A three-judge bench of the Hon'ble Supreme Court of India (the "Court") recently passed a judgment dated 11th November 20211 (the "said Judgement") dealing with various afflicting practices of the promoters and builders, and further clarified the existing inconsistencies within various provisions of the Real Estate (Regulation and Development) Act, 2016 ("the Act").
A complaint was instituted by the homebuyers and allottees before the Uttar Pradesh Real Estate Regulatory Authority (the "Authority") for refund of their investment amount along with interest under Section 31 of the Act as the promoters had failed to hand over the possession of the units to the allottees in accordance with the home buyers' agreements.
Accordingly, an order was passed to refund the principal amount along with interest (MCLR + 1%) as prescribed under the Act. However, aggrieved by the aforesaid order, the promoters took an unconventional step and filed an appeal before the High Court of Allahabad under Articles 226 and 227 of the Constitution of India instead of filing an appeal under Section 45(5) of the Act and contended that the order of refund was passed by the single member of the Authority without jurisdiction. The promoters also questioned the pre-requisite of deposit of the amount as necessitated under Section 43(5) of the Act. However, the writ petition was dismissed by the High Court of Allahabad and therefore, the present appeal was filed by the promoters before the Court.
The Court in the said Judgment reaffirmed and clarified the ambit, applicability and various provisions of the Act. The Court not only identified the inconsistencies in the Act but also pointed out the nature and extent of the Act within the said Judgment. The following issues were dealt with in detail by the Court:
- Whether the Act has a retroactive application? ("Issue 1");
- Whether the Authority has power to pass an order directing the builders to refund the amount to the allotees under Sections 12, 14, 18 and 19 of the Act? ("Issue 2");
- Whether the Authority has the power under Section 81 to delegate its function of hearing of complaints? ("Issue 3");
- Whether the pre-condition of pre-deposit mentioned under Section 43(5) of the Act in relation to right of appeal is valid? ("Issue 4");
- Whether the Authority has been vested with the power to issue recovery certificate for retrieval of the principal amount? ("Issue 5").
4. ISSUE 1: RETROACTIVE APPLICATION OF THE ACT
4.1 Whether the Act has retroactive or retrospective effect and what will be its legal consequences if tested on the anvil of Constitution of India?
It was observed by the Court that the Act is not retrospective in nature because it affects the existing rights of the persons mentioned in the Act like promoters, allotees etc. The intent of the legislature was to bring all "ongoing projects"2 which commenced prior to the Act and for which the completion certificate had not been issued, under the ambit of the Act.
5. ISSUE 2: POWERS VESTED WITH THE AUTHORITY
5.1 Whether the Authority has power to pass an order directing the builders to refund the amount to the allotees under Sections 12, 14, 18 and 19 of the Act or does such a power exclusively vest with the adjudicating officer under Section 71 of the Act?
In view of the legislative intent of the Act, the Court held that the power is vested with the Authority to deal with issues relating to refund of the investment amount or interest on such refund. However, if any complaint pertains to compensation and interest thereon, the adjudicating officer under the Act will have the power to deal with such cases. If adjudication other than compensation as envisaged under Sections 12, 14, 18 and 19 of the Act is extended to the adjudicating officer, it may expand the ambit and scope of powers and functions of the adjudicating officer under Section 71 of the Act, and that would be in contravention of the Act.
6. ISSUE 3: POWER OF AUTHORITY UNDER SECTION 81 OF THE ACT
6.1 Whether the Authority under Section 81 of the Act has the power to delegate its function of hearing of complaints under Section 31 of the Act to a single member?
If the power under Section 81 of the Act has been delegated by the Authority, then such action, if being exercised by a single member cannot be said to be outside the provisions of the Act.3 However, the same power to delegate under Section 81 shall exclude making regulations under Section 85 of the Act.
7. ISSUE 4: VALIDITY OF PRE-DEPOSIT UNDER SECTION 43(5)
7.1 Whether the pre-condition of pre-deposit mentioned under Section 43(5) of the Act for dealing with substantive right of appeal is valid in the eyes of law?
The Court held that the question of discrimination between allottees and promoters does not arise as they fall under distinct and different categories or classes. The deposit of amount equivalent to 30 percent of penalty by the promoter while preferring an appeal shall avoid uncalled litigation at the appellate stage and shall further safeguard the amount to be recovered for the allottee in case the appeal fails at a later stage. The intention of the legislation is that the promoters ought to show their bona fide intentions by depositing the amount so contemplated and avoid frivolous appeals4.
8. ISSUE 5: POWER OF AUHTORITY TO ISSUE RECOVERY CERTIFICATE
8.1 Whether the Authority has been conferred power under Section 40(1) of the Act to issue recovery certificate for retrieval of the principal amount?
The Court observed that there exist visible inconsistencies in the powers of the Authority regarding refund of the principal amount under Section 18 of the Act and the text of the provision by which such refund can be referred under Section 40(1) of the Act. If Section 40(1) is strictly construed, it would defeat the purpose of the Act. The Court held that there exists ambiguity in Section 40(1) of the Act and the same must be harmonized with the purpose of the Act. It was further clarified that the amount which has been determined and refundable to the allottees is recoverable within the ambit of Section 40(1) of the Act.
9. INDUSLAW VIEW
The said Judgment is welcomed with ample reliefs against using litigation as a delaying tactic. At the same time, it also bestows greater responsibility on the regulatory authority to keep in mind the larger interest of the project while adjudicating any dispute involving payment of penal amounts.
The said Judgment has also upheld the rationale in previous judgments for the Act to be retroactive in application and further reiterated that the Act will also include all the ongoing projects initiated before the commencement of the Act where the completion certificate has not been obtained under its ambit. This will aid the allotees of the ongoing projects who had entered into contracts prior to commencement of the Act to file for reliefs under the Act.
The said Judgement will definitely be a deterrent for promoters who were using litigation as a delaying tactic, especially for the benefit of genuine homebuyers who do not get possession of their units or receive refund. The spirit of the Act is not only to protect the allottees and regulate the promoters but the overall interest of the real estate sector. For the sector to flourish, it is imperative that projects are completed in time and the focus needs to be more on taking necessary steps for timely delivery of projects.
1. M/s. Newtech Promoters and Developers Pvt. Ltd. Vs. State of UP & Ors. 2021 SCC Online SC 1044.
2. As per Rule 2(h) of the Uttar Pradesh Real Estate (Regulation and Development) Rules, 2016 "Ongoing project" means a project where development is going on and for which completion certificate has not been issued but excludes such projects which fulfil any of the following criteria on the date of notification of these rules:
(i) where services have been handed over to the Local Authority for maintenance.
(ii) where common areas and facilities have been handed over to the Association for the Residents' Welfare Association for maintenance.
(iii) where all development work has been completed and sale/lease deeds of sixty percent of the apartment/houses/plots have been executed.
(iv) where all development works have been completed and application has been filed with the competent authority for issue of completion certificate."
3. Saurashtra Kutch Stock Exchange Ltd. Vs. Securities and Exchange Board of India and Another, 2021(13) SCC 501.
4. Shreenath Corporation and Others Vs. Consumer Education and Research Society and Others, 2014(8) SCC 657.
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