Aastha Mehta, Student of Law, GNLU, Gandhinagar
Skyrocketing prices in real estate sector is not uncommon phenomena, especially for metropolitan cities, and also the fact that scrunch of land is increasing will only contribute to the increase in prices of land, much to the disadvantage of consumers. The proposed bill on Real estate, was introduced in Rajya Sabha, in 2013, and on perusal of the bill, one must admit it is a comprehensive proposed legislation. One may say after looking at this bill, “better late than never”, since cases pertaining to illegal constructions, duping innocent consumers by real estate agents, fraud by real estate developers on consumers, non-granting of possession have flooded the courts, and in absence of any central legislation, it was difficult for courts to adjudge such situations on the basis of local laws, which differs from state to state, giving rise to different standards to be applied by different courts. So before it got too late and consumers would be trampled more for no fault of theirs, the bill with its detailed provisions has come to the rescue.
Supreme Court in 2004 ((Friends Colony Development Committee v. State of Orissa (2004) 8 SCC 733))conveyed in very harsh words how builders flout the regulations and law, and it is the consumers who bear the brunt in the following manner, “Builders violate with impunity the sanctioned building plans and indulge in deviations much to the prejudice of the planned development of the city and at the peril of the occupants of the premises constructed or of the inhabitants of the city at large. Serious threat is posed to ecology and environment and, at the same time, the infrastructure consisting of water supply, sewerage and traffic movement facilities suffers unbearable burden and is often thrown out of gear. Unwary purchasers in search of roof over their heads and purchasing flats/apartments from builders find themselves having fallen prey and become victims to the designs of unscrupulous builders. The builder conveniently walks away having pocketed the money leaving behind the unfortunate occupants to face the music in the event of unauthorised constructions being detected or exposed and threatened with demolition. Though the local authorities have the staff consisting of engineers and inspectors whose duty is to keep a watch on building activities and to promptly stop the illegal constructions or deviations coming up, they often fail in discharging their duty. Either they don’t act or do not act promptly or do connive at such activities apparently for illegitimate considerations. If such activities are to stop some stringent actions are required to be taken by ruthlessly demolishing the illegal constructions and non- compoundable deviations. The unwary purchasers who shall be the sufferers must be adequately compensated by the builder. The arms of the law must stretch to catch hold of such unscrupulous builders.”
Author has wherever necessary given examples to further substantiate various points, and has given its own views, which are always subject to disagreements and the author has tried to maintain a lucid flow, since the subject herein may not be interesting to all.
Following legislative comment is divided into four parts:
- Pro-builders v. Pro consumers: Where does the bill fall?
- Advantages of the Bill
- Deficiencies of the Bill
- Different Regulatory bodies under the Bill
Pro-builders v. Pro-consumers: Where does the bill fall?
The scheme of the Bill itself is testimony, to the extent of pro-consumerism approach it has taken, almost amounting to burdensome requirements on real estate promoters and agents. There is only one chapter, Chapter IV, which discusses rights and duties of allottees, and rest of the entire bill focuses on the how real estate area has to be reinvented, new processes are added and new bodies are made, which may increase the monetary aspect for a real estate developer. Firstly, Section 3 mandates registration of real estate promoter, and Section 4 provides how application for registration has to be made to the Authority, herein Real Estate Regulatory Authority at the state level. The quantity of requirements and documents which the builders need to provide under Section 4 shows that in order to maintain transparency and disclosure by builder as to minute details of plans, there might be a possibility, that the initiation of projects might be haulted as there are many permits to take. Explanation to section 3 mandates that promoter has to obtain registration for every phase, if construction is to be done in phases, which again start the process for obtaining registration for each phase, delaying the project and increasing miscellaneous costs for promoters. However balance is maintained under section 5, that the authority has to give registration within 15 days, but such speedy disposal of registration is one thing which has created doubts, primarily because of two reasons. First being, the sheer number of infrastructure projects that are coming up, the workload of granting permission, and the manpower with the authority may not be even. Secondly, there might be times when in important properties, when structure is to be erected, though the bill does not provide, but the authority might require to visit the site and ensure the ground situation is in consonance with the documents, including layout plan which have been submitted. This work may take time, so 15 days will definitely be inadequate. Section 7, is one of the most important sections. It talks about revocation of registration, in case there are certain acts committed by promoters, fastening liability on them. Section addresses the general situation of what might happen, and how to redress the consumer grievance. Section 7(4) shows that in case it does not function properly, and falls within the section 7, it can have a lot of business repercussions, starting from cancellation of registration, non-access to its website in relation to that specific project, inclusion of its name in the list of defaulters by Regulatory authority and also authority will inform other states and UTs about such cancellation. Such stringent measures are made, in order to have a psychological effect on the promoters to save themselves from tarnishing business reputation, to comply with the directions of authority and not indulge in any malpractice. Section 9 also requires registration of real estate agents. Such registration allows the authorities to have a database, but also ensures that consumers can have a right to know whether the real estate agent with which they are dealing is a registered one or not. Detailed functions of real estate agents in section 10 show indicate that infrastructure sector has been streamlined in this bill by allocating different functions to different component units, starting from agents, to developers to authorities.
