Six hundred families sank their life savings into the promise of an apartment. Other 7000 people have lost their savings in a cooperative. The scam masterminded and executed by builder Sudheer Basnet is Nepal’s biggest. But his victims, after fighting for justice for five years, have lost faith on the government. They have been forced to go back to Basnet, a convicted fraudster. A case study, which sheds light on the rule of law in Nepal.

Rudra Pangeni: Centre for Investigative Journalism-Nepal

Sudheer Basnet

MEGHAULI, Chitwan – On August 10, 2019, a group of people arrived at a farmland in Meghauli, Chitwan after traveling about 200 kilometer all the way from Kathmandu. A pond lies at the one side and a canal on the other. By all accounts, the area was only fit for paddy farming. However, Chandra Shobha Khadgi and Dolma Sherpa, two people who accompanied the passengers from the capital city, portrayed it as an attractive land plot for real estate.

The passengers from Kathmandu were handed a promotional pamphlet inside the van. The pamphlet mentioned the ‘Attractive Plots of Bharatpur Metropolitan City Ward No 27’, but missing from it were crucial details such as contacts and addresses of the land owner, seller or his or her company.

On the journey from Kathmandu to Meghauli, Khadgi and Sherpa were constantly reporting to Sudheer Basnet, a real estate developer convicted of ‘fraud’ by Kathmandu District Court and Patan High Court. The victims, who had deposited their savings at Oriental Cooperative operated by Basnet, had come to Meghauli to buy the plots in a last-ditch attempt to save their investment.

They were among the 7,000 people, whose savings worth Rs. 4.21 billion is stuck in the troubled cooperative. Out of the total troubled housing projects in Nepal, Basnet has a lion’s share. In other words, 87 percent of buyers or 619 families are yet to move into their homes, according to a government investigation in 2014. The investigation found that around Rs 3.10 billion of those buyers is stuck till now. 

Basnet bought the land by luring in buyers with high interests for deposits at Oriental Cooperative. He got loan from banks by showing the housing projects on the land. He took money from the flat bookings and started a series of projects. But these projects never materialized.

In autumn 2013, a bank issued notice directing him to pay off its debt, which left all of his housing projects in limbo. His business, financed with loan from a dozen banks, faced crisis. His clients,  the families hoping to move into their homes-also found themselves in distress.

The government refrained from resolving the problems caused by poor regulation of cooperatives, lack of monitoring by the Department of Urban Development and Building Construction and the deliberate investments by banks where customers had put their hard-earned money. As a result, there is a real risk of the victims falling again into Basnet’s trap. The episode in Megauli in August last year was the latest manifestation of this.

As soon as he was shown the plot, Ram Thapa (name changed) of Kathmandu had a hunch he was being cheated again. Speaking to him and other victims at the office of Kunti Pokharel, chairwoman of the victims of the Oriental Cooperative, Basnet had assured them if they bought the plot, they would make profit on its salea few years later, according to Thapa. Since mid-July last year, around two dozen victims have bought the plots of land in Meghauli whereas about five dozen have deposited 50,000 rupees each as advance booking for the plots.

“Sudheer is spreading falsehoods again,” said Khagendra Kafle, former chairman of the victims of Oriental Cooperative. Basnet is running the business with the help of businessmen of Chitwan, according to sources.

Bharatpur Metropolitan City, Ward no. 27, the local authority which issues prior approval on land transfer, appears unaware of this. Govinda Tamang, the ward chairman, said: “The area is waterlogged during summer. Therefore, it’s unsuitable for settlements. And, I haven’t even met the developer yet.”

Basnet was released on bail in May 2018 after spending 18 months in jail for two counts of frauds. He turned down interview requests during a meeting at Vegas City, Balkumari on February 8, 2020. Asked how he was distributing the land to the cooperative victims, he said, “Although I do not have land in my name, I am trying to solve the problem by asking them to buy more plots than their deposits can cover.”

All property auctioned

However, the victims’ problem is not likely to be solved as easily as described by Basnet. How did this happen? We need to go six years back to understand how people were forced into high-risk investments.

