1.85 lakh crore scam?
The inability of the Haryana government to implement a 15% profit clause in the Development and Regulation of Urban Areas Act, 1975, could have led to massive losses for the exchequer
Should an investigation be initiated by the Comptroller and Au d i t o r G e n e r a l (CAG) of India, the mother of all scams is likely to be unearthed in Haryana’s real estate sector. This is because successive state governments, after 1981, when the first licence was granted under the Haryana Development and Regulation of Urban Areas Act, 1975, have failed to invoke a license clause stating that developers can make a maximum profit, after taxes, of just 15% on a project. Any excess amount has to be deposited within two months in the state government treasury by the owner or spent on building amenities/facilities in the colony for the benefit of the residents.
As the clause has not been implemented, a simple calculation assessing losses incurred by t he state exchequer i n Gurgaon from 2007, till this year, because of non-deposit of profits by developers, could add up to ₹ 1.85 lakh crore.
“If this assessment is done from 1981 and all other areas such as Faridabad, Sohna, Dharuhera etc are to be included for assessment, the amount could be mind- boggling. It’s important to remember that the 2G spectrum loss was estimated at ₹ 1.76 crore and the coal block allocation loss was about ₹ 1.85 lakh crore,” says Sanjay Sharma, MD, Qubrex, a property consultancy and brokerage firm in Gurgaon.
Before a developer gets the license for construction of the group housing project, he signs a bilateral agreement with the Department of Town and Country Planning (DTCP) agreeing to submit a certificate from a chartered accountant declaring that the overall net profit, after taxes, has not exceeded 15% of the total project cost. This certificate has to be submitted within 90 days of the completion of the project.
Another clause states, “The owner while determining the sale price of the apartment in the open market shall compute the net profit at the rate of 15%, the details of which, including the cost of acquisition of land, shall be supplied to the director (DTCP) as and when demanded by him. The total project shall mean a defined phase or a compact area of the colony, as approved by the director.”
Experts believe that developers exploit the loopholes in the license agreements and the Haryana Development and Regulation of Urban Areas Act, 1975. For instance, a developer can get the term of his license renewed every five years and as many times as possible. Also, there is no time limit for completion of the project and for acquiring the completion certificate. As a result, projects which were started in the 80s did not get completion certificates till 2011.
“Developers normally take partial completion certificate, and not the full and final completion certificate, for which a final audit report has to be submitted. Some developers have submitted the annual audit report but a majority have not. However, the actual profit can be assessed only through a final audit report,” says Sharma.