Introduction
Sometime back, the Government of India introduced the draft of the Real Estate (Regulation of Development) Act (“RERA”).
While this is yet to become law, the Maharashtra Government has
introduced a Bill for passing Maharashtra Housing (Regulation and
Development) Act, 2012 (“MHRD”). This Bill was passed by both
Houses of the State in July 2012 and press reports indicate that the
Governor has given his oral assent. However, a formal Notification in
the Official Gazette is yet awaited. Once it is notified, the Bill would
become an Act. On coming into force, one important consequence that it
will have is that it would repeal the nearly 50-year old Maharashtra
Ownership Flats (Regulation of the Promotion of Construction, Sale,
Management and Transfer) Act, 1963 (MOFA).
The Preamble
states that the MOFA did not have an effective implementing arm as the
flat purchasers could only approach the Consumer Forums or Civil Courts.
It further provides that the Bill has been drafted to ensure full
disclosure by promoters, to ensure compliance of agreed terms and
conditions and to usher in transparency and discipline in the
transaction of flats and to put a check on abuses and malpractices.
Let
us examine this important piece of Legislation which is expected to
soon become the Law and also compare it with the existing provisions of
MOFA which it seeks to repeal, to understand whether the MHRD is vintage
wine packaged in a flashy new bottle or something more?
Non-applicability
The
MHRD does not apply to MHADA. Further, the Maharashtra Apartment
Ownership Act, 1970 is not repealed. Thus, condominium structures would
yet continue to be governed by the earlier law.
Housing Regulatory Authority and Appellate Tribunal
The
Bill proposes to introduce a radical change in the real estate
industry. For the first time, a Housing Regulatory Authority (HRA) would
be constituted to regulate, control and promote planned and healthy
development and construction, sale, transfer and management of
properties. Thus, just as the capital markets have a regulator in the
form of SEBI, the banking industry has RBI, the real estate sector would
also have an authority. It would be an autonomous body in the form of a
body corporate consisting of a Chairperson and Two or more Members.
The
Authority would have powers to ensure compliance of the obligations
cast upon builders under the Act, to make inquiries into compliance of
its Orders, etc. It has powers of a Civil Court and hence, it is a
quasi-judicial authority.
An additional feature is the
establishment of the Housing Appellate Tribunal, which would hear all
appeals against the Orders of the Authority. The Tribunal shall be a
three member bench to be headed by a sitting or retired judge of a High
Court. Thus, the Tribunal has been constituted on the lines of tribunals
under other Corporate Laws, such as the Securities Appellate Tribunal.
Both
these features are on the lines of the Central Act which would
constitute a Real Estate Regulatory Authority and a Real Estate
Appellate Tribunal.
One only hopes that the addition of two new authorities does not lead to more delays and latches in serving justice.
Promoter’s Obligations
The
obligations cast on a “promoter” of a project, i.e., the builder, are a
combination of those under MOFA in a new avatar and some additional
ones. A promoter has been defined to cover any person, firm, LLP, AOP or
any other body which constructs a block or a building of flats. In the
event that the builder and the person selling the flats are different,
then both of them are promoters. The decision of the Bombay High Court
in the case of Ramniklal Kotak v. Varsha Builders AIR 1992 Bom 62 is
relevant on this issue. A mere contractor of the builder would not come
within the definition of the term.
The definition of “flat” is
also relevant and it is defined as a separate and self-contained
premises which may be used for residence, office, show-room, shop,
godown, etc., and includes an apartment. The definition of the term flat
is similar to the one u/s. 2 of MOFA except that it does not include
the words “and includes a garage”. This is a fallout of the celebrated
decision of the Supreme Court in the case of Nahalchand Laloochand P Ltd
v Panchali Co-op. Hsg. Society (2010) 9 SCC 536 which held that the
promoter has no right to sell open or stilt parking spaces. A terrace
has been held not to be a flat. The premises contemplated by the term
“flat” refers to a structure which can be used for any of the purposes
specified in the definition, for example, residence, office, show room,
etc. – Association of Commerce House v Vishandas, 1981 Bom CR 716.
Let us Look at some Key Obligations of Promoter:
(a)
Registration of a Project – This is a new requirement cast on the
developer, which was not found under MOFA. Every developer must apply
for registration of his project with the HRA and for displaying it on
the HRA’s website. The HRA must register such project within a period of
seven days from application. Registration is required even for ongoing
projects where the Occupation Certificate has not been received. If a
Court declares that the title of the promoter to the land is invalid,
then the HRA can cancel the registration of the project which is built
on such land. If registration is cancelled, then the promoter is
prohibited from selling the flats constructed in such project.
Registration is not required in the following cases:
(i) When the land area to be developed does not exceed 250 sq. mtrs.
(ii) When the total number of flats to be developed is less than five.
(iii) When the promoter has received the OC before the provision came into force.
(iv)
Where the project is one of a renovation, repairs, reconstruction or
redevelopment project not involving a fresh allotment or marketing of
flats.
Once the project is registered, the promoter can upload
details on the HRA’s website. The features relating to a central
registry and a website are similar to the RERA. The monetary penalty for
not registering a project is Rs. 1,000 per day of default. In addition,
a promoter cannot issue any advertisement for a project or receive any
advance payment for the same, unless it is displayed on the HRA’s
website.
