Provisions relating to conveyance are dramatis personae in the Bill. The maximum upheaval has taken place in this area and hence, one needs to study these provisions in depth.
S.10(1) of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”) currently provides that as soon as the minimum number of persons required to form a co-operative society have taken flats, the promoter has a duty to submit an application to the Co-operative Society Registrar for the registration of the society. The minimum number is 60% of the total flats. This application as per the Rules is to be made within 4 months from the date on which the minimum number is met. The promoter can also form a company instead of a society.
The Bill has modified this provision by extending the time available for forming a society or a company. A promoter must now make an application within 4 months from the earliest of the following dates:
(a) the date on which the OC is received for the building; or
(b) the date on which a minimum 60% of the flat purchases have taken possession; or
(c) the date on which the promoter has received the full consideration for the same.
Two other new features also find a place in MHRD which are not to be found under MOFA. In the case of a layout which consists of more than one building or wings of a building, the promoter must constitute a separate co-operative society or a company in respect of each such wing or building. The abovementioned timelines for formation of the entity would be separate qua each building or wing. This is a good amendment so that the conveyance of all buildings is not delayed till the completion of the layout. In the case of Jayantilal Investments v Madhuvihar Co-op. Hsg. Society,(2007) 9 SCC 220, the Supreme Court had an occasion to consider the timing when a conveyance needed to be executed in the case of a layout. Can conveyance be delayed till all the buildings in the layout are developed was the issue? In this respect, the Solicitor General made the following arguments, which in a way are the reasons for the new provision in the Bill: “ ..
It is submitted that, it is not open to the builders to insert clauses in the agreement with the flat takers stating that conveyances will be executed only after the entire property is developed. Learned amicus curiae submitted that the contention of the promoter in the present case is that its obligation to form society and execute a conveyance only after completion of the scheme is misconceived because u/s. 10 and 11 when the builder enters into an agreement with the flat takers he is required to form a cooperative society as soon as the minimum number of flat takers is reached and, thereafter, the conveyance has to be executed in favour of the society within four months after the formation thereof in terms of Section 11. He submitted that MOFA has been enacted to regulate the activities of the builders and not to confer benefits on them…”
The Supreme Court in this case remanded the matter back to the High Court for a fresh consideration. A Bombay High Court judgment in the case of Padmavati Constructions v State of Maharashtra, 2007 (1) Bom. CR 609 had held that conveyance of buildings in a layout need not be held up till the entire layout is completed.
Further, the promoter must take steps for forming an Apex Body or Federation consisting of all co-operative societies/companies within the layout.
The Apex Body would be the nodal authority for administering and maintaining the common areas and facilities within the layout while the individual societies would retain control of the internal affairs of their own respective buildings or wings as the case may be. Thus, the Apex Body would function like an Advanced Locality Management for the layout, but it is a more structured and formal concept. There are no timelines for the formation of the Apex Body. Probably, the Rules would deal with the same.
In cases where the promoter fails to execute a conveyance, the members of the society can make an application for execution of an unilateral deemed conveyance. An appeal can be made to the Housing Appellate Tribunal against an Order in respect of an unilateral deemed conveyance.
In respect of a layout, conveyance of title from the Promoter to the Society till such time as the entire development of the layout is completed, it shall be only in respect of the structures of the buildings in which a minimum number of 60% of total flats are sold along with FSI consumed in such building. Moreover, the conveyance shall be subject to the common right to use, the internal access roads and recreation areas developed or to be developed in the layout and with the right to use of the open spaces allocated to such building in terms of the agreement for sale executed by the Promoter with each flat purchaser.
There is an important non-obstante clause which provides that irrespective of anything contained in the MHRD/other Law/any agreement/any judgment/ Court order, the Promoter is entitled to develop and continue to develop the remaining layout and to construct any additional structures thereon by consuming the balance FSI, balance TDR and any future increase in FSI or TDR.
If the FSI of the plot in a layout is increased subsequent to the conveyance of any building in the layout to flat purchasers, then a part of the increase in the FSI shall belong to the flat purchasers of the conveyed structure or structures. The part belonging to the society is computed as a proportion of the FSI utilised or consumed by the conveyed structure to the total FSI of the layout. The promoter would have a right over the balance FSI or TDR remaining after what belongs to the society and it shall not be necessary for him to obtain any consent or permission from the flat purchasers for the purpose of utilising the balance FSI or TDR rights. These are indeed interesting amendments to the existing provisions under MOFA.
