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Government, board mull buyer for Maytas Properties

By Atanu Kumar Das
March 23, 2010 03:57 IST

Many companies have shown interest in a strategic buy of Maytas Properties, one of the three in the erstwhile, scam-hit, Satyam group.

"We are talking to many people (for a strategic sale). Many people have shown interest," said a senior official of the company, who did not want to be named.

While the other two companies in the group--Satyam Computer and Maytas Infrastructure--are back to business-as-usual with new promoters, Maytas Properties (MayProp) is yet to get its house in order. This is despite the passage of more than a year after the founder-promoter, B Ramalinga Raju, confessed to a big accounting fraud.

Though there is no deadline to close a deal, the official said the attempt is to do it "at the earliest".

Some of the large real estate developers confirmed their interest in the company. Rajeev Talwar, executive director of the country's largest developer, DLF Ltd, said they would have to study the details before a final decision.

Union Corporate Affairs Minister Salman Khurshid said they were looking at inducting a strategic buyer for the company, which continues to have the government-appointed Ved Jain as chairman of its three-member board.

When asked, Ved Jain declined comment on the issue. "I would not like to say anything on Maytas Properties or Maytas Hill County (the only project it has)," said Jain.

B Rama Raju (Jr), the younger son of B Ramalinga Raju, is also a board member.

Industry officials said that in addition to companies, private equity funds are also likely to be in the fray. "It is very likely that PE funds would be the frontrunners," said Ravi Ahuja, executive director, Cushman & Wakefield.

In the last one year, there has been little progress at its Rs 1,100-crore Hill County project, located on the outskirts of Hyderabad. This is the only ongoing project of MayProp. Originally scheduled to be completed by the end of 2008, the residential-cum-commercial project comprises 283 bungalows, 42 villas and 850 apartments in 11 towers.

When Business Standard spoke to MayProp, one of their customer relationship managers said  construction in one of the 11 towers had started and would be completed in the next one year. He had no update on when work would resume in the other 10 towers.

Maytas Properties had raised around Rs 650 crore from customers for this project. Buyers dispute even the work resumption on one tower, saying there are hardly five to 10 labourers on the job.

"It is quite sad that till now there has been no work in the Maytas Hill County project. The only assurance we got from the board of directors is that they are looking into it and trying to find a way out so that work can be started. But, we really don't know when we will get our homes," said Kiran K Somalanka, one of the buyers.

Previously, MayProp had explored several options. For instance, it partnered with Chennai-based Shriram Properties to rescue Hill County property buyers. It is unclear what happened to the partnership.

In January 2010, buyers of homes in Maytas Hill County had asked minister Salman Khurshid to request banks to give them a moratorium on instalment payments (EMIs). The minister assured them he'd do so. "Till today, no action has been taken and we are still paying our EMIs," said Somalanka. He invested Rs 60 lakh to buy one of the apartments in the Shimla tower of Maytas Hill County, where there has been no construction since December 2008.

There are three options for buyers if the developer defaults. First, the Supreme Court has said if a developer fails to deliver a particular project on time to the buyer, it falls under the denial of service category in the Consumer Protection Act. "It is advisable for the consumer who faces such scenarios to approach a consumer court. The process would be much faster than any judicial hearing," said Tushar Chawla, partner, Economic Law Practice.

Consumer courts have always taken a protective approach towards the buyer. Even in cases where the agreement between developer and consumer provides that the developer shall not be responsible for delay in possession, the courts have levied penal interest on the developer.

Two, if the developer goes bankrupt, one option is to initiate winding-up proceedings. The Companies Act, 1956, then determines who gets how much share. "The problem is, one can't predict how much of the amount you will be able to recover. It may be 75 per cent, it also can be only 25 per cent, depending on the present cash flow of the bankrupt company. So, consumers normally wait till a final decision is taken by the board of directors of the defaulter company," said Chawla.

The safer route, therefore, say legal experts, is to negotiate with the government-appointed board of directors and wait till a final decision is taken, rather than filing a winding-up case.

"In an ideal scenario and as per the practice in many developed countries and across other industries in India, there are designated ombudsmen who act as the mediator between the developer and the consumer," said Sachin Sandhir, managing director and country head, Royal Institution of Chartered Surveyors, India.

Atanu Kumar Das in New Delhi
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