RERA on Strong Constitutional Grounds

Aditya Pratap is a lawyer practicing in the Bombay High Court. He can be reached at aditya@adityapratap.com

Introduction

RERA stands for the Real Estate Regulatory Authority. This was formed to bring about transparency in the real estate sector. The RERA Act was brought in to eradicate problems within the sector. It aims to reduce project delays and mis-selling. At present, it is compulsory for all builders or developers to carry out RERA registration before they start a project.
The Real Estate (Regulation & Development) Act, 2016 was legislated to level the playing field between real estate developers and buyers. Its provisions attempt to bring more accountability to project delivery and penalize lapses therein.

Issue of Centre-state jurisdictional gap

Before RERA, state government regulated real estate as land and land improvement are in the State List of Seventh Schedule of the constitution, under Entry 18. With RERA situation has changed as the Central Act will prevail over State Legislations in case of any discrepancy or conflict. Precisely for this reason, there has been an intense debate about RERA, with some arguing that it is a case of legislative overreach by the centre in the states’ domain.

To counter that, central government policy makers argued that this Act is to regulate transactions in the real estate sector and is in pursuance of the powers under Entries 6, 7 and 46 of the Concurrent List of the Constitution, which deal with transfer of property, registration of deeds and documents, and contracts.Also, finally the regulatory bodies will be operating at the state level itself and the states will have enough freedom to make and constitute their regulatory bodies through state-legislated RERA rules and amendments. If achievement of consumer protection and standardization of the sector are the final goals then, it is argued, the issue of conflict in jurisdiction between the centre and the state ideally should not arise.

However, since historically land has been a volatile and highly controversial subject any future conflict may ultimately drag issues to the legal arena where this centre-state jurisdictional gap may be utilized to score points.

Concerns of effects of bankruptcy on RERA

Under the current form of Insolvency and Bankruptcy Code (IBC) the homebuyers are treated as “unsecured creditors”, and therefore lower in the settlement priority in case of a bankruptcy. The conflict between IBC and RERA came to the fore in quite a few bankruptcy proceeding in the recent times. For example, the NCLT Allahabad had earlier initiated insolvency proceedings against Jaypee Infratech at the legal insistence of its financier IDBI. Few homebuyers filed a PIL in Supreme Court, and the court initially stayed the insolvency proceedings but subsequently vacated it and appointed an amicus to “espouse the cause of the homebuyers and protect their interests” during creditor meetings.

This case highlighted the specific conundrum that these two acts pose in the current form. While IBC was passed with the intention to smoothen the process of “closing the business”, RERA has been implemented to “regulate and formalise the real estate sector”. But, in case of insolvency while one tries to give primacy to the creditors the other tries to put consumers before creditors in the current forms.

The effect of Bombay High Court’s Judgement

The Bombay High Court upheld the validity of RERA along with rating partial relief to the builders. The principal complaint of the developers was that RERA only protects the interest of homebuyers and the interests of the promoters have been given a go-bye. The Act has retrospective application and imposes harsh penalties on developers for failing to complete a project within the stipulated time, even if this failure occurs in a project that was started before RERA was enforced.

Some provisions, like those imposing excessive interest, place unreasonable restrictions on builders. RERA imposes interest on developers if projects are not delivered on time. This, the developers argued, is against constitutional principles that guarantee developers the right to equality and to practice trade. The regulatory authority, constituted under RERA, lacks judicial members. This, the developers had argued, leads to regulatory orders devoid of sound legal principles.

The Bombay High Court upon all these issues, held that Provisions of RERA, contested by the developers, are constitutionally valid and cannot be struck down.RERA provisions cannot be held to be retrospective in nature as they don’t apply to projects that have already been completed. The court pointed out that the Act only applies to projects that have been initiated before RERA but are yet to be completed, that is, ongoing projects. The court also dismissed the excessive interest argument by developers in the event of project delays. It held that the excessive interest was fair as it’s in the nature of a penalty. It held that this interest was meant to compensate homebuyers, and was an important step to fulfill the objective of the Act.

Conclusion

It’s a realistic decision by the Bombay High Court as it recognizes that there can be genuine impediments in the completion of a project, which would render builders liable to penal actions for such delays. The directive on the inclusion of judicial members in the appellate authority augurs well for the fair and just implementation of the Act

By upholding the constitutional validity of the Act, the Bombay High Court has eliminated any ambiguity and scope for misconceptions with regards to legal aspects and provisions. This will have a positive impact on the industry, by bringing in transparency and making it easier for us to work in tandem.

About the Author – Aditya Pratap

Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at aditya@adityapratap.com.

Cases argued by Aditya Pratap can be viewed here.





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