(b) Disclosures by the promoter – The promoter must
make full and true disclosure of several documents and information in
respect of the project, e.g., details of the entity developing the
project, consultants used, phase-wise time schedule for completion, type
of materials used, fixtures and fittings bifurcated between branded and
unbranded, possession date, nature of organisation to which conveyance
would be made, etc. One such requirement is obtaining a title
certificate to the land which should be certified by an advocate with a
minimum three years’ standing. While disclosures are a good move, it
must be ensured that it does not lead to undue red tape.
(c)
Agreement for Sale – Similar to the current provisions of section 4 of
MOFA, the promoter must execute an Agreement for Sale in the prescribed
form before accepting any advance payment/ deposit exceeding 20% of the
sale price. Once a promoter has executed an Agreement to Sell, he would
not mortgage or create any charge on the plot, building or apartment
without the previous consent of the allottee.
The Bombay High
Court’s decision u/s. 4 of MOFA in the case of Ramniklal Kotak v. Varsha
Builders, AIR 1992 Bom 62 is relevant in this respect :
“To prevent bogus sales being effected by a Promoter and to put a check to malpractices indulged in by the Promoters in regard to sales and transfer of flats, the Legislature has provided that the Promoter shall :
(i) not accept any sum or money as advance payment or deposit more than 20% of the sale price;
(ii) enter into a written agreement with each individual flat owner.”
The Bombay High Court in Association of Commerce House Block Owners v. Vishnidas Samaldas (1981) 83 Bom. L.R. 339 held that the provisions of section 4 are mandatory and not directory in nature. The ratio of the above-mentioned decisions would apply even under the provisions of the Bill.
The Agreement must also be registered. However, even if it is unregistered, the same would be admissible as evidence in a suit for specific performance or as evidence of part performance of a contract. A similar section is present under MOFA and was inserted to overrule the Bombay High Court’s decision in the case of Association of Commerce House Block Owners v. Vishnidas Samaldas that non-registered agreements are wholly invalid and void ab initio and create no rights between the parties.
(d) Responsibilities – If any flat buyer suffers a loss due to any false statement, then the promoter must compensate him. If the buyer withdraws, then he would be refunded the sum invested along with interest @ 15% p.a. Under MOFA, this is refundable with interest @ 9% p.a.
The promoter would have to take various specified safety measures for the builder. He is not allowed to give possession of the flats till the OC or Completion Certificate has been obtained. Interestingly, a majority of the builders in Mumbai do not obtain a Building Completion Certificate.
The promoter needs to adhere to the plans and project specifications which have been approved and which have been disclosed to the prospective flat allottees. Further, if any defect is brought to the promoter’s notice within three years from possession, then he is required to rectify the same wherever possible or offer such compensation to the flat allottees as the HRA may decide.
(e) Carpet Area Selling – The MOFA was specifically amended in 2008 to provide that one of the responsibilities of the promoter is to sell flats on the basis of the carpet area only. He could, however, separately charge for the common areas in proportion to the carpet area. The Statement of Objects and Reasons introducing this Amendment mentioned that flat purchasers are not understanding the difference between carpet, built-up, super built-up area and hence, the promoters must sell flats on carpet area alone.
While the Bill requires a promoter to disclose the carpet area and the Agreement for Sale should mention the extent of the carpet area, the amendment made in 2008 is nowhere to be found. The Agreement is required to mention the total price of the flat, but there is no reference in this clause to the carpet area pricing. MOFA also provided that the definition of carpet area for carpet area pricing included the balcony area of the flat. The Bill now defines carpet area for all purposes under the Bill to mean the net usable floor area within a flat or building in accordance with the Development Control Regulations.
Powers of Promoters
Section 12A of MOFA provides that the promoter cannot, without just and sufficient cause, cut off, with-hold, curtail or reduce essential supply or services enjoyed by a flat purchaser. Any person who contravenes the provision of this section shall on conviction be liable to imprisonment for a term of up to three months and/or fine. These include, water, electricity, lights in passages / stair-cases, lifts, conservancy or sanitary services, etc.
The Bill contains similar provisions with some differences. The responsibility of the promoter to provide these services has been made subject to the service provider providing the same. If the service provider does not provide the services, the promoter would not be responsible. This is a welcome change. However, an interesting addition has also been made.
If the flat purchaser fails to pay the maintenance charges to the promoter for a period of more than three months, then the promoter is entitled to, after giving a seven day notice period, cut-off or withhold such essential supply or service. The provision for three months imprisonment which currently exists in MOFA has also been laid to rest.
Accounts and Audit
One interesting and welcome new facet is the compulsory maintenance of building-wise separate bank accounts. The promoter must maintain a separate bank account of the sums taken by him as advance /deposit/towards the share capital for the formation of a cooperative society or a company/towards the outgoings/taxes. He must hold these sums for the purposes for which they were given and disburse them for those purposes.
A promoter who has registered under the Act must maintain accounts for various specific heads. The promoter must also get such accounts audited by a Chartered Accountant. The HRA can direct the promoter to produce all such books of account or other documents relating to a project or flat in case of a complaint against the promoter.
