In a recent landmark ruling of the Hon’ble Bombay High Court (“BHC”) in the matter of Wadhwa Group Housing Private Limited (“Appellant”) vs. Vijay Choksi and Ors., it has been inter-alia held that a promoter of a joint development project, who has not received any consideration from the allottee of an apartment coming to the share of another promoter, is jointly obligated to refund that consideration with interest under Section 18 of the Real Estate (Regulation and Development) Act, 2016 (“RERA Act”). The Hon’ble Supreme Court has vide its order dated April 8, 2024 declined to entertain a special leave petition which was filed by the Appellant challenging the aforesaid judgement of the BHC.
Brief Facts
SSS Escatics Private Limited (“SEPL”) undertook a real estate project (“Project”) in Mumbai under the slum rehabilitation scheme as per Regulation 33 (10) of the Development Control Regulations, 1991. The Appellant and SEPL executed a joint development agreement on September 5, 2012 (“JDA”) to jointly develop the Project and segregated the constructed area between themselves for being sold to customers.
One Mr. Vijay Choksi (“Allottee”) booked a 3 BHK flat admeasuring 2,385 square feet (“Flat”) in the Project for a consideration of INR 2,65,35,000/- (Rupees Two Crore Sixty-Five Lakhs and Thirty-Five Thousand Only). After paying part of the consideration, i.e., INR 1,20,00,000/- (Rupees One Crore and Twenty Lakhs Only), the Allottee received an Allotment Letter, dated July 24, 2013, issued by SEPL. The Project was registered as an ongoing project, with Appellant declared as a Promoter (investor), under Section 3 of the RERA Act on account of it being incomplete on the day RERA came in force. The Allottee claimed the date of completion was unauthorisedly and unilaterally revised to March 31, 2022, from March 31, 2019.
The Allottee approached the Maharashtra Real Estate Regulatory Authority (“MahaRERA”) after noticing that its website had displayed his Flat area as 976.82 square feet instead of 2,385 square feet, claiming refund of INR 2,65,35,000 along with interest, compensation and costs under the provisions of Sections 12 and 18 of the RERA Act. After hearing the parties, MahaRERA passed an order dated September 24, 2021 (“RERA Order”) inter-alia rejecting the Allottee’s prayer for refund and directing the parties to execute a registered agreement for sale in relation to the Flat within 30 days, failing which, the entire amount was directed to be refunded to the Allottee.
Thereafter, the Allottee filed an appeal under Section 43 of the RERA Act before the Appellate Tribunal, which partly allowed the appeal by its order dated October 18, 2022 (“Impugned Order”) by setting aside the RERA Order. The Appellate Tribunal directed SEPL and the Appellant to refund the entire amount paid by the Allottee with an interest at the rate of SBI’s Highest Marginal Cost of Lending rate plus 2 percent (simple interest) to the Allottee with effect from the dates of payments until the date of actual realisation. Further, cost of INR 20,000/- (Rupees Twenty Thousand Only) was also awarded to the Allottee. The Appellant being aggrieved by the Impugned Order, filed an appeal before BHC.
Principal submissions of the Appellant
The Appellant inter-alia submitted that:
- The Impugned Order was ex-facie erroneous as the Appellant cannot be held liable for refund of any amount to the Allottee since the Allottee had not paid any amount to the Appellant. Under Section 18 of the RERA Act, refund can only be directed against such promoter who has received the amount.
- As per the terms of the JDA, the Flat formed part of SEPL’s entitlement and, therefore, SEPL had received the entire consideration from the Allottee.
- Since the Appellant does not have any right qua the Flat booked by the Allottee, it cannot be directed to refund any amount to the Allottee.
- MahaRERA Circular dated December 4, 2017 (“Circular”) supports the contention that the liabilities in respect of the promoters and investors are segregated, therefore liability of one promoter cannot be thrust upon the other promoter.
- The Project was launched prior to coming into force of the RERA Act and before the introduction of the RERA Act, the Appellant had no liability on account of absence of privity of contract with the Allottee. Pursuant to the RERA Act, the name of the Appellant was required to be reflected in the registration of the Project under the statutory provisions. Accordingly, mere change of law requiring the reflection of the name of the Appellant as promoter of the Project does not create any new liability for the Appellant, which did not exist prior to the introduction of the RERA Act.
