The under-valuation extortion racket

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Governance

My flat, part of a multi-storied complex of 124 flats, located in Koramangala, was registered on 16/02/05. From about a year after registration, many of us owners started receiving notices from the 'under-valuation cell' of the Dept of Revenue, GoK, alleging under-valuation in the assessment of stamp duty payable. Even as our Association, headed by me in the capacity of the President, was trying to figure out as to how to handle the matter collectively, many lawyer-brokers started approaching us with packaged deals to 'sort out' the issue, a typical offer quoted being for totally Rs 21,000/- per owner. Of this, Rs 7,000/- was to be made out to the government by DD, and the remaining Rs 14,000/- was to be paid to the lawyer-broker in cash, of which Rs 7,000/- was supposed to be for the government officials involved. The association took the stand that if the demand had any merit, the members will pay the entire amount by DD, but to the government only, and perhaps some nominal costs to the lawyer.  

The lawyer-brokers and the government officials were obviously not agreeable to this, and official reminders started coming, causing some panic amongst the members.

At this stage, I contacted the Coalition Against Corruption (CaC - http://pac-cac.kiirti.org/), a help-desk set up by the Public Affairs Centre (PAC), Bangalore. The CaC put me in touch with Mr A Ravindra, IAS (retd), who was then a Director of the Centre, who, in turn, put me on to Mr Arvind Rishbud, IAS, the then Secretary, Revenue Department, GoK. Mr Rishbud went into the merits of the case, and asked us to ignore the notices, while simultaneously taking action against some of the official involved. We had heard that a certain Mr Mehboob Khan had been suspended.

Meanwhile, in two other complexes, completed around the same time, the associations decided to go by the 'settlement' route, and collectively paid up close to Rs 80 lakhs, two-third in cash of course. When some owners very righteously refused to pay the lawyer her (a lady) fee in cash, she offered them the option of paying by cheque but after adding some 33% to cover the taxes leviable.

The PAC decided to celebrate this 'victory', and felicitated me (and another gentleman for some other similar deed) at a public function, with the founder-director, Dr Samuel Paul, himself handing me a memento of a Sheaffer's pen, which I proudly carry with me all the time. Reading about this in the press, a flat owner in one of the complexes which had followed the 'settlement' route, but who had refused to toe the association line, called me to congratulate, as also to tell the story of what went on there. Apparently, he as well as a few others, got away scot free. Or, at least that was the position there at that stage.   

The matter was forgotten thereafter upto about a year later, when our members again started receiving notices, all very similarly worded and all pre-dated, in a kind of a 6-month periodic exercise, with some 10 to 20 of them being targeted at random each time. Strangely, I wasn't amongst the recepients of the notices, though in the earlier rounds, I had also been included.

After ignoring the notices for some time, with anxiety again growing amongst the recepients, I got to convince one of them to volunteer to lodge an official complaint with the Inspector General of Registration & Commissioner of Stamps & Chief Controlling Revenue Authority in Karnataka (Shimsha Bhavan, No 720, 46th cross, 8th block Jayanagar, Bangalore-560 082), giving the full background of the case, trying it as a test case. Even as we were waiting for a response, another member received what was supposed to be a final ex-parte order, with a demand to pay up Rs 59,850/-, possibly hoping to cower us into submission with that. I got him also to lodge a complaint with the IG. That was on 12th May. It is two months since then, and there has been total silence from the department and the IG. Now, I am now keeping open the option of going on the offensive and asking for action taken reports on the complaints lodged, under RTI.


The legal position
We could go about things in this fashion because we were fairly sure of our grounds. Now, the 'guideline market value' for 'Mosaic/ Ceramic/ Vitrified flooring applicable for our specific area, during the period (w.e.f. 02/08/04), was at Rs 880/- per sft, as per Notification no CVC/ RGN: 3/ 2003-04, Bangalore, dt 21/07/04 (issued under the Karnataka Stamp Act, 1957), and we had paid the duty according to that.

With rising stamp duty levies becoming a major deterrent to their marketing efforts, developers came up with the concept of conveyancing just the undivided share of land, and then entering into an agreement for construction, on which other taxes are leviable, but not stamp duty (and registration charges). When this procedure took root, and the government revenues dipped, they came up with the 'guideline value' basis for determining the stamp duty amount payable on fully constructed apartments, even where the conveyancing was only of the undivided share of land.

