CITY OF LAVASA: UNRAVELLING THE LEGAL MYSTERY OF A GHOST TOWN BY - BRINDA BHATTIPROLU

CITY OF LAVASA: UNRAVELLING THE LEGAL MYSTERY OF A GHOST TOWN

AUTHORED BY - BRINDA BHATTIPROLU

INTRODUCTION

Lavasa is one of the first eco-cities built, on western coastline of Maharashtra, acknowledging the indispensable role of nature in improving quality of life (Datta, 2012; Parikh, 2015). It is situated near Pune, India, and has been constructed in a style similar to that of the Italian town, Portofino and it is based on the principles of new urbanism. Lavasa Corporation Limited is a subsidiary of HCC (Hindustan Construction Company Limited). HCC is responsible for developing the 100-square-kilometer Lavasa city, which has faced numerous controversies, including issues surrounding land procurement, environmental damage, and loans that were allegedly obtained through political corruption. Lavasa, an under-construction hill city near Pune, was originally visualised by Nationalist Congress Party (NCP) strongman Sharad Pawar. The history of the project, though, goes back to the early 2000s. As the story goes, while being flown from Mumbai to Pune in a helicopter, Pawar spotted a large tract of vacant land in the Mulshi valley area of the Sahyadri mountain range in Maharashtra. In 2001, the Maharashtra government sanctioned 10,000 acres of land for the construction of this modern city, which would be spread over 20 villages and hamlets. The first phase of construction, Dasve, on 1,700 acres, began in 2005 and has been completed.[1]

Different types of real estate applicable to Lavasa are:

• Special residential zones: Property developed for special residential purposes, such as retirement homes or student housing.
• Commercial property: Property used for commercial purposes, such as offices, shops, and factories.
• Residential property: Property used for residential purposes, such as homes, apartments, and flats.
• Agricultural land: Land used for agricultural purposes, such as farming or animal husbandry.

The development of Lavasa City has been slow and has faced various challenges over the years, which have contributed to its current state of being relatively undeveloped. One of the main reasons for the slow development of Lavasa City is that the project has been embroiled in various legal and environmental battles since its inception. Another reason is the lack of necessary infrastructure. Adding on to the same, the economic slowdown has resulted in various delays in obtaining the necessary approvals and permits to continue with the project which in turn has made it difficult to attract investment opportunities. The city was planned to be a self-contained, self-sufficient city, but the lack of supporting infrastructure such as adequate roads, power supply, and water supply has made it difficult to attract investors and residents.

And so, the whole city is scattered with unfinished construction projects. Low level of investments coupled with loan issues has resulted in the property value rates declining drastically. This phenomenon has created a major detrimental effect in the form of an informal market structure slowly being formed concerning real estate and property-related transactions.

Lavasa, being a beautiful city and an attraction spot is not without its limitation as any other city that exists. Even when it comes to real estate, the same persists. To further look into the problems in Lavasa, we need to look at the current situation The present study revolves around examining the status quo that is in place concerning the given list of study areas. Thus, magnifying the same to the local limits of Lavasa.

SOLUTIONS FOR REAL ESTATE PROBLEMS THAT ARE BEING FACED IN LAVASA INCORPORATING AN INVESTIGATIVE AND ANALYTICAL APPROACH

The following problems exist concerning the real estate sector as a whole. The same has been looked at from the perspective of Lavasa, and the same has been discussed as follows:

1. Real Estate (Regulation and Development) Act, 2016 and its Effect on Development in the Real Estate Sector

The Real Estate (Regulation and Development) Act, of 2016 was a significant step towards regulating the real estate industry in India and protecting homebuyers’ and allottees' interests. However, it has not been without its challenges. One of the major issues is overregulation, making the registration process complex and time-consuming for homebuyers. In addition, there is a lack of awareness among homebuyers regarding their rights under the Act, which has contributed to a lack of trust in the industry. Small-time developers are also struggling to comply with the complex provisions of the Act, leading to further complications. It is essential to address these issues to ensure the Act's effectiveness in regulating the real estate industry and providing adequate protection to homebuyers and allottees.

