9 January, 2018
The Division Bench of the Bombay High Court in its recent judgment passed in the batch of joint Writ Petitions, preferred by various Builders/ Promotors (one of them being, Neelkamal Realtors Suburban Pvt. Ltd. and Anr. vs. Union of India and Ors., Writ Petition No. 2737 of 2017), has upheld the legality and constitutional validity of certain provisions of the Real Estate (Regulation and Development) Act, 2016 (the “RERA”).
These Writ Petitions were filed as the Builders/ Promoters at large were facing difficulties and challenges under RERA with respect to several issues. Builders/Promoters felt compelled by the mandate to have their ongoing/ pre-existing projects registered under RERA, which they understood as retrospective application of the provisions of RERA. The Builders/Promoters further felt restricted by the fact that RERA allowed only one year extension for registration in case the Builders/Promoters failed to complete the project on time. Therefore, the need to have a longer extension under RERA was another challenge which was being faced by the Builders/Promoters at large.
Accordingly, in light of the above and other restrictions being faced by the Builders/Promoters, multiple Writ Petitions challenging the legality and constitutional validity of certain provisions of RERA were filed on the ground that arbitrary and unreasonable restrictions are being levied on the Builders/Promoters under RERA. In these petitions, questions with regard to the validity of Sections 3(1), Section 3(2)(a), explanation to Section 3, Section 4(2)(l)(C), Section 4(2)(l)(D), Section 5(3), first proviso to Section 6, Sections 7, 8, 18, 38, 40, 46(1)(b), 59, 60, 61, 63, 64 of RERA were raised.
Contesting the validity of Section 3 of RERA which provides for the registration of projects, including current and ongoing projects, that commenced prior to the enforcement of RERA, it was argued by the Petitioners that the provision has retrospective application and hence is arbitrary. Further, the provision of interests payable for delay under Section 18 of RERA were understood as penal interest and in light of retrospective nature of RERA could not be validated as per the Petitioners. In addition to the aforementioned arguments, it was further contested that the application of the new rules on ongoing developments would violate the contract between the parties that were not in consonance with the RERA Rules but still demanded its application due to registration under RERA.
Furthermore, Section 6 of RERA provides for strict implication in cases of delay in delivery of possession by the Builders/Promoters, however, the Authority, in cases of Force Majeure, may extend the time period of delivery of project by way of extending the Registration up to one year only. On this aspect, the Petitioners argued that by interpreting the definition of “Force Majeure” in a narrow manner, RERA has completely disregarded the compelling socio-economic conditions that may also hinder the completion of a project and hence such rules are being applied strictly and arbitrarily. It was further argued that the maximum extension of one year under RERA is inadequate and longer extension should be provided.
The most elaborate argument submitted by the Petitioners, with respect to the revocation of registration under Section 7 of RERA, involved multi-fold questions. The Petitioners argued that while the revocation of registration could be done on the basis of default in delivery, violation of terms of approval of project or for unfair practice, the consequence and method of revocation remained unclear. Section 8 of RERA, a provision underlining the obligations of the authority in situation of revocation was challenged on the grounds that it did not provide any yardsticks or procedure by which the remaining development was to be carried out post the revocation.
The Petitioners expressed doubts with regards to transfer of charge of project for further development, confiscation and transfer of accounts, process of transferring the property to the allottee when the same has been transferred from the Builder’s/Promoter’s charge, and the means of payment to the allottee if the account of the Builders/Promoters remains in the custody of the RERA Authority. Additionally, if 70 per cent funds, deposited in the separate account, were to be confiscated under the aforementioned provision, the demand of reimbursement in case of withdrawal under Section 18 of RERA seemed highly unreasonable to the Petitioners.
In response to the aforementioned arguments raised by the Petitioners, the learned counsel on behalf of the Union of India, the Respondent, stated that the legislature has the competence to rewrite a contract executed by private parties. Bringing ongoing projects under the ambit of RERA under Section 3, in view of the Respondent, would not violate the parties’ rights or make RERA retrospectively applicable as it does not take away or impairs rights of the parties.
It was argued on behalf of Respondent that under Section 6 of RERA, the extension of registration granted to projects in light of Force Majeure could not be made a discretionary provision as the same would defeat the purpose of RERA of timely delivery of possession. Clarifying the application of Section 8 of RERA, the Counsel stated that it would merely create an agency in the project and the agent shall not replace the Builder/ Promoter but only aim at completing the project on their behalf and return the possession of the same upon its completion. Additionally, the authorities may allow timely delivery of possession. Clarifying the application of Section 8 of RERA, the Counsel stated that it would merely create an agency in the project and the agent shall not replace the Builder/ Promoter but only aim at completing the project on their behalf and return the possession of the same upon its completion. Additionally, the authorities may allow the Builder/Promoter to continue with the development under their direct guidance. Lastly, it was submitted that the provision for payment of interest for delay, in case the buyer wishes to continue, and reimbursement in case where the buyer wishes to withdraw, are aimed at compensating the allottees who have invested large sums in the undertaking and not to penalize the promoter.