The guideline values are determined by an expert panel, constituted by the government, with powers to review them periodically. In fact, for our very area, it was revised to Rs 1180/- (wef 14/10/05) from the earlier Rs 880/- (which was wef 02/08/04), a jump of over 34% in just over a year. Very clearly, therefore, there already exists a fair and just methodology for determining the stamp duty leviable. The purpose obviously was also to prevent arbitrariness in the assessment by the revenue authorities.

 

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Comments

Stamp Duty

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Dear Mr. Muralidhar,

I hope you are aware of

ipaidabribe.com

K.V.Pathy

commendable job

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Murali, thank you so much for sharing full details of your case. Reminds me that our first meeting happened after a friend told me about this incident and gave me your name.

This and Srivathsa's khata story - nice examples that sharing our own good and bad experiences is one way to derive benefits from information sharing website like ours.

Close down the under-valuation cell, please!

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The stamps & registration department, which had revised downward the apartment prices last year to help builders, has now withdrawn that benefit. Reason: The economy is looking up, while the department’s coffers are getting depleted. In 2009-10, the department, one of the highest earners for the treasury, faced a shortfall of Rs 330 crore compared with the previous year. According to officials, during the recession, builders had complained the apartment rates fixed by the government were higher than the market rates and they were not able to sell their flats. Subsequently, the department decided to revise the rates on a case-to-case basis.
    
D Rame Gowda, the secretary of central valuation committee for guidance value revision, said, “Individual revision was taken up to boost the realty sector which had suffered during recession. Now things are improving and we have stopped any further revision. Until the next guidance value revision for Bangalore Urban and Rural, which may happen by next April, there’ll be no changes in property rates.”

A CASE STUDY - Eta Gardens on Magadi Road had applied for guidance value revision last year as it found the value fixed by the government too high. After comparing the rates with the other highend properties in the vicinity — Brigade in Rajajinagar and Mantri in Malleswaram — which were lesser than Eta, the department brought the rates down.
    
Bangalore contributes a major chunk of revenue as property transactions are high compared with other parts of the state. The recession-hit realty sector took a backseat in 2008-09. A sum of Rs 1,979 crore was collected through stamp duty and registration fee during that financial year, and Rs 1,807 crore collected during 2009-10, a shortfall of Rs 172 crore.


For the full report in the Bangalore Mirror, click here

Essentially, therefore, there already exists an ongoing mechanism to take care of both the developers (and, buyers') as well as government's interests. So, where is the need for the continuance of the 'under-valuation cell'? Well, there's just one purpose, and that can't be allowed to continue.

Muralidhar Rao

Under-valuation cell

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where is the need for the continuance of the 'under-valuation cell'?

Unscrupulous builders /buyers /sellers will start under-valuing properties & register at lower than market rates to reduce payment of registration charges - in fact everyone might start doing this.

On second thoughts, the sub-registrars can be issued guidance values & asked to register properties only at or above those values, nothing less. This might make the 'under-valuation' cells redundant. Sub-registrar offices can be audited periodically to ensure they stay in line.

elementary, Mr Watson!

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On second thoughts, the sub-registrars can be issued guidance values & asked to register properties only at or above those values, nothing less. This might make the 'under-valuation' cells redundant. Sub-registrar offices can be audited periodically to ensure they stay in line.

Exactly - that's all there's to it.

Now, the market prices of properties can vary according to various factors.
A friend of mine living in a posh flat in Indiranagar, was suddenly faced with the reality of a 'darshini' coming up on the neighboring plot, which earlier had only a small house with large trees. He bought the flat paying a premium, and after an unsuccessful battle to prevent the darshini establishing, he has now sold the flat at a discount and moved out elsewhere, since he and his family members couldn't quite adjust to the noisy goings on next door.

On the other hand, when the roads in our locality got done up, the market rate in ours as well as neighboring complexes went up by atleast some Rs 500 per sft.

In all such cases, if you leave it to the discretion of the sub-registrar to decide on the value, it is plainly providing room for large scale corruption, which invariably leads to individuals enriching themselves at the cost of the exchequer.

Well, isn't it all too evident to have to be spelt out this way? And, in spite of it all, if the government is not doing what is required, you know the reason too. It's time the civil society got together to demand these corrections.
 

