Historically, real estate industry in India was unorganized and lacked transparency and accountability. However, owing to the increasing overhead costs and massive delay in completion of projects, there was a need for a governing authority to be established to mitigate the loopholes that are prevalent in the industry. The Real Estate Regulation and Development Act (hereinafter referred to as 'RERA') came into full force on 1st May, 2017 after being passed by the Rajya Sabha and Lok Sabha on 10th March, 2016. After getting the assent of the President on 25th March, 2016 it was published in the Official Gazette of India on 26th March, 2016 for the public. The act, to achieve this aim, set up state level regulatory bodies called Real Estate Regulatory Authorities(RERA) to regulate matters of real estate between builders and allottees thus ensuring precision, transparency and accountability in the development and working of these projects and the state level tribunals Real Estate Appellate Tribunals to adjudicate the decisions of the RERA.
Considering the power dynamic that usually exists between the builders and the home buyers, RERA seeks to protect and makes it mandatory for the builder to fulfill several duties in order to safeguard the rights of the allottees. From mandating the builder to share all relevant details of the project with the allottee to making sure the allottee has the right to get all the documents related to the project in their possession. This Act helps to instill confidence in the real estate sector of our country as non-compliance with any of the provisions in the Act attracts severe penalties for the builder. This Act empowers the regulators to fine and imprison the defaulters and the imprisonment can go up to a period of three years.
Filing Complaint with RERA/Adjudicating Officer
Section 31(1) mandates any person to file a complaint with the Authority or the adjudicating authority for any violation of the provisions of the RERA Act or Rules made thereunder against any real estate promoter, allottee or agent. The format of form, manner, and fees for filing a complaint is prescribed by regulations and provision of section 31 sub-clause (2) of the Act. In case of breach of duties by the promoters, allottees and the real estate agents, the Authority can impose penalty or interest in accordance with Section 38(1) of the Act. To the best of my knowledge the prescribed fee as per section 31(2) is majorly Rs. 1000/- in all States and UT's except for Maharashtra where it is Rs. 5000/- and Himachal Pradesh where it is Rs. 500/-. It is also pertinent to note, that the aggrieved person under the Act can only be allottee, promoter, real estate agent, association of allottees, the Act here has an edge so as to include the investors under the definition of allottee in comparison with the Consumer Protection Act where to file a complaint one could only be the consumer and not an investor.
Prevalent Power Dynamics
In the contractual relationship between the promoter and the allottee, there is a huge disparity in their economic strength leading to inequality of bargaining power. It usually turns out that in such a situation the allottee cannot dissent to a contract and is left with no option but to sign on the dotted lines of the standard contract. This view was taken by the division bench of the Hon'ble Bombay High Court in the case of Neelkamal Realtors Suburban Pvt Ltd Vs. Union of India and Ors. (2017) SCC Online Bom 9302, wherein, the Bombay HC bench held that:
- "…Agreements entered into with individual purchasers were invariably one-sided, standard-format agreements prepared by the builders/developers and which were overwhelmingly in their favour with unjust clauses on delayed delivery, time for conveyance to the society, obligations to obtain occupation/completion certificate, etc. Individual purchasers had no scope or power to negotiate and had to accept these one-sided agreements."
Forum for redressal of grievances
The proviso to Section 71(1) permits the complainant to select as per its discretion any forum for the redressal of its grievances and it does not explicitly provide for the bar of jurisdiction of consumer forum. Interestingly, the said provision enumerates that a complainant may withdraw the complaint pending before the Consumer Dispute Redressal Commission and file it before the RERA authority or Adjudicating Officer on the matters pertaining to the veracity of the advertisement by the promoter, non-adherence to sanction plans by the promoter, matters of refund and compensation from the promoter or any other rights of allottees as specified under the RERA Act.
A Bar of Jurisdiction of Civil Courts is enforced by section 79, no civil court shall entertain any suit and no injunction shall be granted by any court in respect of any matter which the authority or the adjudicating officer or appellate tribunal is empowered under the statute of RERA.
Consequences of an Arbitration clause in the Builder-Buyer Agreement
An arbitration clause contained in a builder-buyer agreement cannot bar the buyer to seek redressal under the RERA Act. The intention of the legislature is quite clear and evident by the preamble of the Act itself. The enactment of the RERA Act, 2016 is to provide a mechanism for speedy dispute redressal and the aforesaid Act is in addition to any other law in force and not derogation.
