The land-population disparity heralded great demand in the real estate sector in India. This demand clubbed with the dearth of a proper vigilance mechanism ramified the real estate sector into a money minting ground.
Conscious of the growing need to regulate the real estate sector and regulated private participation for the realization of the ‘Housing for all by 2022’ agenda, [see End Note No. 1] Government of India enacted the Real Estate (Regulation and Development) Act, 2016, (“Act”) and brought 69 of the 92 sections of the Act into force with effect from May 1, 2016 [see End Note No. 2]. The Act has been promulgated with the objective of establishing institutional infrastructure to ensure the functioning of the real estate sector in an efficient and transparent manner and to protect consumer interests.
The present article seeks to comment upon the efficacy of the Act in achieving its objectives, and allude to certain key issues which demand attention.
The Real Estate Regulatory Authority (“RERA”), the Real Estate Appellate Tribunal (“REAT”) and the Central Advisory Council are the institutions established under the Act which are yet to be operational. The Central Advisory Council shall act as an advisory body to Central Government and comprise of members from select ministries, RERAs and civil society stakeholders [see End Note No. 3].The RERA and REAT shall work as regulatory and adjudicatory authorities with members specializing in related areas [see End Note No. 4], thereby ensuring greater certainty to the proceedings, in comparison with the earlier remedy of approaching consumer redressal forums. The RERA has been vested with powers to accept complaints, call for information, and issue interim orders, directions and penalties [see End Note No. 5]. However, it may be noted that there are certain infirmities with respect to the conferring of the powers on these institutions.
Uncertainty in suo-moto enquiry that may be initiated by RERA:
The Act devises a mechanism wherein the RERA can initiate investigations into the affairs of any promoter or real estate agent not only upon receipt of a complaint but also by a suo moto action. The Act fails to link the provisions between taking up investigation suo moto, adverse finding therein, and imposing penalty and thereby lacks clarity as to what would happen when a case is taken up suo moto under Section 35 of the Act. This lacuna can be better understood by examining a similar model, for instance, that under the Competition Act, 2002 (“Competition Act”).
As per the Competition Act, the Competition Commission of India (“CCI”) is empowered to inquire into any contravention either by taking suo moto cognizance or upon receiving a complaint or upon a reference by statutory authority [see End Note No. 6]. The Competition Act not only stipulates the procedure for such inquiry but also specifies the procedure that is to be adopted after the findings of such enquiry are produced before the Commission. In addition to the above two steps, the Competition Act also stipulates as to how the Commission is to act upon such report.
The Competition Act, by dealing with both the enquiries (i.e., on the basis of a complaint and suo moto) in the same section [see End Note No. 7] establishes a link between investigations taken up suo moto and upon receipt of a complaint, on the one hand with the powers of the Commission to issue orders, on the other hand, which seems to be missing in the case of RERA. The Act lacks clarity in relation to the procedure for investigation under Section 35 of the Act and procedure for the adjudication after the findings of such investigation are handed over to RERA thereby creating a gulf between the provisions. This raises doubts as to whether the power of RERA to impose penalty is to be exercised only upon a complaint received or could be extended even to a suo moto investigation. It is suggested that the rules that are yet to be framed must plug out such ambiguity.
Advisory function of RERA – May lead to no-where
Moreover, the Act provides for the RERA to give recommendations to the government upon important aspects like environmental concerns, single window clearances, investments and grading of projects [see End Note No. 8]. However, the future course of action of such recommendations is not discussed, thereby making it a toothless provision. In fact, it has been suggested that, some time limit may be contemplated within which such recommendations could be considered or deemed not considered so as to pin a certain level of certainty in relation to such recommendations.