Muralidhar Rao

Relevant extracts from the Karnataka Stamps Act 1957

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(click here to access the complete Act):

Sec 45A: Instrument of conveyance, etc. undervalued how to be dealt with.- 2[(1) If the registering officer appointed under the Registration Act, 1908 (Central Act XVI of 1908) while registering 3[any instrument - - - has reason to believe]3 having regard to the estimated market value published by the Committee constituted under section 45B, if any or otherwise, that the market value of the property which is the subject matter of such instrument has not been truly set forth, he shall after arriving at the estimated market value, communicate the same to the parties and unless the parties pay the duty on the basis of such valuation, shall keep pending the process of registration and refer the matter along with a copy of such instrument to the Deputy Commissioner

In the instant case, the document was readily registered by the registering officer
 
Sec 45B: Constitution of Central Valuation Committee.- (1) The State Government shall by notification, constitute a Central Valuation Committee, under the chairmanship of Inspector General of Registration and Commissioner of Stamps, for estimation, publication and revision of market value guidelines of properties in any area in the State at such intervals and in such manner as may be prescribed, for the purpose of section 45-A.
(2) The Central Valuation Committee is the final authority for the formulation of policy, methodology and administration of the market value guidelines in the State and may for the said purpose constitute market valuation sub-committees in each sub-district and district comprising of such members as may be prescribed, for estimation and revision of the market value guidelines in the State.

The Central Valuation Committee has been termed as the final authority vis-a-vis market value guidelines. And the registration has been done as per guideline value; in fact, at a slightly higher rate.
 

Muralidhar Rao

Relevant extracts from the media

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The Hindu report of 14/08/04 (for the complete article, click here):

All these hardships can be avoided if the guideline value is fixed following a proper procedure so that the difference between it and market value will be marginal.

For this, reforms are needed in fixing guideline values of land in Tamil Nadu. The procedure adopted in neighbouring Karnataka can be taken as a guide.

As per the Karnataka Act, a Central Valuation Committee (CVC) shall be constituted comprising of the chairman, who shall be the commissioner of stamps, and representatives from various departments which include Directorate of Town Planning, Bangalore City Corporation, Bangalore Development Authority, Income Tax Department, Karnataka Public Works Department and Federation of Karnataka Chamber of Commerce and Industry.

The need for including the representatives of officials of the local/planning authorities is that, one of the main factors to be considered in assessing the Land Value is the Zone use of the land as prescribed by the planning authorities and the maximum built up area that can be constructed in the land as per the Development Control Rules. A representative from Income Tax department is included because the guideline value is considered the base for computation of capital gains tax if the guideline value is higher than the sale value.

The Karnataka Act envisages the constitution of market valuation sub-committees in each sub-district and district for the purpose of estimation and revision of the market value guide lines of the properties. The members of the sub-committees are drawn from departments of Revenue Survey and settlement Public Works Municipal Councils or Town Panchayats.

Well, I guess, fertile brains can subvert the best of intentions

 

Muralidhar Rao

top of the heap!

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Not surprisingly, the dubious honour of topping the list of government offenders on www.ipaidabribe.com goes to the stamps and registration department - check this report in the TOI
 

Muralidhar Rao

position paper

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I have today shot off a letter as below to the Karnataka Lokayukta, enclosing a copy of a 'position paper' (UV1A, attached to the original post in this blog), for whatever, it's worth. I will be sending a similar letter to the Law Minister, Mr Suresh Kumar, also.

Sub: Anomalies in stamp duty valuation pertaining to property registration  

Attached is a 'position paper' authored by me on the subject of "anomalies in stamp duty valuation pertaining to property registration" in the state. Quite as stated, the anomalies have resulted in the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”, going by a recent report in the Times of India.

The remedy very simply lies in the government issuing necessary notifications to treat the 'guideline market value', as announced from time to time by the duly constituted Central Valuation Committee, as the final stamp value, and simultaneously closing down the under-valuation cell, again as detailed in the position paper.

I am sure you will appreciate the seriousness of the anomalous position, and that you will do the needful to have it corrected earliest.

Should you require any further details in the matter, I will be most pleased to provide you the same.

I await to hear from you.

Muralidhar Rao

COMPARING WITH OTHER CASES

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First I appreciate Your efforts Sir. I am sure these posts give possibility and hope of getting things done cleanly.

Also is it not possible to cite that other Societies have got due approval and only yours has been pending. I was thinking of trying this for registration of my house as other get it done in day's time so if mins is stuck for long time then why? But gave up the idea due to complexity involved like builders usually register it for less valuation also  builders take responsibility only if you pay bribe. Multiple issues like this and I have seen their working earlier which was pathetic. 

I am not sure how much weightage such comparison will be.

Bharat  

builders not to blame

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@ Bharat  -  The pattern being adopted by the undervaluation cell appears to be to target some 25% of new properties registered, in some arbitrary fashion, in about a year from the time of registration. Given the complexities involved, people generally engage a lawyer, and have the matter "sorted" out, and that's how the whole thing has got perpetuated over the years.

