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August 2018

A comparative analysis of legal remedies available to home-buyers in India

by Meghmala Mukherjee Samad Ali

Prior to the enactment of the Real Estate (Regulation and Development) Act, 2016 (“RERA”), aggrieved home-buyers had the options of approaching the consumer courts [see End Note 1] or the civil courts to address their grievances. However, with the enactment of RERA and subsequently, the amendment to the Insolvency and Bankruptcy Code, 2016 (“IBC”) in 2018, [see End Note 2] aggrieved home-buyers in India now have access to even more fora for remedial actions.

The present article attempts to analyze the various provisions under these identified legislations and to show the best, or rather, the most accessible forum in such circumstances.

 

Consumer Protection Act, 1986 (“CPA”)

CPA established consumer disputes redressal agencies at different levels, viz. district fora; State Commissions and the National Consumer Dispute Redressal Commission [see End Note 3]   NCDRC” and collectively such commissions, “Agencies”), with jurisdictions being defined in terms of territory and the value of goods and services, as well as the compensation claimed [see End Note 4] the Supreme Court in M/s Amrapali Sapphire Developer Private Limited v M/s Amrapali Sapphire Flat Buyers Welfare Association [see End Note 5 ] had  approved the jurisdiction in case of an aggrieved group to file its complaint directly before the NCDRC, if the claim exceeds the threshold of one crore rupee [see End Note 6].

In terms of the relief granted to aggrieved home-buyers, the relevant Agency may pass an order directing the builder or developer to return the money paid to them along with compensation for any loss or damage caused to the concerned home-buyers due to the negligence of builders or developers. They also have the power to grant punitive damages if deemed fit. Penalties may also be imposed on such erring developers, and they may also be imprisoned for a maximum period of 3 years. [See End Note 7]  While dealing with these offences, the Agencies have been given non-obstante power to try the case and dispose them summarily [see End Note 8].

Under the CPA, a complaint regarding goods or services may be filed by any consumer, or registered association or group of consumers having same interest [see End Note 9].The complaint filed by the home-buyers must be accompanied by fees prescribed by the Consumer Protection Rules, 1987 [see End Note10]. Further, there is no specific form in which the complaint must be filed before the Agencies established under the CPA. Therefore, a plain paper application would suffice in this regard. This makes the filing of complaints easy and convenient for the consumers, and the Agencies more approachable than a civil court.

 

Real Estate (Regulation and Development) Act, 2016 (“RERA”)

RERA mandates that promoters have to deposit 70% of the receivables into a separate bank account in a scheduled bank and the amounts from the separate account shall be withdrawn by the promoter after it is certified by an engineer, an architect, and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project [see End Note 11]. This is ideal for home-buyers as such a provision limits the use of proceeds from the home-buyers and prevents the diversion of funds.

RERA envisages Real Estate Regulatory Authorities to be created in each State to not only promote the interest of all the stakeholders under RERA but also deal with their grievances. RERA affords the option to appeal against the decision of the concerned Real Estate Regulation Authority, to the Appellate Authority, and thereafter to the High Court and the Supreme Court, and all in a time-bound manner [see End Note 12]. As the proceedings are to be concluded within a given time frame, the adjudication mechanism can be opined to be more expeditious as compared to the adjudication mechanism provided in the earlier grievance redressal mechanisms.

Significantly, RERA entitles the aggrieved allottee to claim the refund amount which has been paid in consideration of a plot, apartment etc. along with interest as may be prescribed by the States or Union Territories in case builders or developers default in delivery of possession in accordance with the terms of agreement for sale or due to discontinuance of business or suspension/revocation of registration [see End Note 13].

Section 61 provides that if any promoter contravenes any other provisions of RERA, other than that provided under Section 3 or Section 4, or the rules or regulations made thereunder, he shall be liable to a penalty which may extend up to 5% of the estimated cost of the real estate project as determined by the concerned Real Estate Regulation Authority. Imposition of penalty in case of contravention to the orders or directions of the Real Estate Appellate Tribunal has been made stricter as it can extend to 10% of the estimated cost or three years of imprisonment or both [see End Note 14]. However, the Rules and Regulations under RERA are yet to be notified by some states [see End Note 15]. Section 71 also envisages compensation to the home-buyers.