Compulsory registration of the real estate project and the agents is mandated under the Act. Registration must be done before the promoter or real estate agent can advertise or market or sell or offer the concerned property for sale [see End Note No. 9]. Such a project could either be residential or commercial. However, the cases where the land proposed to be developed is less than 500 square meters or the number of apartments proposed to be developed is less than 8 in total, have been exempted from such registration [see End Note No. 10]. It may be noted that a good chunk of the residential plots would fall under the exemption range thereby rendering small buyers no relief under the Act. It is therefore suggested that instead of conferring the power on the State Government to reduce the threshold of the exemption, registration of the real estate projects may be made compulsory across all projects.
The registration is facilitated by furnishing the requisite documents to the RERA [see End Note No. 11]. Further, for projects in phases, the registration for each phase is to be done separately [see End Note No. 12]. Registration can also be revoked on the event of non-compliance of either statutory or contractual obligations or on the ground of unfair practices by the promoter [see End Note No. 13]. The Act also provides for the registration of ongoing projects in which the completion certificate has not been obtained. However, with respect to the existing projects, there is an ambiguity as to which plan (original, sanctioned or modified) must be submitted during the registration and it will have to be seen as to how such registrations are effected without leaving lacuna.
Further, it seems that transparency in the sector has been ascertained by imposing duties on the promoter to furnish information from time to time about the completion of the project on the website maintained by RERA [see End Note No. 14]. The RERA is also bound to ensure that the names and photographs of the defaulters are displayed [see End Note No. 15].
However, the procedure of registration of the real estate agents which is required as per the Act to be done on a project by project basis seems to be cumbersome. A provision for a onetime registration of the real estate agents and subsequent maintenance of records may prove to be a better way to regulate the same.
Furthermore, if the definition of the term ‘real estate agent’ [see End Note No. 16] is amended so that the words ‘in a real estate project’ are deleted, the secondary market traders might also be included under the ambit of the Act thereby ensuring better efficiency in the mechanism.
The interests of the consumers seem to have been taken care of through various obligations imposed on the promoters and rights conferred on the buyers.
For example, the Act fixes 10% of the cost of the apartment, plot or building as the maximum advance amount that a promoter could accept without entering into a written agreement for sale [see End Note No. 17]. Further, the Act stipulates that alterations or additions to the sanctioned plans, layout plans and specifications of the buildings or the common areas within the project shall not be made without the previous written consent of at least 2/3rd of the members who have agreed to take apartments in such establishment [see End Note No. 18]. The Act also casts an obligation on the promoter to transfer the title in the property to the buyer within three months from the date of issue of occupancy certificate [see End Note No. 19].
Further, the buyers have the right to withdraw from the project, if the promoter fails to complete or is unable to give possession of the said real estate project within the agreed time frame [see End Note No. 20]. The buyer is also entitled to full refund and compensation. In cases where the buyer chooses not to withdraw from the project, the promoter is obligated to pay the buyer, interest for every month of delay till the handing over of the possession at the prescribed rate. Additionally, the penalties that can be imposed for the violation of the provisions of the Act have been listed under Chapter VIII of the Act further guaranteeing the rights of the consumers.
In this regard, consideration must be given to Section 71 of the Act. It confers powers upon RERA to appoint judicial officer, who is or had been a District Judge, for the purposes of adjudicating compensation. This provision may turn out to be redundant as a separate adjudicating authority is already put in place by the Act. This provision may lead to duplication, confusion which in all probability would be better if avoided.
It is hardly of any dispute that the Act is a much needed legislation and a welcome change. The Act puts in place various institutions and procedural regulations thereby providing stability, certainty and transparency to the mechanism. However, the efforts in formulating the Act shall be of no significance in the absence of effective implementation. The listing of penalties does not in itself ensure convictions, nor mere establishing an authority result in a regulated sector. The onus is now on the State Governments to formulate rules accordingly. Further, the aspects of environment, disaster management, black money, investments in relation to real estate sector are still to be effectively regulated. A combined effort of various ministries could be the way forward.
[The author is a Principal Associate, Lakshmikumaran & Sridharan, Hyderabad]