The Real Estate Act is one the latest legislations specifically aiming at protecting the interests of the homebuyers, its implementation in Lavasa is a no-show. In this city, there have been many projects that have been planned, but all of the same is at a stall leading to the interest of the homebuyers being affected as well. Lavasa also being an isolated hill station away from Pune and amidst the student population who need residence and housing, the problems persisting with real estate are indirectly affecting them. This requires a solution.

Hence, the Act may need to be restructured to simplify the registration process and increase awareness of homebuyers' rights. It is also crucial to provide support to small-time developers to ensure they can comply with the provisions of the Act. The Maharashtra Real Estate Regulatory Authority can make its regulations because it is empowered by sub-sections (1) and clause (i) of sub-section (2) of Section 85 of the Real Estate (Regulations and Development) Act, 2016. It is proposed that this power must be extended to districts as well. Districts must have their own regulatory authorities that are answerable to higher authorities. Establishing a unique and concentrated federal structure like this will ensure the inclusion of cities that are located far away from the rest. It is imperative to note that when we say “separation”, it’s not merely geographical- it is qualitative; developments and improvements made by state authorities naturally take more time to reach such places. Moreover, as discussed throughout the study, Lavasa has unique problems that can only be known by people residing within the area. For example, problems faced by people living in Lavasa because of insolvency are unique to the area and even the places surrounding this area which are equally separated from the rest of the state (like Lonavla) cannot relate to such problems.

Overall, it is time for the Act to be reevaluated to incorporate the challenges that have arisen and to enhance its effectiveness in regulating the real estate industry in cities like Lavasa, where there is hardly any possible manner to get things done at the same place and solving the existing tenacious problems.

1. Environmental degradation due to real estate development

The increase in real estate development due to urbanization and modernization has led to a corresponding increase in homebuyers. However, the construction process causes various types of pollution, including waste pollution, water pollution, soil and air pollution, and noise pollution. These negative impacts on the environment have been a longstanding problem. In 2010, construction came to a halt because of restrictions imposed by the Union ministry for environment, Lavasa had become a pawn in a power struggle between the Congress and Pawar. That year, then Union minister Jairam Ramesh had dispatched an official to Pune to serve LCC a stop-work notice, citing destruction of the environment. It was a big blow to Pawar, then Union agriculture minister. Though the company soon overcame the shock, undertaking a plantation drive and taking measures to stop soil erosion, the allegation that it was destroying the local environment stuck.[2] Some of the environmental violations that people had pointed out in the project included haphazard cutting of hills, construction of buildings too close to water sources and forcible acquisition of land of tribal people.[3]

Lavasa, as seen in movies and pictures online is as beautiful as it looks virtually. In the name of urbanization and modernization, many projects have been planned and incorporated halfway, affecting the environment of Lavasa. Lack of infrastructure and due to the presence of a high number of students, this, in turn, causes serious environmental issues. I was one the first students to come to Lavasa, there is a drastic change in the pollution that can be observed presently than to that of a few years back. Some pollution issues that exist have been listed as follows:

• Deforestation due to projects which are not fully constructed,
• Underdeveloped buildings laying around without any benefit whatsoever causing a loss in vegetation and soil pollution due to the chemicals used,
• Sanitation issues which are insufficient for the rise in population,
• Air pollution caused by regular construction activities leading a higher humidity index.
• Waste pollution by the generation of construction waste can be seen in raw materials lying around the place.

All this, in turn, leads to extreme weather conditions. Lavasa being a hill station is assumed and is supposed be cold and humid. But due to the pollution causes, studies have shown that there has been a rise in temperatures especially the heat during summertime, coupled with global warming is not something we should look forward to.