Section 11(5) further protects consumers from whims of developers, since no allotment can be cancelled except upon the terms of the agreement of sale. Agreement to sale is one important piece of document, since by way of section 13(1), no developer can accept more than 10% of the cost of the land, apartment, building as an advance payment without entering into agreement to sale. One objective of having such provision is to maintain accountability as to amount of money being given to developer by allottees; developer does not accept different amounts from different allottees as advance payment. Section 12 read with Section 14(1), fastens liability on promoter. Section 12 makes promoter liable if allottees pays advance payment n the basis of information given in the prospectus of the project and due to that reason suffers some loss and damage due to any incorrect or false statement made in the prospectus, the consumer has two remedies.
- He can ask for compensation from the promoter. For adjudging the amount of compensation there is section 61. It mentions that the Authority shall appoint any officer not below the rank of Joint Secretary to the State Government to be an adjudicating officer for holding an inquiry in the prescribed manner, after giving any person concerned a reasonable opportunity of being heard. Section 62 also lays down different factors that need to be taken into consideration for deciding compensation.
- Second remedy which section 12 provides is that if such allottees intend to withdraw from project, promoter shall return his entire investment coupled with interest rate. The interest rate payable is to be decided by appropriate government by way of rules under section 73(h).
Section 14 also presses that proposed project shall be developed and completed by the promoter in accordance with the plans and structural designs and specifications as approved by the competent authorities. If a structural defect is found within 2 years of possession, allottee can again ask for compensation from promoter for the defect in the structure. Section 16 again fastens liability on promoters when it comes to failure for handing over possession of the property within stipulated period of time. Moreover one of the most harsh liability in section 16 being that compensation can be demanded not “prejudice to any other remedy available” which means other civil remedies against the builders can also be invoked. Section 16(2) is a general liability, for failure to comply with any obligations given under the act or the rules made thereunder, to provide compensation to allottees.
Chapter IV, gives plethora of rights to allottees, in addition to what other rights the allottees would get under other provisions, showing how much titled the Bill is in favor of consumers, living upto its aim as defined in preamble. Section 17(4), gives an all-encompassing right the most sought after right in terms of it being invoked by allottees leading to court cases, which right to refund. A statutory provision is made which enables allottees to get full refund in three situations. First being promoter is unable to give possession according to terms of agreement to sale. Second being discontinuance of business on account of revocation of registration under the Act, or rules and regulations made there under, and lastly, discontinuance of business on account of suspension of registration. This would ensure allottees do not suffer, and their money is safely returned to their hands. This can be read with Section 8, that in cases where promoters registration has been revoked or is suspensed, the Authority in consultation with appropriate government can take charge of remaining developmental work. Even common consensus among media seems that the present bill is a pro-consumer bill, much to the dismay of developer community ((Deepa Venkatraghvan “Budget 2013:NRIs could do with a quick introduction of Real Estate Bill” available at http://articles.economictimes.indiatimes.com/2013-02-14/news/37100015_1_plans-and-project-specifications-real-estate-regulatory-authority-nris; Profit NDTV available at http://profit.ndtv.com/news/your-money/article-real-estate-bill-is-it-good-or-bad-for-the-consumer-324638)).
