RERA, Real Estate News, ET RealEstate

October 14, 2023

The Real Estate (Regulation & Development) Act, 2016 [RERA] has completed about seven & half years of its existence. Economic slowdown had driven away the profit-oriented Investors bringing the whole industry to a halt. Thus, exposing the Industry as it failed to deliver on its own the promises it had made to the Allottees on or beyond reasonable time, bringing in turn untold miseries in terms of civil & criminal litigations.

Today the industry is fighting its biggest battle for survival as the combined impact of the crisis renders the Projects economically unviable pushing them to an almost certain Insolvency in view of ever mounting financial burden of Refund to Allottees being ordered under RERA amongst others.

The endeavour here is to examine one aspect of the crisis surrounding the term “pre-deposit” [Proviso to Section 43 (5) of the Act] as a mandate for an Appeal. It provides that ‘Any person aggrieved by any direction or decision or order made by the Authority or by an Adjudicating Officer under this Act may prefer an Appeal before the Appellate Tribunal having jurisdiction over the matter.’

The Proviso thereto reads that- ‘Provided that where a Promoter files an Appeal with the Appellate Tribunal, it shall not be entertained, without the Promoter first having deposited with the Appellate Tribunal at least thirty per cent of the penalty, or such higher percentage as may be determined by the Appellate Tribunal, or the total amount to be paid to the allottee including interest and compensation imposed on him, if any, or with both, as the case may be, before the said appeal is heard’.

Explanation, appended at the end provides that – ‘For the purpose of this sub-section “person” shall include the association of allottees or any voluntary consumer association registered under any law for the time being in force.’

The provision seems quite innocuous and appears to be worded perfectly well even while prescribing and sanctioning a discriminatory approach to entertain Appeal by way of Proviso, i.e. to seek a Pre-Deposit of at least 30% of the penalty, or such higher %age as may be determined, or the total amount to be paid to the allottee including interest and compensation imposed, if any, or with both, before the appeal is heard, if the Appellant is a Promoter. This pre-deposit is not required if the Appellant is any Person, other than a Promoter, including ‘Association of Allottees’. After all, it is the Promoter who is at fault so they must suffer. In popular perception too, the allottees have been duped and not the other way round.

But the aim & object of the Act rules it out altogether. If ‘one must suffer the consequence of one’s wrong’ is the intent then this discrimination suffers from an unintelligible classification as allottees may also be subjected to suffer for non-compliance of their duty including “to make necessary payments in the manner and within the time as specified in the agreement for sale” [Section 19 (6) of the Act] or, “to pay interest, at such rate as may be prescribed, for any delay in payment” [Section 19(7) of the Act], or “fails to comply with, or contravenes any of the orders or directions or directions of the Authority” [Section 67 of the Act]. In the aforesaid event, the Allottees may also be an Appellant and a ‘Person’, ‘other than a Promoter’, [Section 43(5) of the Act] indicates the same. Allottees, as aggrieved Person, is further obvious in Section 68 of the Act whereunder they can be punished with even imprisonment if held guilty.

The Statement of Objects & Reasons of the Act provides that the Real Estate Sector is largely unregulated, with absence of professionalism and standardisation, and lack of adequate consumer protection. This has been a constraint to the healthy and orderly growth of the industry. Therefore, the Act aims for regulation and promotion of the real estate sector in an efficient and transparent manner and to protect the interest of consumers in real estate sector. This will ensure greater accountability towards consumers and will attempt to balance the interests of consumers and promoters by imposing certain responsibilities on both. Here the emphasis (by this Author) on the “balance” rules out any preferential treatment in favour of anyone. The Law seeks to aim for healthy and orderly growth of the industry.

Thus, there appears no answer to “why” if the differential treatment under Section 43(5) of the Act is examined. The balance intended by the aim & object seems missing here. Nevertheless, since the Provision has been upheld by the Supreme Court [‘Newtech Promoters and Developers Pvt. Ltd. v. State of UP and Ors.’ Reported as 2021 SCC OnLine SC 1044], we need to look into it’s contours.