Therefore, some solutions that can be incorporated into Lavasa concerning solving the environmental issues are:

• Environmental Impact Assessment can be used to evaluate the negative impacts on the environment caused by real estate development and reduce the impact. A detailed analysis of the potential environmental impacts of a project.
• Sustainability Assessment to evaluate the social, economic, and long-term sustainability of a project.
• Dust control measures like covering construction materials, using water sprays, and so on.
• Treatment of materials like construction waste before disposal, using soil tests for excavation, to prevent soil pollution.
• Proper planning and execution of plans to prevent underdeveloped and incomplete buildings.
• Better participation and awareness to be raised regarding the environmental impact by the regulatory authorities.
• Provisions for penalties under the act for environmental consequences of a real estate project.

It becomes essential to consider the environmental consequences of real estate development to ensure sustainable development and protect the environment for future generations. The real estate industry and regulatory bodies need to take steps to mitigate the environmental impact of real estate development.

1. Insolvency, Bankruptcy, and its Effect on Real Estate

Even with real estate as a major sector in India, it is not without its issues. Insolvency and the Bankruptcy code come into play when issues like delayed projects, and unsold inventory leading to affecting the company’s status and leading it to become either insolvent or bankrupt as per the situation that persists. IBC, 2016 offers solutions for insolvency and bankruptcy cases involving both companies and individuals, including those involving the real estate industry. The acknowledgment of homebuyers as financial creditors is one of the biggest effects of the IBC on the real estate market. Due to this recognition, homebuyers now share the same legal standing as financial creditors like banks and other financial institutions. The IBC also allows for the appointment of a resolution specialist to take over the bankrupt company's management. According to the author, this appointment can help guarantee that the construction project is finished and delivered to the homebuyers.

The main reason for which the development of Lavasa started deteriorating is due to the insolvency and bankruptcy issues that have arisen. These crucial affairs usually came into play when companies that have planned to build the projects ran out of funds, or are in deep-necked loans, and in turn, affected the interests of homebuyers. Many of the owners of the flats here do not stay or reside. There are merely for rental purposes, and they are renting them to students and other personnel that are in Lavasa, and this is where it affects them as well. Insolvency issues, it has also led to a higher cost of living in Lavasa when compared to others. This issue just worsened the situation of Lavasa by having numerous legal battles all revolving around the same idea. However, despite the benefits of IBC, problems like threshold requirements to be met by homebuyers to prevent vexatious proceedings lead to the prevention and stalling of real estate projects, non-awareness of homebuyers, and so on. Hence, even IBC has been proven to pose problems to the real estate sector, and the negative effect can be multiplied in Lavasa considering the wide ambit of problems.

Some Solutions that are being proposed are, the government and regulatory authorities should take steps to ensure that homebuyers have access to accurate and up-to-date information about real estate projects, including their financial status and legal standing. The Report of the Insolvency Law Committee by the Ministry of Corporate Affairs in the government of India recommended changes to the Insolvency and Bankruptcy Code (IBC) to address issues in the real estate sector. The report suggested the creation of a specific framework for insolvency resolution of real estate projects to ensure that homebuyers are protected and their interests are taken into account. The report also recommended the establishment of a regulatory authority to oversee the real estate sector and prevent the recurrence of issues such as delayed and stalled projects. These recommendations have the potential to improve the functioning of the real estate sector in India and provide greater protection to homebuyers.

The only way that Lavasa can get out of its insolvency and bankruptcy issues is through ensuring that funds are acquired, legal battles defeated, and the implementation of recommendations and their application on a more localized level with a compliance mechanism that can be put in place. The more time these problems persist, it affects the residents and students mostly causing them to always live in fear of their surroundings as to what will happen and whether they will be living on these streets to an issue that is not within their control. 