Advantages of the Bill
The bill has certain much needed advantages, which reduces the discretionary criteria which develop section generally, use in order to cover costs.
- One basic and core advantage which the bill introduces is a bridging link, a sort of communication from the buyer to the seller and vice versa, under Section 11(3), wherein a relation is built between promoter and buyer, by way of which the promoter has to keep the buyer abreast about updates as to project, cultivates trust in the promoter that the final product is going to be as shown in the plan and to make it palatable for consumers that construction will take the same amount of times as told earlier in the agreement. This exercise will ensure there is trust, all doubts are removed from consumer’s mind, and promoter and allottee are on the same page as to what to expect from the construction.
- Second most advantageous provision is Section 4(i)(D), wherein promoter is mandated that 70% or less if notified by appropriate government from the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank within a period of fifteen days of its realization to cover the cost of construction and shall be used only for that purpose. The provision seeks to address the practice of builders using money from an existing project for other projects, resulting in delays in completion ((“30th Report: The Real Estate (Regulation and Development) Bill, 2013”, Standing Committee on Urban Development, February 13, 2014, Available at http://www.prsindia.org/uploads/media/Real%20Estate/SCR-Real%20Estate%20Bill.pdf.)). However there is always a possibility that this amount is reduced by different state governments.
- Thirdly, specifying actual carpet area ((Defined in section 2(j).))is mandatory under the bill. There are cases where buyers are never well-informed as to the correct carpet area, which gives them less area than what they expected and what they paid for. This problem is sought to be resolved since the promoter while applying for registration has to give details as carpet area.
- One more point which generally leaves attention while drafting any legislation, is the fact that it is always better to incorporate principles of natural justice into the statute itself, so that fairness is ensured in all possible circumstances. Herein, principles of natural justice is embodied in the act itself, at every stage the aggrieved party is given a right to be heard by the authority. Proviso to Section 5 and Section 24(2) are some of the examples wherein right to be heard is embodied for the benefit of the aggrieved party.
- One more very pertinent positive point is, the fact that Real estate Regulatory Authority is given very important function under section 29(c), which focuses on encouraging construction of environmentally sustainable and affordable housing, promote standardisation, including grading and use of appropriate construction materials, fixtures, fittings and construction techniques. This also helps to form an insight that if regulatory body acts with determined effort to realize this goal, than environment may not have to suffer any more at the hands of developers who would scrap away a green area for making a concrete jungle. Supreme Court in 2009, in one of the landmark cases also stated that those promoters who build violating the law and start construction on green patches do it without giving it a thought as to the consequences which the people will face in terms of sanitation and health as well as it might cost too much for a country with haphazard development without planning ((Shanti Sports Club v. UOI (2009) 15 SCC 705)).
- For the regulatory authority to have teeth, some sort of power to hear and solve complaints should be given, which is exactly what section 31 provides, wherein authority can conduct investigation on the basis of complaint under the Act or rules/regulations. This is another positive aspect when it comes to making the authority powerful in terms of giving them leeway to ensure the law is being implemented effectively and it does not only be a namesake granting authority.
- Real Estate Appellate Tribunal, which is body established under section 37, for settlement of disputes is a balanced body which has judicial as well technical or administrative member, which ensures that knowledge of law and practical aspects of real estate industry are made available to anyone aggrieved by the decision or order of Regulatory authority.
Deficiencies of the Bill
Bill has certain loopholes and issues which would require reconsideration in the parliament. Some of them are as follows.
