule and delivery, cost claims on account of delay due to faults not attributable to the Contractor which could also include disputes with regard to right of Employer to impose liquidated damages, unjustified termination of Contract and its consequences including the encashment of bank guarantees are some of the most contentious reasons for disputes in the construction and real estate industry, Lalit Bhasin, President, Society of Indian Law Firms

The single biggest cause of disputes is unfair risk distribution in an inherently risky business and the unfair attempts to further pass that buck by some stakeholders to others. Lack of transparency in the sector generally and the attending environment of suspicions and lurking rip offs. Extortion and rent seeking by state functionaries, lack of regulation and an effective regulator able to efficiently resolve difficulties, Ranjeev C. Dubey, Managing Partner, N South Advocates

Managing Disputes:

In the recent past, one very popular standard form for the execution of works contracts has been the FIDIC - Federation Internationale Des Ingenieurs- Conseils.  Conditions of Contract for works of Civil Engineering Construction. This document forms the core of many construction contracts and understanding its implications has become the key to successful management of such contracts, Lalit Bhasin, President, Society of Indian Law Firms.

Use of Dispute Resolution Boards (DRBs) is quite common in the construction industry. The DRB is a panel of three experienced, respected and impartial reviewers which is organized before construction begins and meets periodically at the job site. The DRB members are kept abreast of the developments and progress in the job, and made familiar with the project procedures and the participants, and are provided with the contract plans and specifications. The DRB meets with the employer and the contractor representatives during regular site visits, and encourages the resolution of disputes at the job level. The DRB process helps the parties to solve problems before they escalate into major disputes. The proceedings of the DRB can be brought as evidence before an arbitral tribunal or other judicial forum. The board members could also be presented as witnesses, Lalit Bhasin, President, Society of Indian Law Firms.

Time and cost overrun is fatal. We encourage our clients to try and resolve disputes mainly be redistributing risk. A slightly more expensive or slightly less profitable project is a great improvement over a stalled one. Pragmatism is key,  Ranjeev C. Dubey, Managing Partner, N South Advocates.

What do you feel are the alternative dispute resolution strategies which can be adopted by Indian Real estate and Construction industries?

Need of the hour is introduction of new measures to resolve disputes in a fair, speedy and cost-efficient manner in construction sector. Due to such requirements, the Construction Industry Development Council, India (CIDC), established by the Planning Commission and construction industry in cooperation with the Singapore International Arbitration Centre (SIAC), set up an arbitration center in India called the Construction Industry Arbitration Council (CIAC) dedicated to promote the practice of institutional arbitration in the Indian construction industry, Lalit Bhasin, President, Society of Indian Law Firms

We are very sensitive to the failings of alternative dispute resolution in India. Arbitrators are most trusted when they are retired judges which results in alternative dispute resolution becoming a formal court proceeding outside the judicial system. The upshot is that dispute resolution becomes an extra judicial adjudication, not a resolution. The benefits of this are debatable also in view of the exponentially rising costs of this process in recent years, Ranjeev C. Dubey, Managing Partner, N South Advocates

For more details about the summit contact: Neelima Maheshwari | E: Neelima@WitnessLive.inor click: http://www.rcls2012.in/