Loan and Bank-Related Frauds in Property and Redevelopment

Loan and bank-related frauds in redevelopment happen when a developer borrows money against your society's land, or against the unsold flats in the new building, without the members' proper and informed consent. This can involve forged No-Objection Certificates (NOCs — a letter the society signs to say it has no objection to a specific act), mortgaging land that still legally belongs to the society, or pledging the same flats to a bank while also selling them to buyers. The single strongest protection is clear conveyance of the land into your society's name, backed by properly registered agreements, because a lender doing honest checks is far less likely to be misled about property whose title and existing charges sit on the public record. Under Section 11 of the Maharashtra Ownership Flats Act (MOFA), 1963, the promoter (the builder) is legally bound to convey title to the society and to bear the property's outgoings until that conveyance is done. This guide explains, in plain language, how these frauds work and the practical, low-cost steps Mumbai housing-society members can take to check for hidden charges and stay safe.

What "loan and bank" frauds look like in redevelopment

In almost every redevelopment the developer needs funds to construct the new building, and raising a genuine construction loan is normal and fully legitimate. The problem begins only when the borrowing is arranged in a way that quietly places the members' homes or the society's land at risk, without the members understanding or agreeing to it.

Patterns that have been reported over the years — always by some developers, never all — include:

• Mortgaging society land without clear authority — offering the plot as security for a loan even though the title was never properly transferred and the society never knowingly consented.
• Raising loans against unsold flats — pledging the developer's share of the new flats to a bank, and then also selling those same flats to buyers, leaving two claimants on one home.
• Forged or misused NOCs — placing before a bank a No-Objection Certificate the society never issued, or one that a few members signed under a misunderstanding.
• Double-financing — using the same project, or the same flats, as security for more than one loan from different lenders.
• Diversion of project funds — money borrowed or collected in your project's name being moved to another project, delaying your building and leaving the loan unpaid.
• Open-ended power of attorney — a broad authority signed early in the process being stretched later to create charges the members never intended.
• Loans dressed up as "advances" — money that is really a bank loan against the project being described to members as a friendly corpus or hardship advance, so nobody checks the security behind it.

How these frauds actually happen

Most of these problems trace back to two weak points: land that has never been legally conveyed to the society, and agreements or consents that members signed without reading carefully. When the land is still recorded in the name of the original owner or the developer, a bank can be shown documents suggesting the borrower controls the asset. When a broad power of attorney or an open-ended development agreement is signed, its wording can be stretched to mortgage or sell far more than the members intended.

Reviewing your paperwork before it is signed is always cheaper than untangling a fraud afterwards. Our note on red flags in a development agreement and the common agreement mistakes guide show the exact clauses most often misused to create charges over your property, and the agreement clause library gives safer wording you can ask for instead.

Before the developer mortgages the plot: seven checks, and where each one is done

Most societies learn about a charge months after it was created. These seven checks are what a committee should complete before it signs the development agreement, and repeat before possession and before releasing corpus. Each row names the office you apply to, what a clean result actually looks like, and the provision you are relying on. None of them needs the developer's permission. What a usable search report must say on its face is set out further down this page.

Source: Registration Act, 1908 (as applied to Maharashtra); Maharashtra Land Revenue Code, 1966; SARFAESI Act, 2002; Companies Act, 2013; Real Estate (Regulation and Development) Act, 2016.

Warning signs and how to protect against each

Use this table as a quick reference. If you notice a warning sign in the left column, apply the protection on the right before you sign anything or release any money.

Why conveyance and registered agreements protect you

Conveyance means the land and the building are legally transferred into the society's name. Once that is done, the society — that is, the members together — is the recorded owner, not the developer. A lender doing basic due diligence will then see that the asset belongs to the members and cannot easily be mortgaged behind their backs.

The law is firmly on the members' side here. Section 11 of MOFA makes it the promoter's duty to convey title to the society. If the developer delays, Section 11(3) allows the society to obtain deemed conveyance — the title is transferred through a Competent Authority even without the developer's signature. Registration matters for the same reason: under Section 17 of the Registration Act, 1908, the development agreement, the permanent alternate accommodation agreement (PAAA) and the conveyance must all be registered, which puts them on the public record where hidden or backdated deals are far harder to pass off.

The developer's obligations do not pause while conveyance is pending. Section 6 of MOFA makes the promoter responsible for paying the outgoings — ground rent, municipal taxes, water charges, electricity and revenue — until the property is transferred to the society. See our summary of the position that a builder must pay outgoings until conveyance, and the step-by-step conveyance guide for how your society can obtain it, including the deemed-conveyance route.

The provision that decides whether a mortgage binds you: MOFA section 9

This is the single most useful section on this page and most societies have never heard of it. Section 9 of MOFA, 1963 says that a promoter shall not, after he executes an agreement to sell a flat, mortgage or create a charge on the flat or the land without the previous consent of the persons who take or agree to take the flats; and that where such a mortgage or charge is created without that consent after the section 4 agreement is registered, it shall not affect the right and interest of those persons.

