Real Estate (Regulation and Development) Act, 2016 (RERA):
A recently promulgated legislation, RERA seeks tocurb the shortcomingsof
respective Ownership Acts prevailing in each state. A centre enacted
legislation, RERA seeks to provide uniform laws throughout the states, for
protecting the interest of home buyers and seeks to increase transparency in
functioning of construction companies and reduce the chances of default or
misappropriation of funds by Builders.
RERA provides for establishment of following authorities/Tribunals:
1.Real Estate Regulation Authority ("RERA Authority") in each state;
2.Real Estate Appellate Tribunal in each state.
It seeks to provide for establishment of authorities/tribunals for providing
mechanisms to flat purchasers/home buyers for expeditious Redressal of
complaints under the Act.
It basically and broadly provides for remedy for following
breaches/contraventions by Promoter/Real Estate Agent:
1.Inviting/Offering for sale etc. without registration of project by
2.Acting as agent or inducing/facilitating purchase by Home Buyer without
registration as Real Estate agent or project being registered with Real Estate
3.Any unfair practice being adopted by Promoter/Developer/Real Estate Agent;
4.Violation of terms and conditions by Promoter/Developer subject to which
approval granted by Competent Authority;
5.Adoption of fraudulent practice by Promoter/Developer;
6.Violation of any provisions of the Act/Rules/Regulation.
Consumer Protection Act, 1986 (CPA):
CPA enacted to provide speedyRedressal mechanismto"CONSUMERS"under the CPA
by establishments of Forums at District, State and National level. CPA only
applies in case ofCONSUMERalleges Unfair Trade Practice or Deficiencywith
respect toGoods or Services. Each of the terms are well and broadly defined
under the Act. The home buyers were also included within the purview of the Act
by interpreting the word "Services" under the Act to include construction,
sinceconstruction is also a service.Otherwise transactions in Immovable
Properties are outside the ambit of CPAsince they are not goods within the
meaning of the Act. Hence transaction relating to sale /exchange of Immovable
Properties, specific performance of the same, claim for damages for
non-performance of agreement of sale is outside the purview of CPA since
Immovable Properties arenot "goods" within the meaning of the CPA.
Insolvency and Bankruptcy Code, 2016 (IBC):
IBC was one of the most successful piece of legislation promulgated by the
Parliament to provide a uniform code for Insolvency Resolution of all persons
whether Individual, Partnership Firm or Corporate entity. It contains different
chapters for Insolvency of different types of persons. For Corporate Entities it
provides forCorporate Insolvency Resolution Process (CIRP)for 6 months to
provide an opportunity to revive the Corporate Entity if Financial Creditors of
the Company by requisite majority so agree by approvingResolution Planand
toprevent further erosion of capitaland if possible to appreciate the capital
of the Company.If CIRP fails, the Company goes into liquidationand liquidation
in done in the manner provided in the IBC.
By virtue of recent amendment in August 2018, the Allottee's of project are
considered and are deemed to be Financial Creditors within the meaning of the
Act. Hence they are entitled to maintain Insolvency Application and in case of
admission of Insolvency Application byother Creditors, Financial or
Operational, are entitledto participate and votein meeting ofCommittee of
Creditorsthat is constituted.
Comparing Remedy Under Rera Vs Cpa Vs Ibc On Certain Parameters From Home
||RERA has been formed recently and it takes on
an average couple of years for Redressal of Grievances.
||It takes about 5-6 Years for Redressal of
Grievance or adjudication of dispute by Consumer Forum.
||It takes about 6 Months for adjudication of
Insolvency Application and to admit the same by Adjudicating Authority.
||Who can file
||A Purchaser/Home Buyer or prospective
purchaser/Home Buyer offered flat can file Complaintirrespective of the
fact that such person is Corporate Entity or Individual.