1. Relevant (pending and resolved) litigations against Lavasa Corporation

Lavasa is a wonderful city that was majorly aimed to imitate the city of Italy, becoming one of the most modern and progressive nations, it wasn't without its problems. In the process of doing the same, the same aim was not able to be achieved to this day. Personally being a resident in Lavasa for the past 4 years comes with its problem. There have been many insolvency, bankruptcy, breach of contract, and agreements by non-payment of dues, delays, losses, and so forth. This city which aimed to be a beautifully constructed city is now a hotspot for many legal issues. An example of a case is Oase Asia Pacific Pte Ltd V Lavasa Corporation Ltd (NCLAT)[4] which has had significant implications for contractors and developers in the Lavasa real estate sector. The corporation wanted to withhold its security deposit against the applicant for delaying construction work. However, the court observed that this was improper because the reason for the delays was the respondent’s failure to provide necessary clearances and approvals.

It thereby becomes necessary to look into proposal plans to arrive at a faster solution to get away with the legal struggles. As mentioned earlier, the present-day Lavasa is not like what it was before, there is a rise in the population, especially students and this being the case, it becomes important to consider the future of Lavasa and the impact it might have on the College and residents of the place. Since environmental issues have led to the incorporation of a case, it becomes essential to solve the rest of the issues persisting one at a time, to come and solve the legal battles of the same. Hence, it is highly recommended that the legal proceedings be solved at faster right so that the unfinished projects can resume, and Lavasa can be constructed in the way it was intended it to be. It might be easier said than done, but this being the problem in the case, talented legal professionals shall be appointed to find a way to get this done effectively and efficiently.

1. Informal real estate market structure

When markets are informal, they have a significant influence on the layout, density, and structure of these settlements, as well as on access to basic services and infrastructure. It is interesting to note the impact on the physical environment and social relations among residents as well. Another important impact is on the spatial organization of these areas which should be taken into account in urban planning and policy-making. Informal market structures are characterised by almost non-existence of governmental interference which results in low barfgaining power and gross mistreatment in extreme cases. Bouwmeester and Hartmann[5] discusses the impact of informal real estate markets on the spatial organization of informal settlements. The authors argue that these markets have a significant influence on the layout, density, and structure of these settlements, as well as on access to basic services and infrastructure. They conclude that informal real estate markets play a crucial role in shaping the urban landscape in informal settlements and that their impact on the spatial organization of these areas should be taken into account in urban planning and policy-making.

There are many examples of the kind of labour that is ungoverneed in everyday life like daily causal labourers- and the market for these jobs have their own reasons for not being able to organise themselves into a formal market structure. The real estate market has characteristics which are general in that they are present in every market and the distinctive ones arising from the specificity of trading in property (Kucharska-Stasiak 2006, p. 55). The general characteristics of the market include:

• voluntary character of trade,
• market equivalence,
• lack of a dominant market participant (monopolist).

It is the nature of real estate to organise itself into informal market structures. However, Lavasa real estate has an informal market structure for completely different reasons- people do not accept governance. And those who are suffering cannot speak up.

Unlike what is expected from a typical informal market structure, here it is consumers and service employers who are suffering due to gross mistreatment by those being employed by them. Present study obviously zeroes in on property owners and brokers. The main effect of Lavasa going insolvent on property owners is expanded on in the succeeding section.

The 76th round (2018) of the National Sample Survey Office’s (NSSO) reports that about 91 million people in 31 million households (33% of all urban households) in India live in hired accommodations (NSSO 2019). The absence of any significant supply of government or organised private sector rental housing (Harish 2016) implies that this market is dominated by private individual landlords. By most ­accounts, these are formal and informal owners of extra land, rooms, building floors and flats, as well as operators of paying guest and other short- to medium-term accommodation providers. In 2020, the reverse migration caused by the COVID-19 pandemic-induced lockdown forced the attention of policy and civil society back to the question of rental housing. Civil society groups, unions and academic institutions reported that with dwindling employment prospects, the ability to pay rent on time emerged as a critical issue for migrants and the urban poor alike (Chowdhury et al 2020; SWAN 2020).[6]

In conclusion, informal markets have a significant impact on the physical and social structure of settlements, as well as on access to basic services and infrastructure. The lack of government oversight and regulation in informal markets can contribute to a range of negative outcomes, including exploitative labor practices and social exclusion. The case of Lavasa real estate highlights some of the unique challenges associated with informal markets, and underscores the importance of effective governance and regulation in promoting economic stability and social justice. Urban planning and policy-making must take into account the impact of informal markets on the spatial organization of settlements, and must work to promote the development of inclusive, sustainable, and resilient urban environments.