In cases where the promoter’s title to be conveyed is qua the entire undivided land appurtenant to all buildings in a layout, and if no period for executing such conveyance is agreed upon, then such conveyance shall be executed by the promoter in favour of the Apex Body within such time as may be prescribed after the formation of the Apex Body. It is likely that the Rules which would be framed under MHRD would prescribe the time limit.
The Bill provides that upon execution of the conveyance in its favour, the Society/ Company shall be entitled to the FSI or TDR rights relating to the building which has been conveyed and the proportionate share in the FSI increase explained above. If, after the conveyance of the layout land to the Apex Body, there is any increase in FSI or TDR or any benefits available on a layout plan due to changes in Government policies, then such increased FSI or TDR shall be apportioned among the respective legal entities in proportion to the TDR or FSI used for the purpose of construction of the buildings managed by them.
Additions and Alterations
U/s. 7(1) of the MOFA, once the approved plans of a building have been disclosed to any flat buyer, the promoter cannot make any alteration in the structures described there, in respect of the flats which are agreed to be taken without the previous consent of the purchaser. Further, he cannot make any alterations or additions in the building’s structure without the previous consent of all persons who have agreed to take flats in that building. For instance, in Khatri Builders v Mohd. Farid Khan, 1992 (1) Bom. C.R. 305 it was held that trying to construct an additional flat on the terrace by acquiring additional FSI falls within the mischief of section 7(1) of MOFA. What constitutes a consent was the subject-matter of discussion in this case where the Court held as under:
“46. Thus, there is consistent view of this court, that the blanket consent or authority obtained by the promoter, at the time of entering into agreement of sale or at the time of handing over possession of the flat, is not consent within the meaning of Section 7(1) of the MOFA, inasmuch as, such a consent would have effect of nullifying the benevolent purpose of beneficial legislation.
47. It is, thus, clear that it is a consistent view of this court, that the consent as contemplated u/s. 7(1) of the MOFA has to be an informed consent which is to be obtained upon a full disclosure by the developer of the entire project and that a blanket consent or authority obtained by the promoter at the time of entering into agreement of sale would not be a consent contemplated under the provisions of the MOFA…”
Even in Bajranglal Eriwal v. Sagarmal Chunilal, (2008) 6 Bom.C.R. 887, it was held that it is not open to a developer/promoter to rely upon a general consent. To allow such generalised consents to operate would defeat the public policy which underlies the provisions of section 7(1).
The Bombay High Court’s decision in the case of Jitendra Shantilal Shah v Zenal Construction P Ltd, Appeal from Order No.884 of 2008 is interesting. A plot was proposed to be amalgamated with an adjoining plot on which a building was already constructed. The Court held that the proposed construction violated section 7(1), since it touched the old building and entire open space of the occupants of the old building would be blocked. An SLP has been filed (SLP(C)No.10335/2009) before the Supreme Court against this Order of the High Court. However, in Jamuna Darshan Co-op. Hsg. Society v JMC & Meghani Builders, 2011(4) BCR 185, where a separate building was to be constructed as per the plan sanctioned by the Municipal Corporation, it was held that flat purchasers’ further consent was not required to be obtained since it must be deemed to have been obtained when their agreement itself was entered into and when they were shown the sanctioned plans.
The MHRD Bill contains a similar provision as section 7(1) of MOFA albeit with a twist. In case any alterations or additions are:
(a) required by any Government Authority;
(b) required due to changes in law; or
(c) disclosed in the Agreement for Sale
then the same shall not require the prior consent of the flat purchasers. Thus, the flat buyers should carefully read the contents of the Agreement. The old legal maxim of caveat emptor or buyer beware of what you buy would squarely apply.
A second new entrant in the Bill is a provision which permits the promoter to amend the layout, including the garden, recreational area, park, playground, etc., which had been disclosed in the building plans. These can be amended without prior consent of the flat purchasers, if the same is amended in accordance with the Development Control Regulations and for utilisation of the full development potential which is available from time to time.
A third scenario has been provided where a promoter can make changes without prior approval of purchasers. In case of development under a layout or a township, the promoter can construct any new building after obtaining the local authority’s permission in accordance with the Development Control Regulations, the only caveat being that the promoter shall not reduce the aggregate area of recreation garden, park, playground without the prior consent of all flat purchasers.