This photo was taken at Bagmati Apartment, Shankamul Kathmandu. (from Left to Right) Spokesperson of Nepal Communist Party Narayan Kaji Shrestha, Chair of NCP Pushpa Kamal Dahal, Susan Karmacharya (right to Dahal) who had Roshan Shah Teli (in the red circle) released from the police custody in October last year. Teli was arrested on the charge of cheating the flat-owners in this apartment. This photo was taken from the Facebook wall of Karmacharya tagged by Hemant Wagle on February 1, 2019.

On 31 October, 2013, a year after the Oriental Cooperative and Basnet’s housing projects were in trouble, the government formed a probe commission headed by Former Judge Gauri Bahadur Karki to investigate the matter.

About six months later, the government formed another probe committee headed by Kumar Lohani, a retired senior divisional engineer, to investigate housing projects by Sudheer Basnet and some others.

Both the probe committees suggested to form separate institutions on cooperatives and housing issues to resolve the matter. However, the government didn’t act on the report for three and a half years.

Both commissions had earlier stopped the properties from being auctioned. As the government kept mum over the issue, victims faced further risks in their investment. At least five properties in the ‘prime location’ including Imperial Apartment, Chakrapath Height Apartment, Sanepa Height Apartment were auctioned at a lower price than the market value, according to Problematic Co-operative Management Committee formed in 2018.

According to the Article 7 of the Ownership of Joint Housing Act 1997, properties in housing projects are ‘fully owned by the homeowner’. Bidhya Bhattarai, a lawyer who booked an apartment at Vegas City ten years ago, but was denied it, said: “Even though the law provides full rights to homeowner, the bank has auctioned off the property entitled to the victim.” Other land plots and properties of Oriental Cooperative, Basnet’s other companies were also sold off or auctioned during the period. 

Basnet had bought plots in Chhampi of Lalitpur and Gundu of Bhaktapur with money from the cooperative in the name of the directors of the cooperative, staff or their families. The Department of Cooperative had banned the sale of the properties after Basnet reported about the properties following his financial trouble in 2013. 

In three and a half years, those plots were also transferred to other people, according to the interim report by the Problematic Co-operative Management Committee. Most plots appear to have been registered in the name of Lata Pandit of Nawalparasi, Badri Bahadur Khadka and Birendra Bode of Bhaktapur and Hemraj Bhattarai of Sunsari. At the time, all five planes of Agni Air invested by Oriental Cooperative were also auctioned.

Time was running out for Basnet. But the liability of Oriental Cooperatives, housing projects, savings and bookings had increased to Rs. 16 billion by mid-April 2018.

By mid-March 2020, only two properties—about 160 ropani plots (including the ones mortgaged for bank loan) and Vegas City, built in 45 ropani land in Lalitpur Balukumari (when completed, the project will be worth Rs. 7-8 billion according to an estimate by the Karki committee) remain under Basnet’s ownership.

Banks and politicos collude with developer

Though people who invested in Basnet’s projects got a raw deal, banks that financed his projects seized the properties and made profit selling them.

On July 15, 2018, the committee chaired by former Judge Gauri Bahadur Karki wrote to Finance Minister Yuba Raj Khatiwada and Nepal Rastra Bank Governor Chiranjibi Nepal, stating irregularities while auctioning Agni Air and Imperial Apartment by Prime Commercial Bank. The committee demanded that the authorities take action against the bank.

According to the committee, Imperial Apartment, located at a prime location in the city, was sold off at Rs. 335.3 million, though the property including 4 ropani and 10 ana land and near completed apartment building was valued at near Rs 1 billion. 

The committee’s letter states: “Imperial Apartments Pvt Ltd had put Rs. 323.5 million as amount to purchase the property, but it paid more than double or Rs. 683 million including unknown future financial liabilities.” The committee said there was a clear case of collusion during auction.

Imperial Apartments said the buyers would also serve as shareholders. According to the Company Registrar, its shareholders include Bahadur Krishna Tamrakar, a gold trader, Rajendra Kumar Shakya, who is charged for smuggling of 35 kg gold last year and Pujan Raj Regmi, son of Khil Raj Regmi, a former prime minister and former chief justice.

