RERA, A CRITICAL ANALYSIS

RERA (or Real Estate Regularity Authority), introduced as a remedy against the rampant malpractices of builders and to safeguard the interests of homebuyers by ensuring the sale of plots, apartments or buildings in an efficient, fair and transparent manner, has had more than two years of operation and it is time to look back and assess the strengths and weaknesses of the legislation in its present form and application. As with any regulatory measure at the nascent stage, particularly in an area like the real estate sector, there were inevitably certain teething problems to be addressed and the effectiveness lies in the way such problems have been dealt with.

NOT OPERATIONAL IN ALL STATES

The Central legislation, applicable throughout the country (except the then state of Jammu & Kashmir), did not find an equally enthusiastic response from several states and Union territories which failed to act within the prescribed time in matters of framing rules, setting up the Authorities, creating the website and establishing the Appellate Tribunals in their respective jurisdictions.

It is a matter of common knowledge that barring Maharashtra and a few other states, the governments did not abide by the mandate of the Act in framing the Rules in the prescribed time. As conveyed recently by the Centre to the Supreme Court, the process to notify the Rules in Arunachal Pradesh, Meghalaya, Nagaland and Sikkim is still under way. Twenty nine states / UTs have so far set up the Authority and only 22 the Appellate Tribunal. The inaction on the part of several states for a considerably long period of time not only distorted the pan-India nature of the Act, but also deprived the people of those states of the intended benefits, creating unjust differentiation.

The Centre needs to be more active in ensuring enforcement of the Act and its timely implementation in the true spirit of the legislation by constant monitoring.

LACK OF HARMONY BETWEEN THE ACT AND RULES

RERA, the Central Act, is not uniformly implemented in various states because the rule-making power is vested in the states which have framed rules of varying nature, some even inconsistent with the substantive provisions of the Act.

Section 84 of RERA provided for the state governments to make rules for carrying out the provisions of the Act by notification within a period of six months of the commencement of the Act. Although the power to frame rules was vested in the states, it was expected that the Rules would be within the framework of the Act and as such would not be different in substance beyond a reasonable limit.

But is it fair for certain states to go beyond the authority to suit their own understanding of how the provisions should be? For instance, the provision of section 4(2)(l)(D) requires 70% of the amounts realised from time to time from the allottees to be deposited in a separate bank account to cover the cost of construction and the land cost which can be withdrawn from the account to cover the cost of the project, in proportion to the percentage of completion of the project. The idea in broad terms was to have free funds equal to the profit component embedded in the receipts (estimated at 30% of the receipts) and to keep the balance amount separate from other funds to be used exclusively for the cost of the construction and the land. The withdrawal, as per the Act, is restricted to the amount proportionate to the percentage completion of the project.

Certain states have prescribed rules for determining the withdrawable amount which are not consistent with the provisions of the Act. Maharashtra, for instance, permits withdrawal of the entire land cost and the entire cost incurred up to the date of withdrawal, leaving, in a large number of cases, hardly any amount to be utilised for further construction. Further damage to the concept is done by the executive order giving artificial meaning to the land cost which is a notional cost higher than the actual land cost envisaged in the Act. The Maha-RERA, for instance, permits withdrawal of the notional indexed cost in line with the computation of cost of acquisition for purposes of capital gain under the Income-tax Act which results in withdrawal of an amount several times more than the actual land cost (Circular No. 7/2017 dated 4^th July, 2017).

There are other areas where such digression is visible. Notable among these is the area of conveyancing. Section 11(4)(f) provides for executing a registered conveyance deed of the apartment, plot or building in favour of the allottee and the undivided proportionate title in the common areas to the Association of Allottees or the Competent Authority. The Rules of several states are at variance with this provision as they have chosen to go by the prevailing / prevalent local laws, even if they are inconsistent with the provisions of the Act. Maharashtra, for instance, goes by the pattern laid down in MOFA and provides for conveyance of the building not to the allottees but to the association of allottees / society / company. In case of buildings in layouts, the structure of the building (excluding basements and podium) is to be conveyed to the respective societies and the undivided and the inseparable land along with basements and podiums are to be conveyed to the apex body or Federation of all the societies formed for the purpose [Rule 9(2)]. Tamil Nadu follows its local law, i.e., The Tamil Nadu Apartment Ownership Act,1994 and provides for conveyance of undivided share of land, including proportionate share in the common area, directly to the respective allottees [Rule 9(3) of Tamil Nadu Rules]. Karnataka follows Tamil Nadu and provides for conveyance of apartment along with proportionate share in common areas to the respective allottees.