The High Court, in an attempt to reasonably approach the problem, appointed an amicus curiae to address the matter at hand with a wider perspective at the law. On the question of retrospective application, the High Court explained that the application of the RERA to all pre-RERA transactions, contracts and projects that are functional at the moment shall not be confused as being a retrospective application. In light of any developmental project that has not received its certificate of completion, an ongoing transaction between the allottee and Builder/ Promoter has been included within the ambit of RERA to protect and foster the interest of the consumers and regulate the real estate market, and hence, the High Court upheld the validity of Section 3 of RERA.
The High Court further upheld the validity of Section 4 of RERA which requires disclosure of the timeline at the time of registration and maintenance of 70 per cent of the amount, collected from the allottees for the purpose of funding development, in a separate bank account. This provision was upheld for the fair reason of protecting the rights of the consumers and restraining the misuse of the Builders’/Promoters’ powers. The High Court observed that in addition to controlling the misuse of power, if the Builder/Promoter utilized the funds fairly, with production of necessary certificates, the question of maintaining 70 per cent funds does not arise. As such, it actually provided relaxation to genuine promoters.
Deciding on the validity of Section 6 of RERA, the High Court held that the Builders/Promoters, while registering their projects under Section 4 have the liberty to extend the date of completion even if it does not conform to the contractual term. This liberty is granted to allow reasonable time to the Builders/Promoters to complete their projects and thereby promoting timely handing over of the possession. In light of extension of one year, the High Court held that in case the Authority is satisfied that there are exceptional and compelling circumstances due to which the Builder/ Promoter could not complete the project in spite of the extension granted under Section 6 of RERA, then the Authority would be entitled to continue the registration of the project on case to case basis.
Further, while addressing the issue with regard to revocation under Section 7 & 8 of RERA, Hon’ble Mr. Justice Naresh Patil stated as under:
“We are of the view that a proper construction of the provisions would mean that even in case of lapsing of or on revocation of registration, the authority shall not mechanically terminate the registration of the promoter or injunct him to act as a promoter, but in the facts of a case would take necessary steps in the interest of allottees permitting the promoter to carry on the remaining development work It shall not be interpreted to mean that in every case a promoter who fails to complete the project under the extended time under Section 6 would get further extension as of right. In that sense, there is no divesting of rights in the property from the promoter to the authority.”
Lastly, while addressing a misguided argument by the Petitioner with regard to the interest payable on default and delay under Section 18 of RERA, the High Court clarified that the rate of interest as mentioned under RERA is of a compensatory nature for the investment made by the people and shall not be perceived as a penal provision.
On the issue of Section 46(1) (b) of RERA, that discussed the appointment of members to the adjudicating authority, the High Court, holding in favour of the arguments advanced by the Petitioner declared that Section 46(1)(b) of RERA was bad in law to the extent of allowing a member of non- judicial, Indian Legal Services to hold a judicial position in the tribunal and hence is being struck down to that extent.
Further, Sections 59 to 64 of RERA, dealing with punishment with regards to non-registration under Section 3,
penalty for contravention of other provisions of the RERA, penalty for non-registration and contravention under Sections 9 and 10, penalty for failure to comply with orders of Authority by promoter and penalty for failure to comply with orders of Appellate Tribunal by promoter respectively, were challenged on grounds of retrospective application. However, the Court, clarifying the point of retrospective application, mentioned that RERA was enacted in the larger public interest and did not retrospectively penalize the act done by a person prior to registration under RERA.
Therefore, the High Court held that these provisions were not contrary to Articles 14, 19(1) (g) and 20 of the Constitution of India. Therefore, this judgment has not only turned out to be a major relief for the home-buyers, protecting their interests under RERA but is also a respite for the Builders/Promoters as it has enlarged RERA authority's powers to grant an extension of time in exceptional cases to the Builders/ Promoters to complete a project. Since, RERA remains in its natal stage, it is required to wait and test the implementation of the provisions in the real fact situation emerging from case to case. Irrespective, this judgment has certainly brought clarity on many aspects with a view to correctly implement the provisions of RERA.
For further information, please contact:
Mustafa Motiwala, Partner, Clasis Law
mustafa.motiwala@clasislaw.com
