Society vs Builder: Deemed Conveyance Case Funding
In India’s complex real estate landscape, deemed conveyance case funding has emerged as a vital solution for cooperative housing societies engaged in disputes with builders. Societies looking to obtain ownership rights over land and property often encounter significant financial hurdles due to insufficient resources to support lengthy litigation. This article provides a comprehensive overview of the deemed conveyance process, funding options, and the challenges that societies face.
Understanding Deemed Conveyance and the Legal Framework
Deemed conveyance is a statutory mechanism under which a cooperative housing society can secure legal ownership of land and property, particularly when the builder fails to execute the conveyance deed in a timely manner. The legal foundation for such claims is primarily laid out in the Maharashtra Ownership Flats Act, 1963 (MOFA) and Transfer of Property Act, 1882, with similar provisions found in other state legislations. Under Section 11 of MOFA, once a society is registered and a specified period elapses, the Competent Authority (generally the Deputy Registrar of Cooperative Societies) can execute a deemed conveyance order to transfer title from the builder to the society.
Despite the legal backing, pursuing deemed conveyance often demands extensive financial resources. Legal battles commonly extend over 18 to 48 months, which include the costs of advocates, stamp duty, inspection fees, and additional expenses. Societies typically rely on modest monthly maintenance contributions from members, making it challenging to cover prolonged litigation costs.
The Financial Burden of Litigation
The financial drain resulting from unresolved deemed conveyance disputes can be significant and may lead to severe liquidity issues for societies. For instance, a 100-unit society might aim to recover ₹20 crore through deemed conveyance, yet face legal costs that could easily reach ₹30 lakh. Without adequate funding, societies risk abandoning valid claims or resorting to extraordinary member levies, which can create internal dissent and hamper routine building operations.
Financial Implications
Opportunity Cost: Funds tied up in litigation could otherwise be invested in community development or used for operational needs.
Time Value of Money: Delayed recovery can lead to missed strategic advantages and property value appreciation.
If a society cannot access commercial litigation funding, it may struggle to maintain day-to-day operations while simultaneously pursuing long-term legal rights.
Exploring Litigation Funding Options
Litigation funding is legally permissible in India under Order XXV Rule 1 of the Civil Procedure Code, 1908, allowing agreements for third-party funding in exchange for a share of recovered amounts. The Supreme Court and various High Courts have affirmed that non-recourse litigation finance, when structured transparently, does not constitute champerty or maintenance.
Types of Litigation Funding
Self-Funding by Members: Members may collect extraordinary levies to cover legal costs, but this can strain finances and create dissent.
Traditional Debt Financing: Societies may attempt to borrow from banks using their properties as collateral; however, without a formal title, this approach is often impractical.
Non-Recourse Litigation Finance: This option allows societies to source necessary funds for litigation without upfront costs or the requirement to repay unless they win or settle favorably. This model aligns the funder's interests with those of the society, allowing for risk sharing without personal financial exposure for members.
Fund My Case Corp (FMC), backed by LawCrust, specializes in litigation finance and provides funding solutions for cooperative housing societies in India. By treating deemed conveyance claims as recoverable assets, FMC enables societies to pursue their rights without depleting reserves or harming liquidity.
Practical Situations and Illustrative Examples
Scenario 1: Urban Cooperative Society in Mumbai
A cooperative housing society with 120 units, established in 2010, seeks deemed conveyance after the builder's repeated failure to execute the conveyance. With potential land value estimated at ₹25 crore, legal costs amount to ₹30 lakh over 24 months. Without external funding, the society would impose a ₹25,000 levy per member, risking discord. Through litigation finance, they can pursue the case without imposing levies.
Scenario 2: NRI Members in Pune
A 75-unit society includes thirty NRI members but faces challenges with contributions tied to foreign remittances and compliance issues. The builder refuses to convey the title, leading to legal costs of ₹20 lakh over 18 months. By accessing non-recourse litigation funding, the society can navigate complexities without burdening NRI members or risking non-compliance with financial regulations.
Scenario 3: Commercial-Residential Mixed-Use Complex in Bengaluru
A mixed-use society with residential and commercial interests faces significant resistance from the builder concerning the documentation required for deemed conveyance. Estimated legal costs reach ₹40 lakh over 30 months. Litigation funding allows the society to continue operations and pursue the case effectively, enabling repayment from future revenue generated post-conveyance.
Assessing the Viability of a Deemed Conveyance Case
To effectively evaluate a deemed conveyance funding opportunity, societies should assess:
Legal Merit: Review the strength of the society's claim under applicable legislation, the evidence of the builder's default, and the completeness of society registration.
Respondent Solvency: Evaluate the builder’s financial health and capacity to satisfy a decree.
Asset Traceability: Ensure the ability to trace and value the land and common areas involved in the dispute.
Cost-to-Recovery Ratio: Analyze litigation costs compared to the potential financial recovery from deemed conveyance.
Enforcement Timeline: Estimate the time required for the entire litigation process, including potential appellate procedures.
Step-by-Step Action Plan
To navigate a deemed conveyance case, societies should consider the following steps:
Claim Assessment and Valuation: Engage a litigation finance platform for preliminary evaluations, providing necessary documentation.
Funding Application and Underwriting: Submit a funding application with comprehensive documentation for a thorough investigation by the financing platform.
Legal Strategy and Filing: Engage advocates specializing in cooperative law to draft applications and prepare for hearings.
Ongoing Proceedings: Attend hearings, respond to challenges, and gather necessary evidence for presentations before the authority.
Enforcement Post-Judgment: After securing a deemed conveyance order, explore redevelopment opportunities and ensure proper documentation for compliance and record-keeping.
Common Pitfalls
Underestimating Total Costs: Societies often fail to account for subsequent costs associated with appellate disputes and other related expenses.
Lack of Comprehensive Documentation: Poorly maintained records can hamper a society's ability to substantiate its claims during hearings.
Missed Settlement Opportunities: Societies have a tendency to overlook timely settlement proposals, delaying potential resolution.
Conclusion
The deemed conveyance disputes represent substantial challenges for cooperative housing societies, often hampered by the lack of financial resources to pursue legal claims. By leveraging available litigation funding avenues, societies can convert legal claims into viable financial assets while ensuring their operational needs are met. Fund My Case Corp (FMC), backed by LawCrust, is committed to helping societies secure the funding necessary to navigate legal challenges effectively, ultimately transforming disputes into actionable recoverable assets.