What Changes About RERA After Bombay HC Order

As the number of petitions by real estate developers and plot owners challenging the legal validity of the newly implemented real estate law grew across India's high courts, the Supreme Court in September this year mandated the Bombay High Court (HC) to first hear pleas lying with it while asking other courts to wait and watch. The decision of the Bombay HC, which passed its order on December 6, will act guide to other high courts to go forward.

Let us look at what changes in the Real Estate (Regulation & Development) Act, 2016, which came into effect in May this year, after the HC decision.

Law is constitutionally valid: The HC has upheld the Constitutional validity of the legislation, saying it is crucial to protect the interests of buyers across the country and develop incomplete projects. Most petitions had challenged the Constitutional validity of the Act. The court ruled that the law “has adequate mechanism, which balances the rights and obligations of the promoter, real estate agent and the allottee”. Several developers termed the court decision on this as “expected”.

“RERA was passed because it was felt that several promoters had defaulted and such defaults had taken place prior to coming into force of RERA. In the affidavit in reply, the Union of India had stated that in the State of Maharashtra, 12,608 ongoing projects have been registered, while 806 new projects have been registered. This figure itself would justify the registration of ongoing projects for regulating the development work of such projects,” the HC said.

"RERA is not a law relating to only regulatory control of the promoters (developers), but its objective is to develop the real estate sector, particularly the incomplete projects across the country," the HC said, adding it is crucial to protect the interests of buyers across the country.

The law covers ongoing work, too: Developers were of the view that the law should have under its purview only new projects, and not on-going real estate construction. Such a provision would mean, developers argued, they were being made retrospectively liable for delays and default on schedules set in the past. Section 3 of the law makes it mandatory for developers to register their new and ongoing projects for which they have not been issued any occupancy certificate with the state authority.

“Merely because sale and purchase agreement was entered into by the promoter prior to coming into force of RERA does not make the application of enactment retrospective in nature,” the HC said.

The focus must shift on implementation: Stating that the real estate sector is facing "enormous problems", and the key to success of this reformatory law lies in its implementation, the court said that states must closely monitor the work in this regard.

“We are conscious of the fact that the actual implementation of the RERA needs to be closely monitored in years to come. The RERA is not a law relating to only regulatory concerns over the promoter but its objective is to develop the real estate sector, particularly the incomplete projects across the country. The problems are enormous and it's time to take a step forward to fulfill the dream of the Father of the Nation to wipe every tear from every eye,” said the court.

This Central law is being implemented by states as land is a state subject.

Justifiable delays are acceptable: In a major breather for developers, the HC has said that the state Real Estate Regulatory Authority (RERA) and the Appellate Tribunal should consider project delays on a case-to-case basis. In case delays are caused due to "exceptional and compelling circumstances”, authorities must not cancel the projects or developers' registration.

"In case the authority is satisfied that there are exceptional and compelling circumstances due to which a developer could not complete the project in spite of the one-year extension granted, the authority will be entitled to let the developers' registration continue," the court said. “Such powers shall be exercised on a case-to-case basis, and the authority shall consult with the state in such cases if needed,” it added.

This was another key issue based on which developers challenged the law. The law restricts any extension beyond a year for completion of the project that could not be completed within the deadline mentioned by the builder while registering it, except in case of force majeure.

Section 6 of the Act says: "The registration granted may be extended by the authority on an application made by the promoter due to force majeure, in such form and on payment of such fee as may be specified by regulations made by the Authority."

The expression force majeure includes "war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project".

Judicial members mean judges, not legal servants: The developers had also opposed the composition of the state-level authority and the Appellate Tribunal. The developers challenged a Section of the law that provides for the appointment of bureaucrats as judicial members of the appellate tribunal. The HC did not interfere with the composition of the state-level authority, but, it ruled that the tribunal must be headed by a judicial officer and not a bureaucrat, or a member of the Indian legal services, and that majority of the members of such tribunal must be officers or members of the judiciary.

Section 43 (3) of the Act says: “Every Bench of the Appellate Tribunal shall consist of at least one Judicial Member and one Administrative to Technical Member. Developers contended that the term judicial member must mean judges and not bureaucrats from the Indian Legal Service. Considering the tribunal has the power to impose imprisonment, its members must be judicial offers, developers pleaded.

Penalty for delays stands: The HC struck down the argument that developers should not be liable to pay a penalty if a project is delayed owing to valid reason,

“Section 18 is compensatory in nature and not penal. The promoter is in effect constructing the apartments for the allottees. The allottees make payment from time to time… It is, therefore, not unreasonable to require the promoter to pay interest to the allottees whose money it is when the project is delayed beyond the contractual agreed period,” the court said.

Section 18 of the Act deals with the return of amount and compensation.

Also Read: RERA In Action: Penalties Hiked, Notices Slapped