1. Low investments as a component of the chain of effect

The case of Lavasa, a planned hill city project in India that faced insolvency in 2010, brings to the forefront the critical role that infrastructure development plays in economic growth and sustainability. Infrastructure is the foundation upon which economic activities take place. It provides essential services such as transportation, communication, and energy that are necessary for businesses to operate and flourish. Inadequate infrastructure, on the other hand, can stifle economic growth, limit access to markets, and increase the cost of doing business. A study found that there is a positive correlation between investment in real estate development and fiscal revenue in underdeveloped areas.[7] The study analyzed data from 2007 to 2016 and used econometric models to estimate the relationship between investment in real estate development and fiscal revenue. However, careful consideration should be given to the potential social and environmental impacts of such development, and government policies should be designed to maximize the benefits while minimizing the negative consequences.

The collapse of the Lavasa project highlights the importance of strategic planning and management of development projects. The project's insolvency was caused by a combination of factors, including financial mismanagement, environmental issues, and lack of investment. A lack of investment in infrastructure and development projects can lead to poor planning and management, which can further exacerbate financial and environmental issues. Deepening the lack of basic services and urban poverty, much of the funds and assistance by the government were diverted towards the big cities instead of the small towns. On the flip side, small towns become sites of development mainly in relation to the big city, that is the locus of infrastructural development and planning remains a metropolitan city.[8]

The environmental issues that contributed to the collapse of the Lavasa project are a reminder of the importance of sustainable development. Economic growth and development should not come at the expense of the environment. Development projects must take into account the impact on the environment and strive for sustainable solutions that minimize adverse effects. Inadequate consideration of environmental issues can lead to legal challenges, public opposition, and delays in project implementation, which can further increase costs and delay economic benefits.

Furthermore, the lack of investment in infrastructure and development projects can lead to a lack of innovation, which in turn can perpetuate poverty. Innovation is crucial for economic growth and the creation of new job opportunities. It is through innovation that businesses can increase productivity and reduce costs, which can lead to increased profits and job creation. Without innovation, economic growth may stagnate, leading to limited employment opportunities and perpetuation of poverty.

1. Relationship between low-quality infrastructure available in an area and real estate development

After observing and critically analysing the current market structure of Lavasa, we can say that the current scenario emphasizes the importance of infrastructure development, strategic planning, and sustainable solutions in promoting economic growth and reducing poverty. Infrastructure development is a key determinant of economic growth as it supports the movement of goods and people, facilitates access to essential services, and provides a foundation for businesses to operate and thrive. Governments and private investors should prioritize investment in infrastructure development, strategic planning, and sustainable development to ensure that development projects are implemented efficiently and effectively while minimizing environmental harm and promoting long-term social and economic benefits. Innovation is also crucial for economic growth and poverty reduction. According to the Dualistic Theory, underdeveloped areas can break out of this cycle of poverty and stagnation through policies that promote the development of the modern sector, while also providing support to the traditional sector. This can involve investments in infrastructure, education, and technology to increase the productivity of the modern sector, as well as programs to improve access to credit, markets, and information for traditional sector producers.[9]

Innovation can also improve the quality of life for individuals, particularly those living in poverty, by increasing access to essential services such as healthcare and education.

In conclusion, the Lavasa case highlights the need for governments and private investors to prioritize investment in infrastructure development, strategic planning, sustainable solutions, and innovation to promote economic growth and reduce poverty. By taking a comprehensive and sustainable approach to development, we can create a better future for all stakeholders, including the local community, businesses, and the environment.