- It bars the jurisdiction of civil courts under section 69, which will raise a question whether it is taking away jurisdiction of the court. Even power to grant injunction is taken away and sole power of adjudication is given to tribunal and regulatory authority for any matter under the Act. It can be challenged by saying that unfettered power of adjudication in such bodies maybe abused. However appeal from tribunal’s order to High Court under section 50, which might be good counter argument for those who say normal courts are not completely kept at bay with the proceedings of such bodies.
- Section 3, provides for an exception wherein registration of promoter is not required for wherein the land proposed to be developed is less than 1000 square meters, or construction of less than 12 apartments. This loophole can easily be used to play fraud on small customers who wouldn’t invest in big schemes, but prefer a smaller residential area, fitting their budget. It should be debated before the Parliament as to rationale of not including smaller schemes within the fold of registration.
- More importantly is section 78’s proviso, has created certain confusion. It states where a State has enacted a law for regulation of the real estate sector, and such State law is not inconsistent with this Act, then, the State Government, to that extent, may not apply the provisions of this Act in the State. Therefore, for this Bill, when made into an Act, to apply, there needs to be firstly an inconsistency in the state law, or in absence of any law, this law will apply. Inconsistency in the two laws is something which will be found only if the state law is challenged in the courts. This provision has compromised uniformity. The scope of this Bill is limited to contracts between buyers and promoters, and transfer of property and these items fall within the Concurrent List ((Concurrent List, Entry 6 and Entry 7.)). Several state laws at present have inconsistencies such as Maharashtra Housing Regulation and Development Act, 2012 and West Bengal Building (Regulation of Promotion of Construction and Transfer by Promoters) Act, 1993, whose future applications remains uncertain ((Legislative Brief “The Real Estate (Regulation and Development) Bill, 2013 Available at http://www.prsindia.org/administrator/uploads/media/Real%20Estate/Real%20Estate%20-%20Legislative%20Brief.pdf)).
- Past projects have been excluded under section 3’s proviso (b), wherein the bill is sought to be given prospective operation, which will not give benefit for this protectionist legislation to many buyers who have already invested before coming of this law. Therefore those buyers will still be governed by state laws, making this law useless for many customers.
- Due to different registrations, the miscellaneous costs of promoters are bound to increase which may in turn increase the costs of land at which promoters will sell property to potential buyers. In 2012, the Committee on Streamlining Approval Procedures for Real Estate Projects recommended establishing a single window clearance system for approvals. It noted that up to 50 approvals are required for projects, across three levels of government, taking up to four years ((Volume I: Report of the Committee on Streamlining Approval Procedures for Real Estate Projects in India”, Ministry of Housing and Urban Poverty Alleviation, January 2013, Avaiable at http://mhupa.gov.in/W_new/SAPREP-march.pdf.)).
- Chapter VIII, which talks about penalties which are to be taken from promoters in case of contravention of provisions of the act is a very pecuniary amount which is generally either 55 or 10% of the total cost of the estimated project, which might be peanuts for those who are investing crores of rupees in construction. Therefore, estimated cost of project may not act as relevant criteria if defaulters are to be punished seriously, however it should be the type of company, whether it is a big company or a small company of developers which has contravened and more bigger and financially well off a company is, higher should be the penalty since their investment would be too high for them and penalty would be too low at maximum 10%.
Different Regulatory bodies under the Bill
These are the three authorities, which have been dealt with under the Bill in detail as to its composition, functions, salaries and allowances, powers, removal, other provisions as to its functioning. The central body being Central Advisory Council, is an executive body, with representatives from different central ministries. The functions given to it are very important, however one drawback would be they are too broadly worded, as seen from section 36. Second thing to be noted herein is the fact that the functions of central body and state regulatory body is bound to overlap. The biggest plus point is that checks and balance is maintained under section 71, wherein appropriate government can also keep a supervision on these authorities in case they do not function properly or do not carry out the mandate of the government.
The Bill if made it an Act, and is implemented in its letter and spirit, can be boon to consumers, who over the years have had a skeptic approach towards investing in real estate sector. It would also be more appropriate if shareholders from builder community are given a fair chance before Bill is made into an Act.