Three practical consequences follow. First, your registered agreement is what switches the protection on — an unregistered agreement leaves you outside section 9. Second, "previous" means before the charge is created, so a consent obtained afterwards does not cure it. Third, when a lender asks the society for a no-objection to a mortgage, what it is really asking for is the consent that section 9 makes it need. That is your negotiating position, and it should be minuted as such.

How RERA's project-account rule protects the money

Money discipline is the other half of the picture. Under the Real Estate (Regulation and Development) Act, 2016 (RERA) and MahaRERA, a qualifying project must be registered before it is marketed. Crucially, Section 4(2)(l)(D) requires the promoter to keep 70% of the money collected from buyers in a separate account in a scheduled bank, to be used only for that project — for its land and construction costs. This rule exists precisely to stop one project's money being diverted into another, which is the root of many loan defaults that later threaten the members' building.

Two more safeguards are worth knowing. The directive issued under Section 79A of the Maharashtra Co-operative Societies Act, 1960, dated 4 July 2019, expects the developer to furnish a bank guarantee of around 20% as security for performance, so the society has something to fall back on if the project stalls. Minute its expiry date when you receive it, and diarise a renewal demand 30 days earlier — an expired guarantee is worth nothing. And if the developer fails to hand over possession on time, Section 18 of RERA lets allottees claim a refund with interest. You can read more in our overview of MahaRERA promoter obligations.

The 70% account is also policed by named certificates, and you can see them yourself. Money may be drawn from that account only in proportion to the percentage of completion, and only after an engineer, an architect and a chartered accountant in practice certify that the withdrawal is in proportion — that is the second proviso to Section 4(2)(l)(D). On MahaRERA those certificates appear as Form 1 (architect), Form 2 (engineer) and Form 3 (chartered accountant), with an annual audited statement uploaded after the financial year. The promoter must also get the accounts audited within six months of the end of every financial year. A project page with no current Form 3 is a project whose withdrawals nobody has certified.

Section 13 of RERA: how much money may change hands before a registered agreement

This is the clearest money rule in the Act, and it is broken constantly. Section 13(1) of RERA says a promoter shall not accept a sum more than ten per cent of the cost of the apartment, plot or building as an advance payment or an application fee without first entering into a written agreement for sale and registering it. There is no discretion in it, and no exception for friendly arrangements. A "booking amount", an "application fee", a "token", a "hold amount" and a "goodwill deposit" are all the same thing for this purpose.

The older Maharashtra rule survives alongside it. Section 4 of MOFA, 1963 forbids a promoter to accept more than twenty per cent of the sale price as advance or deposit without first entering into a written agreement and registering it under the Registration Act. Where both apply the promoter must satisfy both, so the ten per cent figure is the one that governs.

Section 13(2) also settles what that agreement must contain: the particulars of the development, the specifications, the internal and external development works, the dates and manner in which each payment is to be made, the date possession is to be handed over, and the rate of interest each side pays on default. If the paper in front of a member has no possession date and no default interest rate, it is not the agreement section 13 is talking about, and signing it does not start the clock on anything.

Why this matters on a page about bank frauds: money taken outside a registered agreement sits outside the project's paper trail. It does not appear in the RERA quarterly updates, it escapes the 70% account discipline, and when a lender later asks what happened to its construction loan, there is nothing to point at. That gap is exactly where diversion hides.

The search report and the encumbrance certificate: what to actually ask for

An encumbrance is any mortgage, charge, lien or claim another party holds over your property. Societies rarely fail to order a search — they fail by accepting a thin one. Here is what a usable report contains.

The search report. In Maharashtra this is what a title search produces: a report compiled from Book No. 1 (registered documents relating to immovable property) and Index No. II (the index arranged by property) at the office of the Sub-Registrar of Assurances for the taluka in which your plot lies — the same office where your development agreement is registered. Section 57 of the Registration Act, 1908 keeps those books and indexes open to inspection by any person on payment of the prescribed fee, and requires copies of entries to be given to anyone applying. You do not need the developer's consent, and the developer should never be the person who commissions the search.

A report you can rely on states all six of these on its face:

1. The CTS number (or survey and hissa number) searched, exactly as it reads on the Property Card — not the building's name, which indexes nothing.
2. The period covered. Ask for 30 years. A ten-year search misses a mortgage created before the last transfer, which is precisely where old charges hide.
3. Every Sub-Registrar office searched. Registration jurisdictions in Mumbai have been split and renumbered over the decades, so a genuine 30-year search usually has to be run at more than one office. A report naming only one office for 30 years is incomplete.
4. A list of every entry found in Index No. II, reproduced with its serial number, date, document type and parties — not a one-line conclusion that "nothing adverse was found".
5. The result of the separate Notice of Intimation search under section 89B, stated as its own line, for both the property and the developer's name.
6. The date the search closed and the searcher's signature. A search report is a snapshot and is worth little six months later.

The encumbrance certificate. Maharashtra does not issue the standardised encumbrance certificate familiar in some southern states. The working equivalent is the search report above, backed by certified copies under section 57 of every document the index does show. Where a lender's or buyer's format insists on the words "Encumbrance Certificate", apply to the Sub-Registrar having jurisdiction — the record searched is the same Book No. 1 and Index No. II.