||A Consumer i.e. a person who satisfies the
requirement under Section 2(d) of CPA can file complaint. Thereby only a
person, typicallyIndividualwho enters into agreement for purchase of
Flat can file complaint whenhe purchases the same for his individual
||Since by recent amendment in August 2018, the
Allottee of Project is considered a Financial Creditor,any person
whether an Individual or Corporate Entity can file an Insolvency
Applicationunder Section 7 of IBC. Also allottee who is competent to
file Application in my view can be both purchaser under Redevelopment or
existing tenant/owner/occupant of Flat/Apartment.
||Application/Complaint to be filed before whom
||Complaint is to be filed beforeReal Estate
Regulatory Authorityestablished in each state by respective State
government where the project is situated.
||Complaint is to be filed beforeConsumer
Forum having territorial and pecuniary Jurisdictionto hear Complaint.
||Insolvency Application is to be filed before
Adjudicating Authority i.e.
a)National Company Law Tribunalhaving territorial jurisdiction over
the place where registered office of Corporate entity is situated in
case of Corporate Entities;
b)Debt Recovery Tribunalin the territorial jurisdiction of which
individual resides, carries on business or personally works for gain.
||Appellate Structure under the Act.
||Real Estate Regulatory Authority;
B.Real Estate Appellate Tribunal;
*A writ petition under Article 226 & 227 can be preferred in exceptional
circumstances against the decisions of the Forums.
|a.National Company Law Tribunal;
b.National Company Law Appellate Tribunal;
*A writ petition under Article 226 & 227 can be preferred in exceptional
circumstance's against the decisions of the Company Law Tribunals.
||Thereare typically as of now, one or two
Real Estate Regulatory Authority offices in each state which has
constituted the Authority under the Act.
||District Forums are established inevery
district of the State. Furthermore State Commission presides in capital
of each state and sometimes has benches in other parts of the State.
National Commission presides at Delhi and has circuit benches in various
parts of the Country which are rotating.
||NCLT is typically constituted for each state
andpresides at one place in the stateor one NCLT is commonly empowered
and is having jurisdiction over two states.
||Real Estate Regulatory Authority typically
exercise its power by way of an order toimpose fine, deregister the
project, include the promoter in list of defaulters, direct completion
of project in manner provided in consultation with State Governmentand
pass appropriate orders incidental thereto.
*Since Home Buyers are particularly interested in completion and handing
over possession of their flats, RERA Authority provides for stages wise
utilisation of moneys paid by them and a separate account to be
maintained for the purpose. In case of default to complete project or
other non-compliances, RERA provides for various measures to complete
the project and empowers the authority for the same for that home buyers
are not kept in lurch. Also it tries to penalise builders by aforesaid
measures so that they are prevented and discouraged from undertaking
further projects when they do not have requisite resources.
|The Consumer Forum has thepower to execute
its own orders. This makes execution of orders also anexpeditious
affair in comparison to regular suits or execution of orders passed by
various Courts/Quasi-Judicial Forums. Also since scope of Consumer Act
is limited, the relief and consequently is execution is comparatively an
||Once, NCLT admits the Insolvency
Application,IRPcomes into the picture tomanage the affairs of the
Companyand in case offailure of Corporate Insolvency Resolution
Process ("CIRP") (In case of Developer being a Corporate Entity),
Liquidation would be commenced. NCLT monitors the entire process and
time to time, various reports are required to be filed with NCLT.In
other cases liquidation would be commenced by DRT.
Analysis Of Provisions Relating To Granting Of Reliefs Under The Acts:
A.*By virtue of provisions ofProviso to Section 71(1)of RERA it is
explicitly clear that aperson can avail one of the two remedies, either file
Complaint with RERA Authority or before appropriate Consumer Forum. This is due
to the fact that in both the remedies one is seeking or can seek recovery of
money along with interest, compensation and costs. It proceeds onprinciple of
constitution under Article 20(2)of Indian Constitution provides for equitable
principle "that nobody can be prosecuted and punished for the same offence twice
or more times".