I wouldn't blame the builders. They generally arrange for the buyers to pay stamp duty as per the guideline value, quite in accordance what must have been the original intent of the Act. But, some 'smart' babu (perhaps in collusion with some neta) deliberately ommited giving finality to the 'guideline value', thereby creating an opportunity for people involved to make underhand money.

 

Muralidhar Rao

a Gandhian's woe

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“When we came from Gujarat to Bangalore five years ago, it was embarrassing to witness rampant corruption here. I think the stamps and registration department tops the corruption list among several civic agencies here. I could not get my apartment registered without paying a bribe" Murthy told.

For the full report in the ToI, click here

Muralidhar Rao

Registration bribe still exists and builders become mediators

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One of my friend had just got his new flat registered 2 months back and he had to pay some amount to builder in cash to get this flat registered without any hassles. Builder himself clearly said that he wants that in cash, because that money is to bribe to officials who are going to register the house. Its such a proper system in place, that the bribe money has its own divisions from the lower to to the topmost level in registration department.

See the number of flats coming up here and there in bangalore, and everyone is going the same bribe way as no other way exists, what can be done to not to do such corruption?

 

Deepak

revise the nomenclature

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After a steep revision in the guidance value of properties, the state government plans to set up a permanent valuation cell (PVC) to facilitate revision of values at regular intervals. - - - The need for the special cell has arisen following the yawning gap between guidance values and market rates. Currently, the central valuation committee plays a crucial role in revision of guidance values after getting inputs from the respective offices.

Apart from keeping a constant watch on actual market rates, the new cell will also keep tabs on evasion of taxes on registration of properties through undervaluation, with the help of its special intelligence wing. It will also look into complaints from builders and the public about unscientific guidance values in a particular area, and take immediate steps to correct it.


For the full report in the ToI, click here.

The setting up of the PVC is quite welcome in that it will provide greater buoyancy to the guidance value revision exercise, and bring the guidance value closer to the market value. While doing so, the government should have simultaneously changed its nomenclature to "registration value" (instead of 'guidance value'), and closed down the "undervaluation cell", in order to provide finality to the registration exercise. As it stands today, the cell exists essentially to provide for arbitrary extortion of underhand money from property purchasers, leading to the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”.

I will be submitting a petition to the government to this effect soon.

Muralidhar Rao

letter mailed to CM

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Letter worded as below mailed to CM, with copy to CS - will follow up with regd letter tomorrow:

Sri Siddaramaiah
Honourable Chief Minister, Govt of Karnataka,
Bangalore

Respected Sir

Sub: undervaluation racketeering

Yesterday's Times of India has reported that the government is planning to set up a "permanent valuation cell" (PVC) to facilitate revision of guidance values at regular intervals. Such a move will certainly provide greater buoyancy to the exercise, bring the guidance value closer to the market value, and thereby help increase government's revenue earnings. To that extent, it can generally be seen as a welcome move.

What the government should simultaneously be doing is to change its nomenclature from "guidance value" to "registration value", and apply it irrespective of the “declared sale value”, in order to provide for finality to the stamp duty collection exercise. For want of this, the "undervaluation cell" has so far been merrily going about making arbitrarily assessments (based on whether Italian marble has been used for the flooring, or Makarana) and extorting underhand money from property purchasers, leading to the 'stamps and registration department' gaining the dubious distinction of topping the list of government offenders on “www.ipaidabribe.com”.

Now, market prices of properties can vary according to very many factors, and keeping track of them on a day-to-day basis is a near impossible task. There may be situations where sellers make windfall gains, as also ones where they make distress sales, all depending on the circumstances prevailing on the day and time of a sale. Allowing for the cell to evaluate each of these sales, and the arbitrariness involved thereof, is where the problem lies.

As such, rather than attempting to squeeze out every paisa that may be due, and in the process letting loose the 'monster' of the cell on the public, the government should satisfy itself with the increased revenue that will accrue now with the setting up of the PVC.

If the government wants still more revenue, all that it needs to do is to increase the stamp duty rate, in which case, it alone will be benefited, and not sundry individuals. The stifling effect it will have on the housing market is of course another matter.

Taking into consideration all of the above, we request you to take the action suggested.

Thanking you,
Very truly yours,
for Praja-RAAG,

sd/-
Muralidhar Rao
(President)

Perhaps, other civil society groups too would like to follow suit to build up pressure?
 

