RAGHAV KUMAR BAJAJ
CA
Introduction
1. In the recent past the Real Estate sector of India has faced a lot of problems. Consequently, this sector has lost most of its well wishers. Customers and buyers have started losing faith in the builders/developers who have lately given an impression of not delivering the promised output. The unfortunate incidences of Greater Noida (which ultimately turned into a political agenda) and the slashing of penalty by the Competition Commission of India (CCI) on DLF have created a feeling among the stakeholders that the builders/developers are using their position to an unfair advantage. To put an end to this one sided control vested in the Realty builders/developers, the Government of India (Ministry of Housing & Urban Poverty Alleviation) had come up with the Real Estate (Regulation and Development) Bill 2013, which seeks to set up real estate regulators in the States to protect the interests of homebuyers, to ensure fair practices and accountability, besides setting up fast-track dispute resolution mechanism. Recently, on June 4, 2013, the Union Cabinet cleared this bill. Presently, this legislation is in the draft form. Its stated objectives are as follows:
| ♦ | | to establish the Real Estate Regulatory Authority (RERA) for regulation and planned development of the real estate sector. |
| ♦ | | to ensure sale of immovable properties in an efficient and transparent manner |
| ♦ | | to protect the interests of consumers in the real estate sector |
| ♦ | | to establish an Appellate Tribunal to adjudicate disputes and hear appeals from the decisions or orders of the RERA, and |
| ♦ | | for matters connected therewith or incidental thereto. |
Main provisions of the Bill
2. The Bill proposes to regulate transactions in the real estate sector and bring about standardization in the sector leading to healthy and orderly growth of the industry through introduction of definitions such as 'apartment', 'common areas', 'carpet area', 'advertisement', 'real estate project', 'prospects', etc.
The RERA would have powers to give directions for specific performance powers to impose penalty for non-registration of projects, including imprisonment for continuous violation upto 3 years and impose penalty in case of other contraventions.
The Bill seeks to establish a regulatory oversight mechanism through RERA and Appellate Tribunal in the States, to enforce accountability norms for the promoters, buyers and the real estate agents.
Controversial issues of the Bill
3. At the outset, it must be mentioned that the draft law does contain very important points in the context of present situation in the Indian Real Estate Sector. However, there are many grey areas which require further considerations before this bill becomes an Act. Further, there are certain points which require amendments so that they can be implemented in the desired manner. A list of such issues is as under:
S.No. | Particulars | Section No. in the Bill (if applicable) | Controversy/Grey area/Suggestion on this provision |
(i) | Exemption from registration | Section 3 | | ♦ | | As per the proviso to the said section, the requirement of registration is not there in case the area of land proposed to be developed does not exceed 4,000 sq. mtrs., or an area as notified by the CG in consultation with the States and Union T's from time-to-time, which may be different for the different States or Union T's. | | ♦ | | In this regard, the following suggestions have been made: |
| • | | The minimum limit for the requirement of registration should be raised from 4,000 sq. mtrs. Otherwise a large number of small builders will be forced to register themselves with the RERA without even having the necessary resources. | | • | | The limit of 4,000 sq. mtrs. Should be based on the construction area/carpet area of the project instead of the land area. | | • | | The said limit can instead be based on any of the following criteria: |
| - | | type of city (like Tier A,B,C city)because same State/UT may have cities with absolutely different trends in land appreciation. Thus, having the same limit throughout the State/UT would not be a feasible option, or | | - | | township-wise, or | | - | | link this limit with environmental laws prevalent in the area. |
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(ii) | 70% amt. to be transferred to a separate account | Section 4(3)(b)(v) | | ♦ | | As per the said section, 70 per cent or lesser per cent as notified by the Appropriate Government, of the amount realized for the R.E. project from the allottees, from time-to-time, shall be deposited in a separate scheduled bank account within 15 days of its realization to be utilized only for meeting the cost of the Project. | | ♦ | | This provision seems to be unfair and pretty harsh on the builders/developers for the following reasons: |
| • | | The prescribed limit of 70% amount to be transferred should be reduced, because if the builders/developers are required to block such a heavy portion of their realization, then it would render their survival almost next to be impossible. | | • | | Another aspect which needs to be corrected is that instead of linking the fixed percentage of 70% to the amount realized from the allottees, such percentage should be applied only on the construction cost of the project. |