B.However wheredifferent reliefs are to be sought from RERA Authority and
Consumer Forum, differentcomplaint in both the institutions is maintainable.
However onlytwo remedies which RERA can provide, apart from slightly more
expeditious disposal of caseswhich the consumer forums are not competent are:-
i.Power to issue directions for completion of project in consultation with
State Government by appointment of suitable agency;
ii.Power to include Builder/Developer in the list of defaulter and/or to
prohibit it from undertaking new projects.
C.HoweverSection 71(1) read with 72(2) of RERA makes it abundantly
clearthat thebar is only in respect of remediesthat can be commonly obtained
underboth the Authorities. Hence one it always at liberty to approach RERA or
Consumer Forum for remedies not availed from before in other Forum.
D.Also proviso to Section 17(2) of RERA provides for handing over possession
within 30 days of obtaining occupancy certificate and execution of conveyance
within 3 months of obtaining occupancy certificate. However it does not provide
for deemed conveyance unlike Maharashtra Ownership of Flats Act, 1963. InRERA
provisions of Section 17 read with Section 34 and Section 38 in my view, one
cannot seek reliefas to directions to be issued to Developer/Builder for
complying with conditions forgranting Occupation Certificateand obtaining
grant of the same. Even in case of failure of Developer/Builder to hand over
possession or grant conveyance,the RERA can only impose monetary penaltyand
relief in the nature of monetary interest. This is in my view due to the fact
also that RERA is an "Authority" formed for limited purpose. A statute cannot
be interpreted so liberally so confer power on an authority which the Act does
not explicitly provide.RERA in my view is administrative authority, having
regard to the scheme of the Act, though it may perform quasi-judicial or quasi
legislative functions incidentally. However most decisions of RERA are
administrative decisions for enabling it to carrying out its functions as
administrative authority under the Act.
E.HoweverConsumer Forums have the powerto grant reliefs in the nature of
directions tothe Developer to provide Occupation Certificate, handover
possession and grant Conveyancein favour of ultimate entity formed of
flat/apartment purchasers. SinceSection 14(1)(e) of CPAprovides for power of
Consumer Forum to issue directions "to remove the effects or deficiencies in the
services in question, the word"removal of deficiency in service" would also
include power to grant reliefs as aforesaid as stated previously, since
construction is also "Service" within the meaning of CPA.
F.However since Home Buyer/Flat Purchaser are deemed to Financial Creditors
under IBC, they can file an Insolvency Application under section 7 of IBC.
However aninteresting question would arise as to when would there be
"Default"on the part of Developer. One has to always keep in mind that
construction activity or Real Estate Projects are complex in nature, hencea
holistic and equitable view of the transactionhas to be taken. A number of
transactions and agreements are entered intobetween Developer, Flat Purchaser,
Owner and/or Planning Authorities. Every delay in possession than delivery date
or non-observance of agreement or statutory possession cannot be construed
harshly against the Developer. On admission of Insolvency Application, in case
against Developer being a Company,moratorium would come into force for a period
of 6 monthswhich would leadto stay of all proceedingsbefore every court.
However same doesnot apply to criminal proceedings and writ proceedingsas held
by Hon'ble NCLAT in case ofCanara Bank vs Deccan Chronicles Holdings Limited.
G.A company or corporate entity would sought to be revived in case eligible
person submits a Resolution Plan and the same is approved by requisite majority
of Creditors in the Committee of Creditors. On failure of the same the Company
would go in liquidation. Hence after company goes under liquidation, the
assets/liabilities would be liquidated in the manner provided in IBC. Flat
Purchasers would have priority in discharge of its debts over other creditors
and would also have a charge on the property/flat allotted to them at whatever
stage of construction it might be under. In case of builder/developer being
Individual or partnership firm, then same would straight away go in liquidation.