In view of the observations made by the Supreme Court in M/S Emaar Mgf Land Limited vs Aftab Singh (2019) 12 SCC 751, the Hon'ble Supreme Court considered the provisions of Consumer Protection Act, 1986 & the Arbitration and Conciliation Act, 1996 and laid down that the complaint under the Consumer Protection Act, 1986 is a special remedy. Despite there being an arbitration agreement, the proceedings before the consumer forum have to go on and as per the purpose of the statute of Consumer Protection Act. Such proceedings should not be interjected on the strength of the arbitration agreement as per the provisions of Arbitration and Conciliation Act, 1996.The Hon'ble Supreme Court further held that not only the proceedings under the Consumer Protection Act are special proceedings that were required to continue under the Act despite the arbitration agreement; there are a large number of other fields wherein an arbitration clause in the agreement can neither stop nor stultify the proceedings.
Time Period for Disposal of Complaints: -
On conjoint reading of Section 29(4), section 44(5) and section 71(2), these sections provides that any complaint to the authority or any appeal to the appellate tribunal or any application for adjudging compensation to the adjudicating officer shall be dealt as expeditiously and within a time period of 60 days or reasons shall be recorded in writing if such complaints are not disposed of, within the aforesaid time period.
Right to Information enumerated as a Right of the Allottees
Section 11(3) enumerates the following as a duty of the promoter and section 19(1) and 19(2), on the other hand, enumerates below mentioned as the rights of allottees at the time of booking and issue of allotment letter:
In circumstances of pendency of projects
Section 8 mentions about the situation in which the promoter's registration if suspended or revoked by the Authority or the project has crossed the time-limit as per the Section 5(3) of the RERA Act, the RERA authority in such a situation will consult the appropriate Government and will take such actions as deemed appropriate for completing the rest of the pending construction work of the project. The task to complete the pending construction work shall either be done by the association of allottees or by any competent authority, as the RERA authority deems fit in this aspect. The RERA will offer to complete the work of the project firstly, by the association of allottees and if they deny doing then the Authority will take any other option in this regard.
Right to Possession enumerated as a Right of the Allottees
In accordance with section 19 (3), the allottee has a right to claim possession of the apartment, plot or building and the association of allottees have a right to claim the common areas as per the declaration given by the promoter under sub-clause (C) of clause (l) of sub-section (2) of section 4. The aforementioned right of entitlement to possession runs simultaneously with the duty of the allottee to take physical possession of the plot or apartment or building, as the case may be within a period of 2 months after the issuance of OC (occupancy certificate) of the said unit in accordance with Section 19(10) of the Act.
Duties of the promoter with regard to the Execution of Registered Sale deed
Section 17(1) casts a duty on the promoter to transfer the title to allottee by a registered conveyance deed and simultaneously hand over the possession of plot, apartment or building. The promoter shall also hand over the common areas to the association of allottees or the competent authority within specified period as per the sanctioned plans from the concerned local laws. In the case of absence of any local law such conveyance deed shall be carried out within 3 months from the date of issuance of the occupancy certificate. As per section 17(2), after obtaining Occupancy Certificate and handing over the possession to allottees, the promoter is also duty bound to hand over the necessary documents and plans to the allottee and that of common areas, to the association of allottees or the competent authority as per the governing local laws in force. Whereas in the absence of any local law the same shall be handed over within 30 days after obtaining the completion certificate. It is also pertinent to note that the Real Estate (Regulation and Development) Removal of Difficulties Order, 2016 clarifies that the handing over of the possession of the common areas to the allottees has to be right after the issuance of completion certificate, where on the other hand execution of the registered conveyance deed is to take place only after the issuance of the occupancy certificate.
Breach of Agreement for Sale by Promoter & Right of Allottee to Withdraw from the Project
As per the section 19(4), the allottee shall be entitled to claim refund of the total amount paid by the allottee along with the interest at such rate as may be prescribed, if the promoter violates any condition mentioned in the agreement for sale or if his business discontinues due to the revocation or cancelation of his registration with the concerned authority. Interest shall be payable on the total deposits of the allottee by the promoter at the prescribed rate, i.e. State Bank of India's highest Marginal cost of lending rate as basic, plus 2% as per Haryana Rules and MCLR plus 1% as per Uttar Pradesh Rules and accordingly, it varies from State to State. In regard of my experience, one of the factors which can be taken into account while deciding the quantum of compensation could be the rents being paid by the allottee even after the due date of possession lapses, till the date of possession or refund by the promoter. A possession clause which is typically found in a builder buyer agreement executed between the parties, stipulates the time period within which the builder/promoter shall hand over the possession of the apartment/flat/unit to the buyer. If the promoter fails to fulfill his obligations as stipulated under the agreement for sale or the builder buyer agreement, as per section 18(1) the promoter shall be liable on demand by the allottees to refund the amount paid by them with the prescribed rate of interest or if the allottee wishes to continue in the project he shall be paid interest for every month of the delay till handing over the possession as prescribed under the Act.
