Alpha Partners releases its annual round-up document for updates in real estate sector for 2019. Please click here to access or download the document. The document covers the recent developments in real estate domain along with the impact of Insolvency and Bankruptcy Code, E-commerce and Logistics, Demonetisation and Tax implications on the real estate sector; including Budget 2019 and various other legal developments. The article lays down a special emphasis on key judicial precedents shedding light on various aspects of interpretation and application of RERA and the jurisdiction of its authorities.
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REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016
The Real Estate (Regulation and Development) Bill was introduced in the Rajya Sabha in 2013. The aforesaid bill was passed in the Rajya Sabha on March 10, 2016 and in the Lok Sabha on March 15, 2016. The Real Estate (Regulation and Development) Act, 2016 ("RERA" or "Act") fully came into force on May 01, 2017.
Before the enactment of RERA, the real estate sector in India was majorly unregulated. Except for the Consumer Protection Act, 1986, no recourse under the law was available to the real estate buyers. RERA envisages effective consumer protection, uniformity and standardization of business practices and transaction in the real estate sector. It aims at providing transparency and protecting the interests of consumers in the real estate sector. Further, it intends to ensure greater accountability towards consumers and significantly reduce frauds, delays and high transaction costs.
RERA is divided into ten chapters, thereby providing for the registration of real estate projects and registration of real estate agents, functions and duties of promoters, rights and duties of allottees, the real estate regulatory authority, central advisory council and real estate appellate tribunal.
Application of RERA
RERA is applicable to "real estate projects" as defined under the Act. Sub-section (zn) of Section 2 of RERA provides for the definition of real estate projects. It includes:
- development of buildings or a building consisting of apartments;
- converting an existing building or a part thereof into apartments; or
- development of land into plots or apartments;
for the purpose of selling all or some of the said apartments or plots or buildings. Real estate projects also include the common areas, development works, improvements and structures and all easements, rights and appurtenances belonging thereon.
Sub-section (2) of Section 3 of the RERA provides for the instances, wherein registration under RERA is not required to be obtained:
- where the area of land proposed to be developed does not exceed 500 (five hundred) square meters;
- the number of apartments proposed to be developed does not exceed 8 (eight) inclusive of all phases;
- the completion certificate with respect to a real estate project has already been received by the promoter; or
- for the purpose of renovation or repair or re-development which does not include marketing, advertising, selling or new allotment of any apartment, plot or building under the real estate project.
Therefore, RERA is applicable to residential and commercial real estate projects covered under RERA.
Scope and coverage of lease under RERA
While it is clear that RERA is applicable to residential and commercial real estate projects, developed for the purpose of sale, there remains an ambiguity as to the application of RERA on properties which are transferred on the basis of a long-term lease. This issue gains significant importance since land, buildings or apartments in various areas, for example, NOIDA are transferred on the basis of a long-term lease.
However, this issue was specifically dealt by the Bombay High Court in the recent case of Lavasa Corporation Limited v. Jitendra Jagdish Tulsani and Others1. The Bombay High Court dealt with the issue as to whether the provision of RERA would apply in case of an 'agreement to lease'. In the present case, the respondents booked apartments in the project/ building known as 'Brook View' on the basis of a long-term lease for a period of 999 years. The consideration to the extent of 80% (eighty percent) of the sale price was paid by the respondents. Therefore, a single judge bench comprising of Justice Shalini Phansalkar Joshi held that the Maharashtra Real Estate Regulatory Authority has the jurisdiction to hear and decide the complaint filed by the respondents. The Bombay High Court opined:
"67. Here in the case, as regards the word "Allottee", as a matter of fact, it can never be the intention of the Legislature, to exclude the term leases from the purview of the Act; otherwise, the Legislature would not have used the words 'freehold' or 'leasehold', when it has defined the term 'Allottee' under Section 2(d) of the Act,
68. Moreover, execution of such long term lease from the purview of the Act would be defeating the very object of the Act. The Developer-Promoter may, in such cases, by executing the 'Agreement' with the nomenclature as the 'Agreement to Lease', can conveniently escape from the clutches of the provisions of this Act..."
Hence, the aforesaid judgment clarifies the position of long-term lease with regard to the application of RERA on long-term lease in other states.
Current Implementation Status
RERA has been enacted for more than 2 (two) years and therefore, it is important to analyze its current implementation status. Pursuant to the enactment of RERA, all real estate projects (as defined in RERA) are required to register themselves with the Real Estate Regulatory Authority constituted under RERA by each state, except for Jammu & Kashmir.
The state governments were required to establish an authority to be known as the Real Estate Regulatory Authority, within 1 (one) year from date of RERA coming into force, to exercise the powers conferred on them and perform the functions assigned to them under RERA2. In addition to the aforesaid, RERA also provides for the registration of promoters as defined under RERA.
Currently, Maharashtra is leading the way in relation to the registration of real estate projects under RERA. As many as 20,178 real estate projects have been registered with Maharashtra Real Estate Regulatory Authority. Gujarat is in the second position in relation to the registration of real estate projects under RERA3. The following table depicts the number of RERA registered projects in five major states in India:
Table 1:Table depicting projects registered under RERA.