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(iii) | Renewal of registration for maximum 2 years | Section 5(1) | | ♦ | | As per the said section, no registration to a promoter shall be renewed for a period of more than 2 years. | | ♦ | | Keeping such a cap on the maximum extension allowed for registration does not appear to be proper considering the following situations: |
| • | | What will happen if the project is complete and ready for sale but units remain unsold even at the time of expiration of the said period of maximum extension allowed for registration? | | • | | Also, who will receive the sales consideration in respect of the units sold after the expiration of the registration period granted to the promoter for the R.E. project? | | • | | Instead of keeping a fixed limit of 2 years, the limit of maximum extension allowed for registration should be based on the facts & circumstances of the each case. |
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(iv) | Effect of lapse of or cancellation of registration | Section 6 | | ♦ | | As per said section, in case of lapse/cancellation of registration, the RERA may take appropriate action, including carrying out of the remaining development work by the association of allottees. | | ♦ | | This provision seems to be impractical, because in the present R.E. scenario in India, more often than not, the associations of allottees are not even able to maintain their housing project/society. |
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(v) | Penalty for contravention of other provisions of the Act | Section 51 | | ♦ | | As per said section, penalty for contravention of any provisions (other than penalty under section 50) may extend to 10 per cent of the project cost with repeat offenders possibly facing imprisonment of upto 3 years. | | ♦ | | Instead of having a penalty for such a wide array of offences, the Act should bifurcate the offences into the following categories: |
| • | | Wilful default | | • | | Technical default | | • | | Substantial default | | • | | Minor default |
| ♦ | | Separate penalties should be provided for all types of defaults, keeping into consideration the materiality of the default committed. |
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(vi) | Applicability to Authority | Section 4(7)(a) | | ♦ | | As per the said section, the RERA shall grant the registration to the promoter, if it is satisfied that the promoter has entered into an agreement with the Competent Authority for completion of the development works. | | ♦ | | The meaning of the phrase 'completion of the development works' is not clear and, hence, is open to any subjective views. It should be clarified to avoid any disputes. |
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(vii) | Meaning of unfair practice or irregularities | Section 7(1)(c) | | ♦ | | The Explanation to the said section defines the term 'unfair practice' but does not define 'irregularities'. | | ♦ | | This term should be defined or at least some guidance should be provided for the meaning of this term to avoid any dispute. |
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(viii) | Major structural defect or deficiency | Section 13(2) | | ♦ | | As per the said section, the promoter has to rectify any 'major structural defect or deficiency' without any charge, if such defect/deficiency is brought to this notice by the allottee within 1 year of handing possession. | | ♦ | | This term needs to be defined in the Bill, because otherwise it will leave a very wide scope for its interpretation by every promoter. |
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(ix) | Obligation of promoter towards allottees | Section 12(2)(f) | | ♦ | | This section provides that if the promoter cancels the ATS, he shall refund the amount collected alongwith interest at the prescribed rates. | | ♦ | | On reading this clause, it appears that the promoter shall be liable to refund the entire amount collected from the allottees in case of cancellation of ATS, irrespective of the stage and reason for cancellation of the ATS. |
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(x) | Obligations of allottees | Section 16 | | ♦ | | The obligations of the allottees have been kept very minimal. | | ♦ | | In case of the violation of any of his obligations, there should be stringent penal provisions for the allottees which shall not be restricted only to the payment of interest for delay in payment. |
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(xi) | Refund of amount to promoter | Section 15(2) | | ♦ | | As per this section, in case of default on the part of promoter to refund the amount received from the allottee, he shall be liable to pay interest chargeable from the date the promoter received the amount or any part thereof, till the date the amount or part thereof and interest thereon is returned. | | ♦ | | Instead of charging the interest from the date of receipt of amount by the promoter, the interest payable should be calculated from the date the promoter becomes liable to refund the said amount. |
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Conclusion
4. The proposed law on the regulation and the development of the Real Estate sector is a step in the right direction, but the flaws or the grey areas in this vital law should be corrected at this state only to avoid any vexatious disputes in future.
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