CONCLUSION

In conclusion, the case of Lavasa highlights the need for governments and private investors to prioritize investment in infrastructure development, strategic planning, sustainable solutions, and innovation to promote economic growth and reduce poverty. The project's insolvency was caused by a combination of factors, including financial mismanagement, environmental issues, and lack of investment. A lack of investment in infrastructure and development projects can lead to poor planning and management, which can further exacerbate financial and environmental issues. Sustainable development should be prioritized, as economic growth and development should not come at the expense of the environment. Development projects must take into account the impact on the environment and strive for sustainable solutions that minimize adverse effects. Innovation is crucial for economic growth and the creation of new job opportunities. Without innovation, economic growth may stagnate, leading to limited employment opportunities and perpetuation of poverty.

Urban planning and policy-making must take into account the impact of informal markets on the spatial organization of settlements, and must work to promote the development of inclusive, sustainable, and resilient urban environments. Legal proceedings related to the Lavasa case should be solved promptly to allow for the resumption of unfinished projects. Environmental impact assessments, sustainability assessments, and dust control measures are some solutions that can be incorporated into Lavasa to address environmental issues. Proper planning and execution of plans to prevent underdeveloped and incomplete buildings should also be ensured.

It is crucial to provide support to small-time developers to ensure they can comply with the provisions of the Act. The Maharashtra Real Estate Regulatory Authority can make its regulations, and this power must be extended to districts as well. Districts must have their regulatory authorities that are answerable to higher authorities. Establishing a unique and concentrated federal structure like this will ensure the inclusion of cities that are located far away from the rest. Overall, the Act should be re evaluated to incorporate the challenges that have arisen and to enhance its effectiveness in regulating the real estate industry in cities like Lavasa.

[1] Tare, K. (2017) “Hill city Lavasa, NCP chief Sharad Pawar's dream project near Pune, loses special status,” India Today, 16 June. Available at: https://www.indiatoday.in/magazine/real-estate/story/20170626-lavasa-hill-city-sharad-pawar-pune-ncp-986586-2017-06-16.

[2] Tare, K. (2017) “Hill city Lavasa, NCP chief Sharad Pawar's dream project near Pune, loses special status,” India Today, 16 June. Available at: https://www.indiatoday.in/magazine/real-estate/story/20170626-lavasa-hill-city-sharad-pawar-pune-ncp-986586-2017-06-16.

[3] Aggarwal, M. (2019) The invisible victims of an unfinished city. Available at: https://india.mongabay.com/2019/10/the-invisible-victims-of-an-unfinished-city/.

[4]  Oase Asia Pacific Pte Ltd V Lavasa Corporation Ltd (Company Appeal (AT) (Insolvency) No.783 of 2020.

[5] Bouwmeester, J. and Hartmann, T. (2021) “Unraveling the self-made city: The spatial impact of informal real estate markets in informal settlements,” Cities, 108, p. 102966. Available at: https://doi.org/10.1016/j.cities.2020.102966.

[6] Harish, S., 2016. Public social rental housing in India: Opportunities and challenges. Economic and Political Weekly, pp.49-56.

[7]  Bai, Y., 2018, November. Research on the relationship between investment in real estate development and fiscal revenue in Underdeveloped Areas——Take Heyuan as an example. In IOP Conference Series: Materials Science and Engineering (Vol. 439, No. 3, p. 032037). IOP Publishing.

[8] Khan, S. (2017). The Other Jawaharlal Nehru National Urban Renewal Mission: What Does It Mean for Small Town India? In E. Denis & M.-H. Zerah (Eds.), Subaltern Urbanisation in India: An Introduction to the Dynamics of Ordinary Towns (pp. 337–370). Springer.

[9] Higgins, B., 1956. The" dualistic theory" of underdeveloped areas. Economic development and cultural change, 4(2), pp.99-115.