The said provision uses two terms distinct from each other – ‘Promoter’ and ‘Person’ (meaning Allottee for the purpose here). Both the terms have been defined under the Act. Definition of “Promoter” is very wide and includes a Contractor, Developer, Development Authority or any Public Body, Apex State level Co-operative Housing Finance Society, Primary Co-operative Housing Society, Coloniser, Estate Developer and any such other person [Section 2(zk) of the Act]. The Explanation thereto further adds that if two distinct persons are engaged in development of real estate and its sale, both are Promoters hereunder. Thus, the definition sees the Industry comprised of two distinct sections Promoter and the end user – Allottees. Definition of “Allottee” means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold by the Promoter, and includes the person who subsequently acquires it through sale, transfer or otherwise but excludes a person inducted on rent [Section 2(d) of the Act]. Here there is a conflict between the definition also as it overlaps at times, e.g., an Association of Allottees only formed under the mandate of Section 19 (9) of the Act, if formed as a co-operative may be treated as Promoter as co-operative is named specifically in definition of Promoter.

Both the definitions are quite wide. In fact, anyone engaged in development /construction of a real estate project for the purposes of sale is a Promoter. Similarly, anyone allotted a unit in a real estate project is an Allottee. However, there is a catch, if an Investor participates, distinct from providing finance for return with stipulated interest /period, in the development /construction of a Project, the Investor will be treated as a Promoter. But if the Investor takes Units by way of allotment, as unwritten security, the Investor is Allottee. This latter approach has been the modus operandi of all the Investors other than Banks /Financial Institutions in the period of boom. Even other service providers, be it advertisers or others, took this route. They are all sailing with and as Allottees. And this is the class where the problem compounds all around. And this class comprises even small time Investors. They had no intention of availing the product. They simply wished to cash on the profit with increasing price in shortest possible period and repeatedly. When the market became bearish, this class, sizable in number, stopped paying any further. As a result, the Project failed to progress any further. Later this class, along with genuine Allottees, raised the issue of refund [Section 18(1) and 19(4) of the Act] as in bearish market this seemed to be a reasonably beneficial return (Refund with interest and compensation) for the Investors. Whereas the real Allottees lost as the Refund of the actual amount paid with stipulated interest may not suffice in the altered market condition after so many years for the same unit.

And, this is precisely where the Act failed to do proper classification and thus provide relief to the actual Allottees. Had it been provided that the Allottees, before being granted the benefit of refund, would have to account for payment with interest on delayed payment, if any, till the date of seeking refund at least by way of set off; the Investor Allottees who compounded the problem of real Allottees would not have benefitted at the expense of the Promoters and the Industry itself. The end users kept paying till the end in the hope of getting their long-cherished home. Most of them had availed loan and made heavy downpayment already. Whereas the Investor -Allottees had paid barely more than the booking amount and had stopped the payment as soon as market became bearish.

This Allottee -Investor has further benefit of indulging in speculation of enhancement by filing an Appeal under Section 43(5) of the Act without any pre-deposit. Whereas an Association of Allottees formed as a co-operative under Section 19(9) or otherwise may end up confronted with 100% pre-deposit when some of its speculative members /Investor–Allottees wants some return in terms of Refund in a bearish market as aforesaid. This lot benefits at the cost of other Allottees. This jeopardises the whole co-operative movement in construction sector whereby one can hope to get a shelter over head on no profit no loss basis. Definition of ‘Person’ [Section 2(zg) of the Act] can multiply such an example. This has not been appreciated and applied in any case scenario. The nearest position any Court has reached is in ‘Vaidehi Akash Housing Society vs. New D N Nagar Co-op Housing Society [(2015) 3 ABR 270] & Goregaon Pearl Co-op Society vs. Dr Seema [(2019) SCC online Bom 3274] under somewhat similar context but different Act. This scenario helps the builder lobby and they can engineer such a situation so that no such adventure of no profit no loss takes root in the society. This needs to be factored in by the Courts and deserves attention of Parliament too.

In absence of any revival of the market, uptick in demand and thus an appreciable return on investment, no investment will kick in to save it from impending disaster. If the Government also ignores /overlooks the long pending telling cry for some sustainable effective help, the Industry may be crippled hindering the goal of realising a 5 Trillion Dollar Economy soon.

  • Published On Oct 14, 2023 at 03:00 PM IST

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETRealty App

  • Get Realtime updates
  • Save your favourite articles

Scan to download App

Source link

Abhay Singh

Web Developer

Leave a Comment