Where else a charge shows up

Source: Registration Act, 1908 (as applied to Maharashtra); SARFAESI Act, 2002; Companies Act, 2013; Maharashtra Land Revenue Code, 1966.

Two of these registries have real teeth, and it is worth knowing why. A secured creditor is not entitled to enforce its security under the SARFAESI Act at all unless the security interest has been registered with the Central Registry — section 26D says exactly that. And under section 77(3) of the Companies Act, 2013, a charge a company failed to register is not taken into account by a liquidator or by any other creditor. A lender that cut corners has weakened its own position, and that matters enormously when your society is negotiating its way out of somebody else's default.

Run the full set before you sign, before you accept possession, and before you release any corpus. Keep the reports on file with your possession and corpus records, and build them into your redevelopment checklists so they are never skipped.

How to protect your society, step by step

A few disciplined habits go a long way. Treat these as a standing practice for the committee and for every member:

• Prioritise conveyance. Make getting the land into the society's name a formal goal and follow the conveyance guide until it is done, using the deemed-conveyance route if the developer stalls.
• Insist on registration. Never rely on an unregistered agreement; make sure the development agreement, PAAA and conveyance are all registered as Section 17 requires.
• Vet the agreement independently. Have a professional review the mortgage, security and NOC clauses before signing — a tender and agreement review catches the language most often misused.
• Control your NOCs. Issue only specific, dated NOCs approved in a general body meeting, and maintain a register of every NOC issued.
• Watch the money. Confirm the RERA 70% project account is operating and, where offered, that the developer's bank guarantee is in place.
• Run public-record checks. Search the Property Card, Encumbrance Certificate, CERSAI and MCA records at each milestone, and file the results.
• Keep records safe. Store certified copies of the agreement, minutes, consents and search reports — a clean paper trail is your best defence, as our note on protecting society documents explains.

If your society has not yet organised its papers, you can register your society with us for structured guidance and reminders at each stage.

What the society must minute, and when

A charge is very hard to challenge when the society's own record is silent about it. These entries cost nothing and become the evidence you rely on later. Number every resolution, paginate the minute book, and attach the documents referred to.

Your legal remedies if fraud is suspected

If members discover an unauthorised loan or a forged NOC, several genuine remedies exist, and the right one depends on the facts. Where there is dishonesty from the outset — for example a forged NOC created only to raise a loan — that can amount to cheating under Section 318 of the Bharatiya Nyaya Sanhita (BNS), 2023 (the law that replaced the old Indian Penal Code). Where money or property was received lawfully and then misused — for example project funds diverted elsewhere — the offence is closer to criminal breach of trust under Section 316 of the BNS, which carries imprisonment of up to five years. These two are alternatives: they cannot be alleged on the very same facts, so the complaint must fit what actually happened. Our note on how a builder's cheating can be treated as criminal explains this in plain terms.

Forgery deserves its own line. Where a document was actually fabricated, the BNS offences are section 336(3) (forgery intending the document be used to cheat), section 338 (forgery of a valuable security), and section 340(2) (fraudulently using as genuine a document known to be forged, punishable in the same manner as the forgery itself). Name the sections in the written complaint and annex the certified index entry alongside the document you say is forged — the contrast between the two is the evidence.

On the civil and regulatory side, an allottee can file a complaint with MahaRERA under Section 31 of RERA, and the Consumer Protection Act, 2019 offers a deficiency-of-service route where members are treated as consumers. Because a co-operative housing society is involved, a dispute can also be taken to the Co-operative Court under Section 91 of the Maharashtra Co-operative Societies Act, 1960. Choose the forum with professional advice rather than acting alone in panic, and remember that documented facts — certified copies of the charge, the agreement and the minutes — carry far more weight than accusations.

Where to go, what to file, under which provision

Source: MOFA, 1963; Real Estate (Regulation and Development) Act, 2016; Bharatiya Nyaya Sanhita, 2023; Bharatiya Nagarik Suraksha Sanhita, 2023; Maharashtra Co-operative Societies Act, 1960; Consumer Protection Act, 2019 and the Jurisdiction Rules, 2021; Limitation Act, 1963.

One caution on choosing the forum. A criminal complaint and a MahaRERA complaint can run together, but the criminal complaint has to fit the facts: cheating under section 318 needs dishonest intent from the outset, while criminal breach of trust under section 316 assumes the money was received lawfully and then misused. A complaint that alleges both on identical facts invites the police to do nothing at all.

The bottom line

Loan and bank-related frauds thrive on unconveyed land, loose agreements and unchecked NOCs. If your committee does only four things, do these: order a 30-year search report plus a section 89B Notice of Intimation search before the tender goes out; get the development agreement registered within four months of execution so section 9 of MOFA protects you; apply the 10% test under RERA section 13 to every rupee collected before an agreement is registered; and minute the section 9 consent position in terms, rather than leaving the record silent. Everything else on this page follows from those four. Protection here is steady habit and a paginated minute book, not luck.