Home-buyers have the choice of filing a complaint with the concerned Real Estate Regulation Authority or the adjudicating officer in case the developer(s) defaults the delivery of possession or for that matter contravenes any provisions of the RERA or the Rules or Regulations made thereunder. [see End Note 16] A complaint may be filed by an association of home-buyers/allottees or any voluntary consumer association registered under any law for the time being in force. [see End Note 17]

 

Insolvency and Bankruptcy Code, 2016 (“IBC”)

As per the initially envisaged IBC, home-buyers were not considered to be in a definite class of creditors and they were clubbed with unsecured creditors. In Col. Vinod Awasthy v AMR Infrastructure Ltd. [see End Note 18], home-buyers had approached the NCLT for being allowed to participate as creditors in the corporate insolvency resolution process of AMR Infrastructure Limited. However, they were not considered as creditors [see End Note 19]. The NCLAT however reversed the order of the NCLT and recognized home-buyers as financial creditors considering the factual matrix of the case. [see End Note 20]

The legislature took these events into account and now has provided recognition to home-buyers as financial creditors [see End Note 21] and amended the IBC vide the IBC (Amendment) Ordinance, 2018 to provide for the same.

Therefore, presently home-buyers are recognized as financial creditors under the IBC and are entitled to the receipt of a portion of the sale of the assets under the liquidation process. Secondly, being financial creditors, home-buyers are permitted to initiate the insolvency resolution process under Section 7. As financial creditors, home-buyers are also accorded the opportunity of being a part of committee of creditors under Section 24 and may vote during the corporate insolvency resolution process.

 

Conclusion

The protection provided by the IBC is limited in nature and is only relevant when a company becomes insolvent or bankrupt. Therefore, it is not a suitable forum to claim relief in most cases and can only be used by home-buyers as and when the concerned real estate company is in a bad financial position and unable to continue and/or finish the concerned real estate project.

Hence, till the adjudicating mechanism under RERA is established by each State Government, home-buyers and potential home-buyers are best served by seeking relief from the Agencies under the CPA.

[The authors are Joint Partner, Senior Associate and Associate, respectively, in Corporate law practice, Lakshmikumaran & Sridharan, New Delhi]

 

End Notes:

  1. Department of Consumer Affairs Ministry of Consumer Affairs, Food & Public Distribution Government of India <https://consumerhelpline.gov.in/> accessed 22 July 2018.
  2.  Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, Ordinance No. 06 of 2018.
  3. Appeals from the NCDRC can be filed before the Supreme Court under Section 23 of the CPA.
  4. Consumer Protection Act 1986, Section 9.
  5. M/s Amrapali Sapphire Developer Private Limited v M/s Amrapali Sapphire Flat Buyers Welfare Association, Civil Appeal No. 10882 of 2016, 10954 of 2016, 10979 of 2016 and11094 of 2016. 
  6. Consumer Protection Act 1986, Section 21.
  7. Ibid, Section 27.
  8. Ibid, Section 27.
  9. Ibid, Section 12 (1).
  10. Consumer Protection Rules, 1987, Rule 9A.
  11. RERA, Section 4.
  12. RERA, Sections 29 (4); 44 (2), 44 (5) and 58.
  13. Ibid, Sections 19 (4).
  14.  Ibid, Section 64.
  15. Vandana Ramnani, ‘RERA report card: 23 states notify the rules: permanent regulatory authority set up only in four’ (Moneycontrol, 31 Jul, 2017) <https://www.moneycontrol.com/news/business/real-estate/rera-report-card-23-states-notify-rules-permanent-regulatory-authority-set-up-only-in-four-2340829.html> accessed 17 July 2018.
  16. Ibid, Section 31 (1).
  17. Ibid, Section 31 (explanation).
  18. Col. Vinod Awasthy v AMR Infrastructure Ltd., CP No. (IB)-10(PB)/2017, (NCLT Principal Bench Delhi, 20 February 2017).
  19.  Ibid.
  20. Nikhil Mehta and Sons v. AMR Infrastructure, Company Appeal (AT) (Insolvency) No. 07/2017, (NCLAT, New Delhi, 21 July 2017).
  21.  Press Note 40: Available at, <http://pib.nic.in/PressReleseDetail.aspx?PRID=1534497> accessed 22 July 2018.

 

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