Source: Gujarat second in number of works under RERA, The Economic Times
At present, 22 states and 6 union territories have already notified rules under the provisions of RERA, out of which 19 states have active online portals4. The following image gives a pictorial description of the application of RERA in India:
Figure 1: Pictorial description of projects registered and complaints filed under RERA
It is pertinent to note that while RERA has been enacted for more than two years, it has not been implemented by all States in India. The state governments are constantly taking measures to ensure that the real estate projects are registered with the respective real estate authority established by each state under RERA, for example, Telangana Real Estate Regulatory Authority provided the promoters with an opportunity to register their real estate projects with the Telangana Real Estate Regulatory Authority by April 30, 2019, after which an enhanced penalty of INR 3,00,000 (Indian Rupees Three Lakhs) was applicable on the promoters5. Similarly, Uttar Pradesh RERA has urged the local authorities to register the real estate projects in the state due to an increasing number of complaints filed by the buyers6.
While many states in India have been successful in initiating the implementation of RERA, various practical issues have cropped up since its enactment. The lack of judicial powers conferred under RERA is one of the main issues faced by regulatory authorities under various states. The state authorities have suggested that powers of a first-class judicial magistrate, as conferred under the Consumer Protection Act, 1986, may be granted to the state authorities7.
(i) Key changes in Act & Rules
Since the time RERA has been enacted, no amendments have been made to RERA. However, various states have amended their respective rules/ regulations which have been briefly discussed hereinbelow:
An analysis of the aforesaid amendment clearly indicates that the state government is attempting to take stringent actions to implicate the objectives of the Act. It also indicates that the state government is promoting the registration of the real estate projects thereby providing the benefit and in turn endeavoring to cover all allottees/ buyers under the Act.
(ii) Key judicial precedents
The Real Estate (Regulation and Development) Act, 2016, came into force on May 01, 2017. Therefore, the role of judiciary in interpreting and applying the principles laid down in the Act thereby achieving the objectives of the Act is indispensable. An analysis of the key judicial precedents helps us understand the judicial trend and the mindset of the judiciary. The following principles have been laid down in relation to RERA
- Haryana Real Estate Regulatory Authority: RERA applicable on unregistered projects
- The Haryana Real Estate Regulatory Authority ("HRERA") analyzed the applicability of the Real Estate (Regulatory and Development) Act, 2016. HRERA highlighted that 'project' under Section 2 (zj) does not specifically mean registered real estate project. Registration of a real estate project is a requirement unless it is exempted under the Act. Therefore, HRERA opined that the domain of the authority extends even to the projects which have not been registered10.
- Rajasthan Real Estate Regulatory Authority: RERA will prevail over proceedings under Companies Act, 2013
- The Rajasthan Real Estate Regulatory Authority ("RJRERA") adjudged in a matter11 wherein the winding-up proceeding had initiated against a company under the Companies Act, 2013. By invoking the power under Section 27912 of the Companies Act, 2013, it was alleged that all proceedings must be stayed, and the case may be adjourned in the interest of justice. However, RJRERA observed that the Real Estate (Regulation and Development) Act, 2016, which is a special Act, was enacted after the Companies Act, 2013 hence, it has an over-riding effect over all general laws, including Company law.
- National Consumer Disputes Redressal Commission: NCDRC's jurisdiction is not barred by RERA
- A complaint was filed before the National Consumer Disputes Redressal Commission ("NCDRC")13 by various aggrieved complainants who had purchased residential property in a housing scheme christened as 'Canary Green', Sector 73, Gurgaon. NCDRC analyzed Section 71, Section 79 and Section 89 of the Real Estate (Regulatory and Development) Act, 2016 and held that NCDRC has the jurisdiction to proceed with the case filed by the consumers and the aforesaid provisions do not create any embargo or prohibit the jurisdiction of NCDRC.
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1. Lavasa Corporation Limited v. Jitendra Jagdish Tulsani and Others, Civil application number 683 of 2018.
2. Section 20 of RERA.
3. Gujarat second in number of works under RERA, The Economic Times, published on May 01, 2019, available at https://economictimes.indiatimes.com/wealth/real-estate/gujarat-second-in-number-of-works-under-rera/articleshow/69125184.cms
4. Gujarat second in number of works under RERA, The Economic Times, published on May 01, 2019, available at https://economictimes.indiatimes.com/wealth/real-estate/gujarat-second-in-number-of-works-under-rera/articleshow/69125184.cms
5. TS-RERA raises penalty to 3 lakhs, The Hindu, published on April 01, 2019, available at https://www.thehindu.com/news/cities/Hyderabad/ts-rera-raises-penalty-to-3-lakh/article26696217.ece
6. UP-RERA directs authorities to start registration of projects, The Economic Times, published on May 15, 2019, available at https://economictimes.indiatimes.com/wealth/real-estate/up-rera-directs-authorities-to-start-registration-of-projects/articleshow/69336940.cms?from=mdr
7. RERAs will be toothless without judicial powers, The Hindu, published on January 03, 2019, available at https://www.thehindu.com/news/national/reras-will-be-toothless-without-judicial-powers/article25902904.ece
8. Gujarat Estate Regulatory Authority (General) (Amendment) Regulations, 2018, available at https://gujrera.gujarat.gov.in/resources/staticpage/GujRERA_Regulation_Amend_190518.pdf
9. Bhopal builders rejoice as MP Govt dilutes RERA rules on funds, Pressroom Today, April 30, 2018, available at https://pressroom.today/2018/04/30/nitin-agrawal-bhopal-builders-rejoice-mp-govt-dilutes-rera-rules-funds/
10. Complaint number 07 of 2018.
11. Complaint number RAJ-RERA-C-2018-2127.
12. Section 279 of Companies Act, 2013: Stay of Suits etc. on Winding Up Order.
13. Consumer case number 1764 of 2017
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