H.However, if builder is complying with provisions of RERA as to separate
bank account opened for money received with respect to flat under construction,
and has been unable to complete construction due to financial paucity or any
other reason, he will be financial creditor only with respect to interest on
amount paid from date of default till completing project or till RERA taking
action to complete the project if flat purchaser does not choose to terminate
I.However if flat purchaser chooses toterminate the agreement, then he
becomesFinancial Creditorto the extent ofpayments made to Developer plus
interest duefrom the date of default. DATE OF DEFAULTin my view would be of
critical importance and it should be date on which there has beenfailure on
part of builder to provide possession as per the agreement or date for
completion of projectdisclosed to RERA,whichever is earlier. Default can also
meanvalid termination of agreementas per clauses of the binding agreement or
under the provisions of any Act andDATE OF DEFAULT would mean the date from
which termination is effective.
J.Insolvencywould beoptional remedy, which would be onlyfeasible if
company does not have sound financial positionand the same is deteriorating. As
to the Applicant would have better prospects at recovering his money along with
interest. It will befruitful remedy when the Applicant only seeks to recover
money investedalong with interest predominantly.
K.If the Developer has sound financial positionand flat purchaser seeks to
obtain specific performanceas to completion of the project,then filing an
Insolvency Application may not be feasible option.
L.If flat purchaser is Consumer, Consumer Forum would bea great alternative
remedy to obtain specific performance. However if flat purchaser is not
competent to obtain relief under CPA, then Civil Courts are the only remedy he
has for specific performance and compensation etc.
M.Also RERA is more effective remedy when the project is purely development
project or there are large numbers of sale flats which have been sold. This is
because in a pure Redevelopment Project, there are less number of tenements
available for Developer to be sold and hence less moneys raised and kept in a
separate escrow account to be utilized for the purpose of completion of project.
Also if more number of charges or mortgages are created on the sale component ,
then the matter would be only more complex as banks/FI would also put forth
their claim on the moneys in the Escrow Account.
Conclusion Of Above Observations And Analysis:-
a.If person is aconsumer and seeks performance of statutory obligationor
compensation in respect thereof, thenConsumer Forum is a better and
effectiveremedy especially in case where Developer has financial ability to
pay. Also he may file a complaint with RERA to blacklist Developer and other
reliefs which RERA can provide but consumer forum cannot.
b.If a person is not a consumer,then RERA would be more appropriate remedy.
c.If a person is not a consumer and seeks specific performance of statutory
obligations from Developer, his only remedy would be to file a regular suit.
However, for compensation and other reliefs he may approach RERA.
d.If Person, whether consumer or not, is seeking only return of his money,
especially whenDevelopers financial position is deteriorating, then Insolvency
Applicationbefore NCLT would be appropriate remedy more so when its
redevelopment of property that doesnot involve many flat in sale component.
e.Also themore the project is closer to the verge of completion, RERA would
be a more effective remedy especially if Flat Purchaser/Home Buyer desires to
obtain a Flat and vice-versa coupled with the consideration that RERA can also
provide compensatory reliefs.
f.Insolvency can always be availed as an alternative remedy when a Flat
Purchaser feels that financial position of Developer is deteriorating and
Developer will not be able to complete the project and return the money with
interest to be able to prevent further deterioration. It will help toobtain
recovery of maximum amount of money invested along with Interest.Completion of
project may take several years due to various practical difficulties that may
arise in the completion of project. Alsoexecution of order for payment of
moneywill not have any fruitful result if Developer does not have financial
ability to pay it.
g.In terms of execution, Insolvency since being process to liquidate the
assets of entity or person willbe a more lucrative remedy in case there is high
probability that Developer may not be in position to return the money
invested.Consumer Forumsince having power to enforce their own orders also
providegreat remedy in case where builder has completed construction but
delayed possession or not complied with statutory obligationto obtain reliefs
in respect of both.
h.The Flat Purchaser/Home Buyer can always initiate criminal proceedings
against Developer against fraud or other criminal offences or acts committed by