The fallout of this provision probably lies in the Supreme Court’s decision in the case of Jayantilal Investments v Madhuvihar Co-op. Hsg. Society,(2007) 9 SCC 220 which held that once the original plans of the building are approved by the local authority and the flats are sold on that basis, promoter/developer is prohibited from making any additions or alterations without the consent of the flat purchasers. A comprehensive project scheme has to be disclosed on such plot of land where the builder is going to construct the flats. Builders cannot construct additional structures which is not in the original layout plan without the consent of flat purchasers. The following extract from the Supreme Court’s decision are relevant:
“……he is also obliged to make full and true disclosure of the development potentiality of the plot which is the subject matter of the agreement. ….he is also required at the stage of lay out plan to declare whether the plot in question in future is capable of being loaded with additional FSI/ floating FSI/TDR. In other words, at the time of execution of the agreement with the flat takers the promoter is obliged statutorily to place before the flat takers the entire project/ scheme, be it a one building scheme or multiple number of buildings scheme. …….the above condition of true and full disclosure flows from the obligation of the promoter under MOFA …..This obligation remains unfettered because the concept of developability has to be harmoniously read with the concept of registration of society and conveyance of title. Once the entire project is placed before the flat takers at the time of the agreement, then the promoter is not required to obtain prior consent of the flat takers as long as the builder put up additional construction in accordance with the lay out plan, building rules and Development Control Regulations etc..”
Consequent to the Supreme Court remanding the case back to the Bombay High Court, the High court in Madhuvihar Cooperative Housing vs M/s. Jayantilal Investments, First Appeal No. 786 of 2004, Order dated 7th October, 2010 has passed the following Order:
“40. It can, thus, be seen that it is settled position of law, as laid down by the Apex Court, that a prior consent of the flat owner would not be required if the entire project is placed before the flat taker at the time of agreement and that the builder puts an additional construction in accordance with the layout plan, building rules and Development Control Regulations. It is, thus, manifest that if the promoter wants to make additional construction, which is not a part of the layout which was placed before flat taker at the time of agreement, the consent, as required u/s. 7 of the MOFA, would be necessary.”
Does this new provision mean that if there is a relaxation in the FSI Policy then the promoter can amend the layout to take full advantage of the available development potential? This is one area which is likely to attract maximum attention.
Penalties
Under MOFA, the promoters, on conviction of certain offences, are punishable with imprisonment of a term upto 3 years and/or with a fine. Further, when a promoter is convicted of any offence, he is debarred from undertaking construction of flats for 5 years. Any promoter who commits a criminal breach of trust of any amount advanced for a specific purpose is liable to an imprisonment of upto 5 years and/or fine.
The Bill has converted all offences into civil offences since all imprisonment provisions have been done away with. Interestingly, the Central RERA yet retains prosecution. Failure to refund the sum received with interest in case of non-possession or the act of creating a mortgage without consent of the flat purchaser attracts a penalty of Rs. 10,000 per day or of Rs. 50 lakhs, whichever is lower. Certain offences attract a penalty of up to Rs. 1 crore. Any person who fails to comply with the orders of the HRA or the Tribunal is liable to a penalty of upto Rs. 10 lakhs. The earlier draft of the Bill provided for imprisonment in certain cases which has now been dropped.
A new penalty has been introduced on the flat purchaser/allottee in case he does not pay the sums/ charges payable under the Agreement for Sale. On an order by the HRA, the purchaser is liable to a penalty of up to Rs. 10,000 or 1% of the Agreement value, whichever is higher.
Auditor’s duty
CAs have been given an important role under the MHRD since the Bill provides that the accounts of a promoter must be audited. For this purpose, a CA would have to be conversant with the requirements of Schedule II to understand the various Heads of Accounts which the promoter is required to maintain.
Conclusion
The intent behind the Act is noble, but what one needs to see is whether the implementation of the Act would also be noble. As would be evident from the above analysis, that like a mystery novel, there are several twists and turns in this Bill. The true impact of many provisions would come out once Rules are framed and actual cases become testing waters.
One must always remember that, in Law, and more so when it comes to property law, there is often a slip between the cup and the lip. There have been several innovative concepts such as deemed conveyance which have remained ‘pie in the sky’ concepts. One can only hope that the MHRD will lead to the constitution of an effective and efficient regulator and not lead to more corruption, bureaucracy and red tape.