Muralidhar Rao

how not to clean up the system

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In a move to check undervaluation of properties, the Inspector-General of Registration and Commissioner of Stamps (IGRCS) had proposed to chalk out digital maps using Geographical Information Systems (GIS) to provide information on guidance value of properties and host them online. But IAS officer P Manivannan, who held additional charge as IGRCS and proposed the move, was abruptly relieved of the responsibility. He was with the department for just two weeks.

Sources in the know said that staffers in sub-registrar offices lobbied for the bureaucrat's transfer, and confirmed that Manivannan's proposal is certain to die a quiet death.


- - - A senior stamps and registration department officer said: "The staff at sub-registrar offices were upset with the idea and even met revenue minister V Sreenivas Prasad on this issue. Officers who've tried to bring in reforms in our department have always met with a similar fate.''

At present, guidance value of properties is not easily available to the public and they have to get it from the local sub-registrar's office.

"GIS-based guidance value will become an excellent planning tool to identify priorities for buyers and sellers of property. There is no scope for undervaluing or overvaluing property when this information is open, transparent and available to all,'' said Yogesh M Deepak, a realtor.


Describing Manivannan's transfer as routine, minister said: "Undervaluation of immovable properties during registration, especially in Bangalore, has been the order of the day for 15 years. The government is trying to streamline work at sub-registrar offices and check revenue leakage. There is no question of succumbing to any pressure and compromising."

- - - CHEATING THE SYSTEM - While registering a building on MG Road, buyer describes the address as 'near Church Street'. Guidance value for MG Road properties is Rs 14,500, while it's Rs 13,500 on Church Street.


For the full report in the ToI, click here.

One had thought that the minister was generally clean. Perhaps we know better now.

The other part of this racket is played by the "undervaluation cell", which will send you a notice in about a year down the line from your registering, and thereafter send a lawyer to work out a deal making out for payment of one third the "negotiated" amount to the government, and an equal amount each in cash to the lawyer and the concerned official.

All of it is detailed in this blog, right from the very beginning, ending with my petition to the CM, Mr Siddaramaiah, on the 16th Aug, '13 (check the post above), after he had settled in his chair. So, when Mr Manivannan was given charge of the department, one had thought that the CM was responding to the petition. Apparently, other forces have intervened in the meanwhile. Rumour has it that the forces were directed straight from Delhi. And, it happened simultaneously as RaGa was talking to Arnab Goswami about his commitment to "clean up the system"

Muralidhar Rao

But How to Clean up the System

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So to clean up the system, where does one start from? A bottoms up or top down approach? When every one, the individual as a citizen, babu or politician finds it 'convenient' to subvert the 'spirit' of laws for personal benefit , where is the top and where is the bottom?
 
AAP like or Lok Satta like intervention from ward level and upwards, and in due course from Assembly to Lok Sabha?!? One step at a time, or hit against the wall and hope it will break? Any which way, the most essential component in the system is the individual. Mr. Manivanan and his ilk are the need of the hour in the babudom, but why should we as concerned individuals/society not come out to protest against his sudden transfer, if the reason for his sudden premature transfer indeed is what is conveyed in your blog?
 
Major Kapur

 

petition lodged with CM

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Filed a petition with the CM as part of the Coalition Against Corruption - check page1, page2

Muralidhar Rao

Welcome "Sulabha Nondani"/ PRDE scheme

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With the Sulabha Nondani (easy and anywhere registration) process, the stamps and registration department has rolled out Pre Registration Data Entry (PRDE), which is almost a DIY project for property registration.
 
The aim is to eliminate the cuts and commissions and to reduce the interface time with the sub-registrar and staff. You may need to visit the sub registrar’s office for less than 15 minutes. And the process should be done sans a lawyer, a middleman and see the end to the ubiquitous ‘percentage’ culture.
 
For the full text (emphasis added by me) of the report in the Bangalore Mirror, click here
 
Excellent initiative by Sri K V Thrilok Chandra, inspector general of registration and commissioner of stamps. The important thing now is for the Civil Society to pursue with the new government to implement the "Sulabha Nondani"/ PRDE scheme immediately it takes up office, and not allow itself to fall prey to the machinations of the "mafia confederation" (working largely within) and shunt out Sri Thrilok Chandra elsewhere (like they did to Mr P Manivannan earlier - check my post of 30th Jan, '14, scrolling above). 
 
Simultaneously, the matter of closure of the scamster "Under Valuation Cell" (check my post of 16th Aug, '13, scrolling above) also needs to be pursued, for the real big relief for property buyers.  
 
Muralidhar Rao

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