During the auction, Narayana Das Manandhar, current chief executive officer, also served in the same post at Prime Bank. The meeting of the Board of Directors, held on 22 February, 2015, had decided that the Imperial Apartments Pvt, which bought the property, should be responsible for future financial liabilities. At the time, Umesh Shrestha was the bank’s president and the directors were Rajendra Das Shrestha, Narendra Bajracharya, Shyam Bahadur Shrestha, Uttam Narayan Shrestha, Uday Mohan Shrestha, Dinesh Shrestha and Basudev Rijal.

Former judge Karki, who has investigated the property auction process of Oriental Apartments and Basnet’s co-operatives, said, “Sudheer has cheated, but the banks are the biggest swindlers. They sold the property in low prices without carrying out proper valuation during the auction.”. Despite the rise in real estate prices, the victims did not get a single rupee from all these auctions.

Centre for Investigative Journalism (CIJ) had filed separate Right to Information (RTI) applications asking about the  actions taken against the bank including Prime Bank, but the Ministry of Finance and the Nepal Rastra Bank did not provide the information. We have appealed to the National Information Commission, but we are yet to receive any information.

Prime Bank said it didn’t know about the report presented by the Karki Committee. Nepal Bhushan Shrestha, the bank’s corporate loan chief, replied in an email, “The conditions we mentioned in auction were only to exempt bank from any possible claims in future.”

A former Finance Minister has also been linked to this auction. The then Finance Minister Ram Sharan Mahat had made a ministerial decision to help the pending auction process and the ministry wrote a letter to Ministry of Land Reform to register the land in the name of Imperial Apartments, according to an ownership transfer document of Land Registration Office of Dillibazar issued on April 20, 2015.

Premkaji Sthapit, 69, who booked a flat in Imperial Apartments, had filed a case at the Kathmandu District Court. In that case, the court ordered the company to ‘transfer the ownership of the apartment’. But because the bank had already auctioned it, he did not get his unit.

Sthapit, who undergoes dialysis every week because of his renal failure, said, “We found out that Finance Minister Mahat himself had helped Prime Bank to auction it. Now I have a court order, but not my flat. ”

On the same issue, Karki Committee had written to the Governor on July 15, 2018 arguing that the victims should get their units. The letter states: “Because Imperial Apartments, while approving the auction, had accepted future liabilities, either it or Prime Bank should provide everyone with the flat. Otherwise, Nepal Rastra Bank should give the flat.” Eighteen people have yet to receive their flat even after winning the case at the court.

Similarly, NIC Asia Bank auctioned the property of Chakrapath Height Apartment and transfered in its own name claiming that no one was interested to buy the property.

The apartment, which had an investment Rs 100 million from 46 customers and Rs 200 million loan (excluding interest and damages) from the bank, was auctioned for Rs. 225.4 million. According to real estate entrepreneur Gyan Bahadur Shrestha, the price of per ana land at that time was 16-18 million rupees. At that rate, the minimum price of land alone should be Rs. 620 million. The Probe Commission on Housing had fixed the price of the land at Rs 358.8 million in 2015. Sudheer Basnet has filed a case against the Supreme Court calling this auction illegal. Sudhir Nath Pandey, chief information officer of NIC Asia Bank, didn’t reply to our questions sent through email.

This document of Ministry of Urban Development is obtained by CIJ Nepal. This shows that the members of board of directors colluded with Sudheer Basnet while issuing loan.

Similarly, a probe report by Karki Committee had also found collusion during the sale of five planes of Basnet’s Agni Air. According to the committee, Prabhu Bank, Sunrise Bank and International Leasing and Finance (now Civil Bank), in cahoots with Simrik Air, auctioned 2 planes, in which an estimated Rs. 170 million was embezzled.

“For two planes, Simrik Air initially had offered them for Rs. 400 million, but the banks issued an auction notice and sold it for Rs. 230 million. We wrote to the finance minister and the governor with the proof of this, but no action has been taken yet,” Karki said.

Siddhartha Bank also auctioned the building of Sanepa Height Apartments. The building was sold to Jhamsikhel Housing Pvt Ltd, which was set up by the people who had booked for the flats in the appartment. But those who could not provide additional funds were deprived of this scheme.

