By K.K. Ramani
Advocate
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 4th 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 1st 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.