In the case of Fortune Infrastructure V. Trevor D'lima And Ors, (2018) 5 SCC 425, it was held that even if the agreement did not mention any stipulated delivery date, the possession to the allottee must have been given within reasonable time which in the present case was three years. The bench observed that the allottee cannot be expected to endlessly wait for the possession. The aforesaid finding was relied on in Pioneer Urban Land & Infrastructure Ltd. Versus Govindan Raghavan, (2019) 5 SCC 725, "the Appellant – Builder failed to fulfill his contractual obligation of obtaining the Occupancy Certificate and offering possession of the flat to the Respondent – Purchaser within the time stipulated in the Agreement, or within a reasonable time thereafter. The Respondent – Flat Purchaser could not be compelled to take possession of the flat, even though it was offered almost 2 years after the grace period under the Agreement expired. During this period, the Respondent – Flat Purchaser had to service a loan that he had obtained for purchasing the flat, by paying Interest @10% to the Bank. In the meanwhile, the Respondent – Flat Purchaser also located an alternate property in Gurugram. In these circumstances, the Respondent – Flat Purchaser was entitled to be granted the relief prayed for i.e. refund of the entire amount deposited by him with Interest."
As per section 12 of the Act, if the allottee due to any false statement contained in any sort of advertisement made by the promoter sustains any loss, in such a case a promoter shall be responsible for veracity of the advertisement or prospectus published by him. In the aforementioned damage a promoter shall be liable to compensate the allottee as per the provisions of this Act. The allottee can also, seek a full refund of the principal amount paid by him along with such a rate of interest and compensation as prescribed under this Act. For illustrating the widest scope of advertisement, it could also include providing proper road facility connecting the project from any easily accessible road even if such a task was to be held with the aid of concerned government authorities.
In case there is any structural defect in the flat, plot or building or any lacunae in workmanship, quality or lacks in any provision of services as per the agreement for sale, the promoter should be informed by the allottee about such a defect within 5 years from the date of handing over the possession by the promoter to the allottee. The promoter is responsible as per section 14(3) to rectify such a defect within 30 days without levying any other charges for the said.
If the promoter doesn't rectify within 30 days, the aggrieved allottees shall be entitled to receive suitable compensation in the manner as provided under this Act. In my opinion, this is quite a favorable provision for the allottees which would include a defect in the quality of the structure.
If the promoter fails to discharge any other rules, obligation, or regulations imposed on him under this Act or in according to the terms and condition of the agreement for sale, he shall be liable to pay compensation to the allottees in the manner as provided in Section 18(3) of the Act.
Circumstances of Loss Caused by Defective Title
In accordance with Section 18(2), the promoter shall compensate the allottees if any loss is caused to them due to defective title of the land, on which the project is being developed or has been developed, in the manner as provided under the Act. The claim for such compensation shall not be barred by limitation provided under any law for the time being in force.
Alterations made to the project without consent of the Allottee
When the layout and sanctioned plans, specifications, kind of fixtures, fittings, all the amenities and common areas of the unit are approved from the concerned authority and are brought to the knowledge of a prospective buyer or supplied to the prospective buyer of the unit, the promoter shall not make –
Any changes or inclusion in the layout and sanctioned plans, specifications, kind of fixtures, fittings inclusive of all the amenities as mentioned therein with respect to the unit which are agreed to be taken, without the previous consent of that person. However, if required by the allottee, the promoter may make alterations or minor additions provided they are necessary as per the authorized architect or engineer after due communication with the allottee in this regard. Any other changes or additions without prior written approval from at least 2/3rd of the allottees, other than the promoters who are likely to invest in the unit.
According to explanation to Section 14(2) (ii) of the Act, the allottees, irrespective of the number of units booked in favour of his family members, or in case of companies or firms or any association of individuals, etc. with whichever name they are recognized, booked in their name or booked in favour of their related entities or associated enterprises, shall be considered as one allottee only.
Transfer of project to third party without consent
Section 15 of the Act states that without the written consent from 2/3rd allottees and the written approval from the Authority, the majority shall not include the promoter in it, the promoter is prohibited from transferring and allocating his majority right and liabilities in the real estate project to any third party. For the purposes of the computation of 2/3rd allottees under section 15(1), the explanation remains the same as aforementioned that of section 14(2)(ii) of the Act.