Dholahiti Individual Homes in Lalitpur and Jhamsikhel-based Individual Houses and Minbhavan-based Srinagar Tole Individual Homes have also been auctioned. According to two separate sources, Basnet filed a case against NIC Bank just because he did not get his share.

The government reports have found irregularities in auctioning of other apartments, but Basnet hasn’t filed any case against them. It proves that his actions are selective, sources said.

Despite the availability of evidence, non-action against the banks showed lack of rule of law, according to Dipendra Bahadur Chhetri, former governor of Nepal Rastra Bank. Chhetri said, “If they don’t provide information, the regulatory agency itself could be involved in collusion.”

Former judge Karki said, “The Supervision Department of Nepal Rastra Bank looks at whether the loan was paid or not. This has a direct impact on those who booked flats. ”

Not only the completed apartments, but those under construction are also being auctioned. The 39 families who live in  Grand Apartment at Dhumbarahi are stressed. Basnet had built 39 apartments while he had permission to build only 29 apartments.

The owners of the flats have not received ownership certificate because the buildings failed to meet the building codes. Raju Shrestha, chair of Grand Apartment Consumer Group, said: “During construction, an engineer from Department of Building had inspected the apartment. They didn’t stop construction at the time. Now all three government agencies—Kathmandu Metropolitan City, Department of Building and Kathmandu Valley Development Authority—have hidden the design of the building.”

CIJ Nepal reached out to Chandra Shekhar Mahato, an information officer at the Department of Urban Development and Building Construction, but he did not reply.

Without getting the completion certificate of the building and tax clearance from authorities, Citizens Bank put 39 flats on collateral and provided 100 million rupees loan to Basnet on February 10, 2011.  On November 15, 2010, the Land registration Office on Dillibazar had issued ownership certificate without getting completion certificate. This clearly shows a nexus of agencies to violate the law and cheat people. 

On September 22, 2017, the Ministry of Urban Development sent a letter to the Commission on Investigation of Abuse of Authority, saying the bank’s board of directors had colluded while issuing land and further action should be taken against it.

When the loan was issued in 2011, current president of the bank, Rajan Singh Bhandari, was the chief executive officer. Kul Chandra Gautam, former Deputy Executive Director of UNICEF and retired Assistant Secretary-General of the United Nations, was the chairperson at that time and directors were Pradeep Jung Pandey, Bhola Bikram Thapa, Bal Krishna Prasai, Manohar Das Mul, Prakash Chandra Mainali, Anin Rajbhandari and Avinash Pant. When asked what actions were taken in this issue, the central bank didn’t reply. Bodhraj Devkota, the information officer of Citizens Bank, didn’t reply to calls and emails. Talking over telephone, Gautam said he doesnot recall all the information of the time and referred to erstwhile CEO Rajan Singh Bhandari on the issue. Governor of Nepal Rastra Bank Chiranjibi Nepal did not reply to our email on lack of actions from the  central bank.

Three apartments for Susan

Seventy six families living in Bagmati Apartments also face auction. Sudheer Basnet did not pay Rs 70 million from the Bank of Kathmandu with a mortgage on his apartment. The buyers have filed a case in the Supreme Court after the bank started the auction process. The case is in the court, but no one here has received ownership certificate.

Roshan Sah Teli, Basnet’s contractor, turned out to be a bigger player in Bagmati Apartment. Teli illegally sold 20 units. All the 76 families including those who bought 16 flats from Teli filed a fraud case at Kathmandu Metropolitan Police in October last year for not depositing the money in the bank and keeping the construction work incomplete. Janak Rijal, chairman of the Consumers Committee, said “The house we live in has been auctioned by the bank as Sah has pocketed around Rs 80 million.”

Police arrested Sah, but the next morning, Nepal Communist Party leader Narayan Kaji Shrestha’s Personal Assistant Susan Karmacharya visited the police office and had him released. Rijal revealed, “Sah has handed flats to (Narayan Kaji) Shrestha’s associate Susan Karmacharya to cover up his mistake.”

