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Thursday, December 02, 2021

Explained: How Supreme Court verdict on real estate Act benefits homebuyers

Aimed at protecting homebuyers, the ruling brings a major relief for the buyers, speeds up the resolution process, and makes it difficult for state governments to dilute the intent of the law.

Written by Sunny Verma | New Delhi |
Updated: November 23, 2021 1:44:58 pm
The judgment came on a batch of civil appeals filed against the dismissal of writ petitions (by promoters/real estate developers) by the Allahabad High Court.

Last week, the Supreme Court affirmed that the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA) are applicable to projects that were ongoing and for whom completion certificates were not obtained at the time of the enactment of the law, in effect interpreting that the law is retroactive.

The court also held that the amount invested by the allottees, along with interest as quantified by the regulatory authority or the adjudicating officer, can be recovered as arrears of land revenue from the builders.

Aimed at protecting homebuyers, the ruling brings a major relief for the buyers, speeds up the resolution process, and makes it difficult for state governments to dilute the intent of the law.

The judgment came on a batch of civil appeals filed against the dismissal of writ petitions (by promoters/real estate developers) by the Allahabad High Court.

Which projects are covered when the law is applied retrospectively?

Under Chapter II of the Act, registration of real estate projects was mandatory. It mandated that for projects that were ongoing on the date of commencement of the Act, specifically projects for which the completion certificate had not been issued, the promoters shall be under obligation to make an application to the authority for registration of the project.

“From the scheme of the Act 2016, its application is retroactive in character and it can safely be observed that the projects already completed or to which the completion certificate has been granted are not under its fold and therefore, vested or accrued rights, if any, in no manner are affected. At the same time, it will apply after getting the on­going projects and future projects registered under Section 3 to prospectively follow the mandate of the Act 2016,” the Supreme Court Bench of Justices Uday Umesh Lalit, Ajay Rastogi and Aniruddha Bose ruled.

Projects that received their completion certificate prior to enactment of RERA, however, are not covered by the law.

What must builders do for filing an appeal?

The Supreme Court affirmed that it is mandatory for real estate developers to deposit at least 30% of the penalty ordered by the regulator, or the full amount as the case may be, before they challenge any RERA order under Section 43(5). This is expected to ensure that only genuine appeals are filed and homebuyers’ interests are protected.

“It may straightaway be noticed that Section 43(5) of the Act envisages the filing of an appeal before the appellate tribunal against the order of an authority or the adjudicating officer by any person aggrieved and where the promoter intends to appeal against an order of authority or adjudicating officer against imposition of penalty, the promoter has to deposit at least 30 per cent of the penalty amount or such higher amount as may be directed by the appellate tribunal. Where the appeal is against any other order which involves the return of the amount to the allottee, the promoter is under obligation to deposit with the appellate tribunal the total amount to be paid to the allottee which includes interest and compensation imposed on him, if any, or with both, as the case may be, before the appeal is to be instituted,” the court observed.

The counsel for the appellants had argued that the condition of pre-deposit is “onerous on the builders alone” and “discriminatory”. The Bench noted that “in our considered view.. .the obligation cast upon the promoter of pre­deposit under Section 43(5) of the Act, in no circumstance can be said to be onerous as prayed for or in violation of Articles 14 or 19(1)(g) of the Constitution of India.”

What did the court rule on homebuyers recovering their investment?

This comes under Section 40(1) of the Act. The builders had contended that under Section 40(1), homebuyers are only entitled to recover interest or penalty as arrears of land. The court, however, ruled that “if Section 40(1) is strictly construed and it is understood to mean that only penalty and interest on the principal amount are recoverable as arrears of land revenue, it would defeat the basic purpose of the Act.:

Taking into consideration the scheme of the Act, the court observed, what is to be returned to the allottee is his own life savings. The amount with interest as computed/quantified by the authority becomes recoverable and such arrear becomes enforceable in law, it said.

Why did RERA come in?

Regulation of the real estate sector was under discussion since 2013, and the RERA Act eventually came into being in 2016. Data show that more than 77% of the total assets of an average Indian household are held in real estate, and it’s the single largest investment of an individual in his lifetime.

Prior to the law, the real estate and housing sector was largely unregulated, with the consequence that consumers were unable to hold builders and developers accountable. The Consumer Protection Act, 1986 was inadequate to address the needs of homebuyers. RERA was introduced with the objective of ensuring greater accountability towards consumers, to reduce frauds and delays, and to set up a fast ­track dispute resolution mechanism.

So far, 34 states/Union Territories have notified rules under RERA, while its implementation in Nagaland is under process. West Bengal has enacted its own legislation — West Bengal Housing Industry Regulation Act, 2017 (HIRA) — instead of notifying rules under RERA. Thirty States/UTs have set up Real Estate Regulatory Authorities, and 26 have set up Real Estate Appellate Tribunals, as per the latest data available with the Ministry of Housing and Urban Affairs.

As of July 23, 67,669 real estate projects and 52,284 real estate agents have been registered under RERA, and 70,601 complaints have been disposed by Real Estate Regulatory Authorities.

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