One can hold a view that such rules are more reasonable and pragmatic, providing for consistency in the practice so far observed, without in any way harming the cause of the allottees. The solution in such cases appears to be a review of the Act instead of allowing such variance to continue. Rules being subordinate legislation are to be in conformity with the law. Another possible solution can be to make the provisions applicable in the absence of local laws, as has been done in section 17 which lays down the time within which the conveyance is to be made.

UNWORKABLE OR DIFFICULT DIRECTIONS

There is one area of concern to the promoters. In an agreement where the landowner gets his land developed by the builder in consideration of allotment of certain units in the developed building free of cost, both the landowner as well as the builder are regarded as the promoters under the Act.

In such a case, is it fair to insist on both of them to open separate bank accounts for depositing 70% of the receipt from the allottees, creating a situation where the landowner who though not required to incur any cost of construction, is forced to keep 70% of sale proceeds of his share of units in the bank account till the entire project is completed? If we examine the provision closely, it requires opening of a separate account for the project and not for individual promoters. If the project is one in which there are two promoters, then there should be a requirement of opening one bank account only. Is it fair in such circumstances to ask the landowner to deposit 70% of sale proceeds in a separate bank account?

It will take a substantially long time for contentious issues to be settled in judicial forums. In case a high-level body is established at the Centre with the authority to issue clarifications by way of circulars binding on all the Authorities, much of the hardship and litigation can be avoided.

INTERPRETATIONS INCOMPATIBLE WITH THE SPIRIT OF LAW

RERA has been introduced to safeguard the interests of the home-buyers. The object and the purpose of the legislation is material in the understanding of any provision which, unless contrary to any specific provision, is to be interpreted in a manner so as to subserve the purpose of the Act.

In view of such an accepted canon of interpretation particularly in respect of a legislation which is remedial in nature, meant to address the problems faced by the class of people having no accessible remedy for the harm done to them by the class of powerful persons, is it fair for the authorities to go by the rigidity and technicality of words and expressions disregarding the objects and purposes of the legislation? The decision not to entertain complaints for delayed possession after the promoter has offered to give possession; the decision exempting the promoter from the requirement of registration if the completion certificate is issued within three months from the commencement of the Act; the decision not to entertain complaints if the project is not registered; the decision not to consider a project as ongoing even if a part-occupancy certificate is issued before 1^st May, 2017; these are some of the decisions which appear to go against the avowed purpose of the legislation depriving the affected persons of the remedy to which they are entitled for no fault of theirs.

DECISION-MAKING PROCESS

Even though the Authority is constituted of a Chairman and two members, the decision on complaints filed by the aggrieved allottees is taken by a single member, resulting in the same Authority taking different views on the same issue. This introduces subjectivity in judicial decision-making which should ideally be avoided.

One finds instances of a differing approach in decisions by different members of the same Authority. On the basic issue, for instance, whether RERA has application in respect of projects which are not registered or which are exempted from registration, different decisions have come from different members. One member has taken a decision that registration is one of the obligations cast on the promoter, non-performance of which visits with penal consequences under the Act. The registration is not the essential pre-requisite for entertaining a complaint under RERA. A different view is taken by the other member who declines to entertain the complaint of the aggrieved person if it relates to an unregistered project. The issue has been considered and adjudicated by the Appellate Tribunal and the jurisdictional High Court, yet the problem persists.

As a matter of sound judicial process, it is advisable to introduce the Bench system of deciding judicial matters. Once a different view is proposed to be taken by another Bench on the matter of interpretation, the Chairman should constitute a larger Bench to decide the matter.

PUBLICATION OF CASES DECIDED BY DIFFERENT JUDICIAL AUTHORITIES

RERA being a Central Act, the views taken by any Tribunal / High Court on any issue should be a source of guidance to all the Authorities in the country. For this it is necessary to have agencies like those bringing out AIR, Taxmann, etc., for publishing important decisions on points of law given by different Tribunals, High Courts and the Supreme Court so that the doctrine of precedent  and Stare Decisis may be applied in relation to RERA cases also.

CONCLUSION

Overall, RERA has provided substantial relief to the hitherto unprotected home-buyers. It has succeeded in instilling a sense of confidence and providing an assurance that things will go as promised. In this regard, certain states including Maharashtra have played a commendable role. With this undeniable truth, the need is for the initial enthusiasm to continue unabated in providing speedy resolution of disputes in the true spirit of the legislation. The discussion above is meant to focus on certain aspects, a meaningful consideration of which may go a long way in making RERA serve its purpose even better.