As per section 15(2), when the transfer of assignment is permitted to be made by the allottees and the Authority, the incoming promoter shall be liable to fulfill all the pending obligations individually under the provisions of this Act or the rules and regulations made thereunder, including the obligation as specified in the agreement for sale entered into by the promoter with the allottees. This section further clarifies that any such transfer if permitted shall not result in extension of time to the incoming promoter to complete the said real estate project. In the event of any default by the incoming promoter he shall be made liable to such consequences arising out of the breach of pending obligations of the erstwhile promoter or delay as per the provisions enumerated in this Act or the rules and regulations made thereunder.
Penalty in case the Promoter fails to abide by the orders of Authority
If the promoter fails to abide by or violate any of the orders, decision or direction of the Authority, he shall be liable to pay penalty for everyday during which such default continues, which may extend up to 5% of the estimated cost of the real estate project, as determined by the Authority and accorded by Section 63 of the Act.
Penalty in case the Promoter fails to abide by the orders of Appellate Tribunal
According to Section 64 of the Act, if the promoter fails to abide by or violate any of the orders, decision or direction of the Appellate Tribunal, he shall be punishable with imprisonment for a term which may extend up to 3 years, or with fine for everyday till such default continues which may extend up to 10% of the estimated cost of the real estate project, or with both.
A striking observation of the RERA Act that can also be termed as a shortcoming of the Act is that the legislation contains no provision that defines the term 'Banker'. There are several provisions in the Act that define the rights and duties of the promoter and the allottee but the Act misses out on enumerating the obligations of a Banker which is crucial, considering the number of tripartite agreements that are often entered into between the various parties. Specifically laying down the rights and duties of the banker would bridge the lacuna that is otherwise created in law which is often used as an escape clause since there is no obligation to perform certain duties under the Act, which would attract penalties if not performed in the correct manner.
Considering the nature of the disputes that arise from matters concerning real estate, there is a need to introduce various modes of alternate dispute resolution than those mentioned in the Act. Conciliation, wherein a third party, meets with parties and assists them to find a way to settle their disputes is the only mechanism mentioned in the Act. Mentioning several other mechanisms like mediation and arbitration would provide the parties with a mechanism to resolve their dispute in a manner that best suits their needs.
Another technical difficulty that the allottees often face is regarding the structural defects in the project undertaken by the builder. At the time of handing over of the booked unit to the allottee, the promoter being in a dominant bargaining position often takes an undertaking from the allottee that they do not have any complaints as regards to the structure of the concerned project. However, what tends to happen in some cases is that there are some of the structural defects that are prevalent in the project but the allottee fails to point them out as they are not visible to the naked eye to a lay man. In order to cope up with this situation, there should be a provision in the Act that permits the association of allottees to allot an independent engineer that could ensure that the structure of the plan meets the sanctioned plan and advice the allottees over other such technical aspects which are difficult to be noticed by a lay man.
In matters concerning the execution of the order passed by the Authority in accordance with section 40 the Act, in case the order is in favour of the allottee, what is often observed to happen by me is that the builder tends to reach at a settlement at the time of execution of the order and some of the allottees accept the settlement offered to by the builder. The Central Act states that it depends on the rules and functioning which differ in each state. Further, in some of the cases where the builder did not abide by the order passed by the Authority and the parties couldn't come to a settlement, in these circumstances for instance in Uttar Pradesh RERA , a recovery certificate is issued by the authority to the District Magistrate/Collector to ensure a recovery may the case be that the property of the builder is to attached or the his bank accounts are to be seized and hence the allottee can be given the money they rightly deserve as per the orders passed by the authority. The mandate of having it recovered as an arrears of land revenue has, a shortcoming in the Act, which is that there is no time frame mentioned as to when such District Magistrate needs to ensure that the property is to be attached or the bank accounts are to be seized and the allottees are given the money. This is yet another way in my opinion that the Act can enumerate and make it more efficient so as to meet the purpose it aims to meet.
RERA provides a common ground for, the buyers as well as the builders and the agents, hence reduce the difficulties and risks faced by the home buyers. It is a tool vested in the hands of the allottees that helps keep a check on the activities of the builder and the development of these projects. RERA brings along with it a forum for redressal of grievances, transparency, timely possessions of the projects and instills to create a trustworthy relationship between the buyers and the builders. Despite the few shortcomings that come along with this Act, it is indeed a healthy policy change in the real estate sector of the country.
Views Are Personal Only
The Author of this article, Harshit Batra is an Advocate and RERA Consultant. He is based in Delhi and practices Pan India. To bring about his expertise on this subject; he was the Former Legal Executive of the Real Estate Regulatory Authority - Gurugram Bench. His practice concerns majorly 3 fields: RERA, Arbitration and Criminal laws.