Principal submissions of the Allottee
The Allottee inter-alia submitted that:
- The Appellant is undoubtedly covered by the definition of the term “promoter” as per Section 2(zk) of the RERA Act. The definition of “promoter” is such that privity of contract with the flat purchasers is not necessary. The explanation under Section 2(zk) makes it clear that all promoters are jointly liable under the RERA Act.
- A promoter cannot be permitted to defeat the rights of the flat purchasers by making internal arrangements with investors, landowners, etc. This is merely a facet of indoor management so far as the Allottee is concerned, all must be treated as promoters having the responsibility to refund the amount received for sale of Flats along with interest.
- The Circular actually assists the case of the Allottee as it specifies the joint liability of different promoters.
Key Highlights of the Judgment:
The BHC observed inter-alia that:
- The definition of the term “promoter” under Section 2(zk) of the RERA Act is wide enough to include every person who is associated with the construction of the building such as builder, coloniser, contractor, developer, estate developer or by any other name or even the one who claims to be acting as the holder of a power of attorney from the owner of the land. Even a person who is merely an investor in the project along with the promoter and who is entitled to benefit in the real estate project is also covered by the definition of the term “promoter”. A person who does not actually construct or causes to be constructed a building but merely takes part in the joint venture and sells flats, becomes a promoter.
- Merely because of the Flat falling within SEPL’s entitlement under the JDA, the Appellant is not excused from the responsibilities and liabilities under the RERA Act, Rules and Regulations qua the Flat. The RERA Act does not demarcate or restrict the liabilities of different promoters in different areas of the project. The liability is joint for all purposes under the RERA Act, Rules and Regulations.
- The Circular is issued with a view to tackle a situation where several developers had entered into agreements with individuals/organisations like landowners or investors by which such individuals/organisations were also entitled to a share in the total revenue generated out of sale of apartments and such individuals/organisations were not included in the online registration with MahaRERA. The Circular is issued with a view to ensure inclusion of such individuals/organisations in the online registration of projects with MahaRERA.
- Mere registration of the project as an ongoing project would not make any difference so far as the joint liability of several promoters is concerned. In fact, the Circular was issued particularly with reference to the ongoing projects. Therefore, before registering the project, the landowners/investors have to make up their mind as to whether they desire to continue in the joint venture or not. If they decide to continue with the joint venture even after coming into force of the RERA Act, they must accept the responsibilities as a promoter of the project/s.
- Section 18 of the RERA Act cannot be narrowly interpreted to include only that promoter who had actually received the amount; such narrow interpretation would give a licence to the developers to deliberately accept payments in the accounts of one of the promoters and then escape the liability to refund or pay interest to the allottees under the specious plea that the other promoters are not liable in respect of those payments.
- When a claim is raised in respect of a real estate project by a flat purchaser, all promoters become jointly liable qua the flat purchaser, irrespective of whether there is a privity of contract with each of the promoters or not.
Consequently, it was held by BHC that even a promoter who has not received any consideration from an allottee is jointly liable (along with the promoter who has received the amount) to give refund with interest under Section 18 of the RERA Act.
Conclusion
- Under the RERA Act, there is no distinction between the developer, landowner, investor, development/project manager, joint venture partner, etc., when it comes to the liability of the “Promoter” towards the flat purchasers and all such promoters are jointly liable for their obligations.
- Absence of a privity of contract has no relevance when it comes to obligations/duties under a statute.
- The landowners and investors who participate in a development/redevelopment project by contributing their land/funds must make informed decisions about the possibility of them becoming liable to flat purchasers/allottees in case of defaults by the promoter who is actually undertaking the construction/development, including but not limited to delay in completion of the project, the project getting stalled, etc.
- After the BHC judgment was pronounced, the Appellant requested for a stay on execution proceedings for a period of eight weeks, the time that will allow testing of the judgment before the Hon’ble Supreme Court. The request was rejected by the BHC. The Appellant filed a special leave petition before the Hon’ble Supreme Court challenging the judgment of the BHC. However, considering the facts and circumstances of the case, the apex court declined to entertain the aforesaid petition and accordingly dismissed the petition vide its order dated April 8, 2024. In the circumstances, the Judgement of the BHC continues to prevail.
For further information, please contact:
Rishiraj Bhatt, Partner, Cyril Amarchand Mangaldas
rishiraj.bhatt@cyrilshroff.com