At 10 number unit in the second floor of the Bagmati Apartment, cadres and high-ranking leaders often come to visit Narayan Kaji Shrestha. Pushpa Kamal Dahal, Shakti Basnet are among the visitors, according to one resident. Karmacharya lives at flat no 7 in the 8th floor. The office of the Eastern Hydropower Pvt Ltd, owned by Karmacharya, is in the flat no 1 of the 8th floor. Karmacharya said she paid 5.4 million rupees to Roshan Sah Teli for an apartment. “First, I paid 2 million rupees. Then, I recently cleared my dues. We have also set up offices of our two hydropower companies here” she said. 

Falling back into Basnet’s trap

Five governments were formed since the problem surfaced, but the fate of 619 families remains uncertain. Instead, Basnet cultivated close ties with powerful people and their associates. In 2013, Basnet campaigned in support of Renu Dahal, daughter of former Prime Minister Pushpa Kamal Dahal, who was fielded in a Kathmandu constituency in the second constituent assembly election.

A view of Vegas City Apartment in Balkumari, Lalitpur. Photo by Rudra Pangeni. 

Announcing his property details in March 2014, the then Deputy Prime Minister Bamdev Gautam said he had paid Rs. 5 million in advance to buy two apartments in Vegas City at Balkumari, Lalitpur.

However, Gautam refrained from registering his name at government established probe commission. Basnet, however, has listed Gautam’s son Haris Dev Gautam as the owner of two units, according to Consumer Committee Chairman Mohan Bhattarai.

Similarly, Nepali Congress leader Prakash Man Singh and his sister Mita Singh have jointly bought a unit at Grand Apartment. Singh lives in the same apartment in 5^th floor. Raju Shrestha, former chairman of the Consumers Committee, said, “We did not get any help from her either when we sought her support to get ownership certificate.”

Gyanendra Dhungana (former official of Nepal Rastra Bank), the chief executive officer of Nepal Bangladesh Bank, lives in a flat (449 square feet) on the fifth floor of the same apartment. Dhungana booked the apartment at Rs 1 million in September 2011. Dhungana got the apartment at much cheaper price compared to other owners, but has not yet paid remaining Rs 500,000. Three years ago, Mahima Bajracharya had paid Rs. 2.24 million for a similar apartment.

Arjun Joshi, Central member of the Nepali Congress and former lawmaker along with Shailendra Kumar KC had paid Rs. 7.75 million to buy a flat in Sanepa Height Apartments in joint ownership. KC said, “We could not pay additional money. So the bank auctioned the apartment, but Basnet has promised to provide us a unit in Vegas City.” But only KC is listed as the buyer at Vegas City. The Karki Committee has claimed that the auctions of the apartment were not transparent.

Having been denied justice everywhere, the buyers of apartments in Vegas City have now urged Basnet to provide them their units again.They have already provided additional money ranging from Rs. 1 lakh to Rs. 4 lakh to Basnet . But the builder has doubled prices of all apartment units from the previous prices, calling it a price adjustment. In this apartment alone, three banks have already invested Rs. 580 million loans and buyers paid Rs. 920 million for the same.

Basnet, however, presented fresh plans to resolve the issue. “Among the buyers of 280 units, I will refund 160 bookings and give keys to 120 units,” he said. “I will open booking again for the rest of the units, and I will hold a press conference to announce this,” he said.

However, Basnet doesn’t have any financial source to execute his plans. And the buildings under construction are only 181 units.

Undaunted, Basnet continues to show dreams like he did 10 years ago. He said, “I will demolish the foundation for Block A and build 25 individual houses and sell them.”. Such individual houses are not in the approved plan.

Nabin Adhikari, who lives in a rented apartment in New Baneshwar, paid an advance of Rs. 2.23 million for a 1250 square feet apartment (total cost Rs. 4.478 million) 10 years ago. But the price for the apartment has now nearly doubled at Rs. 9.5 million. Now he’s planning to buy a smaller unit at Rs. 6.5 million, nearly Rs 2.1 million more. “The government has not given us justice. As a result, we have been forced to return to Sudheer. But I still don’t know when I can move in,” he said. 

Pangeni is Bertha Fellow.