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Constitutional Validity Of Rera: Analyzing Neelkamal Realtors v/s UOI

In Neelkamal Case[1], the petitioners contested the legality and constitutionality of specific sections of the Real Estate (Regulation and Development) Act, 2016 (RERA). They argued that these sections violated Articles 14, 19(1)(g), 20, and 300-A of the Indian Constitution. The petitioners sought a declaration that the first proviso to Section 3(1), Section 3(2)(a) & (c), Explanation to Section 3, Sections 4(2)(c) & 4(2)(d)(e)(f)(g)(k), Sections 4(2)(l)(C) and 4(2)(l)(D), Sections 5(1)(b), 5(3), and the first proviso to Section 6 of the RERA were unconstitutional, illegal, beyond their powers, and lacking legal authority.

Implementation Of Certain Provisions
The Real Estate (Regulation and Development) Act (RERA) was established by the Parliament as Act 16 of 2016. The implementation of certain sections of RERA began on dates specified by the Central Government through notifications in the official gazette, with different dates assigned to different sections. Notification No. S.O. 1544(E), dated April 26, 2016, declared that some provisions, specifically Sections 2, 20 to 39, 41 to 58, 71 to 78, and 81 to 92, would take effect from May 1, 2016. Another notification, No. S.O. 1216, dated April 19, 2017, brought additional provisions into effect from May 1, 2017, including Sections 3 to 19, 40, 59 to 70, and 79, 80.

Statement Of Objects And Reasons
The real estate sector plays a crucial role in meeting the housing and infrastructure demands of the country. Despite significant growth in recent years, the sector remains largely unregulated, lacking professionalism, standardization, and sufficient consumer protection. Although the Consumer Protection Act of 1986 offers a platform for real estate buyers, it is primarily remedial and insufficient to address all issues faced by buyers and developers in this industry. The absence of standardization has hindered the industry's healthy and orderly growth, highlighting the need for regulation, as discussed in various forums.

Given the circumstances, there was a need for central legislation, specifically the Real Estate (Regulation and Development) Bill, 2013. This legislation aims to ensure effective consumer protection and standardize business practices and transactions within the real estate sector. The proposed bill includes the creation of the Real Estate Regulatory Authority, which will oversee and promote the sector.

It will also ensure the transparent and efficient sale of plots, apartments, and buildings, thereby safeguarding consumer interests. Additionally, the bill proposes the establishment of the Real Estate Appellate Tribunal to handle appeals against the decisions and orders issued by the Authority. The proposed Bill will ensure greater accountability towards consumers, and significantly reduce frauds and delays as also the current high transaction costs. It attempts to balance the interests of consumers and promoters by imposing certain responsibilities on both.

It seeks to establish symmetry of information between the promoter and purchaser, transparency of contractual conditions, set minimum standards of accountability and a fast-track dispute resolution mechanism. The proposed Bill will induct professionalism and standardization in the sector, thus paving the way for accelerated growth and investments in the long run.

Objections By Petitioners
  1. The learned counsel argued that, the proviso to Section 3(1) should be deemed illegal and unconstitutional because RERA has not established a reasonable, fair, and transparent system to balance the rights and responsibilities of promoters and allottees.
  2. In relation to Section 6, which deals with the extension of project registration, the learned counsel argued that while promoters are allowed to specify the expected completion period when registering the project, the extension granted under Section 5 by the authority is limited to one year. The counsel contended that this restriction is unreasonable and arbitrary, as it does not account for unforeseen circumstances beyond the promoter's control that may delay the project. According to Section 6, an extension can be granted if the promoter applies due to force majeure circumstances, which include natural calamities like war, floods, droughts, fires, cyclones, and earthquakes. However, the counsel argued that the authority should have the discretion to consider other legitimate reasons for delays, such as legal disputes resulting in stays or injunctions, or shortages of essential materials like cement and steel. The current provisions do not allow for extensions beyond one year for reasons other than force majeure, which the counsel believes is unreasonable, unconstitutional, and contrary to the principles of Articles 14, 19(1)(g), and 20 of the Constitution. Therefore, the counsel requested that the proviso to Section 6 be declared invalid.
  3. Section 8 outlines the responsibilities of the authority when a registration lapses or is revoked. Senior counsel Mr. Chinoy argued that this provision is unreasonable and negatively impacts the rights of promoters. He contended that it conflicts with the contractual rights formed between promoters and allottees in agreements made before the project's registration under RERA. The provision, according to him, is vague and unclear, potentially complicating the project's completion, which would not benefit the allottees either.
  4. The learned counsel argued that Section 18(1)(a) is highly arbitrary and retroactive, which adversely impacts the promoter's rights to conduct trade and business, thereby violating Articles 14 and 19(1)(g). The counsel highlighted that if an allottee does not withdraw from the project and the promoter's registration is revoked or if the promoter is unable to deliver possession of an apartment, the promoter must pay interest for each month of delay until possession is handed over. This mandate, according to the counsel, is unreasonable, arbitrary, and unconstitutional. Alternatively, the counsel suggested that the promoter should only be required to pay interest from the date of the project's registration, not from the date of the sale agreement between the promoter and the allottee. The counsel further argued that Section 18's provisions are retroactive, affecting past transactions between the promoter and allottee before the project's registration under RERA, and are therefore unworkable.
  5. The learned Senior Counsel argued that the RERA does not consider the interests of the promoter. The provisions can be applied to penalize the promoter for not completing a project, even when delays are due to circumstances beyond their control. The requirements for the promoter to pay interest and compensation to the allottee are seen as punitive, as they impact transactions that occurred before the project's registration under Section 3 of the RERA. Additionally, RERA lacks provisions for refunding the promoter's investment if the promoter wishes to exit the project or if their registration is revoked.

Submissions By Respondent
  1. Section 3 provisions are reasonable:
    The learned ASG argued that Section 3's provisions are reasonable and serve the greater public interest. Regarding Sections 3 and 4(2)(l)(C)(D), the ASG contended that if a promoter provides an account showing that 70% of the funds received from allottees have been spent on the project, they are not required to deposit 70% of the funds again during the RERA registration process. The ASG referred to the Maharashtra Rules of 2017 and the National Capital Territory of Delhi Real Estate (Regulation and Development) (General) Rules, 2016, which mandate promoters to deposit 70% of the funds received from allottees with the relevant authority. Considering the intent and purpose of RERA, the ASG argued that the constitutional challenge to the first proviso of Section 3(1) should be dismissed.
  2. The restriction is deemed necessary:
    The ASG argued that the proviso to Section 6 allows the authority to extend a project's registration period by up to one year. This restriction is deemed necessary to ensure timely completion of remaining development work. Without it, completion could be indefinitely delayed due to various reasons. These provisions were carefully crafted with the interests of allottees in mind, many of whom have been waiting years for possession of their apartments or houses after paying substantial sums to the promoter. Rejecting the petitioners' arguments aligns with the objective behind Section 6, preventing the defeat of its purpose in mandating a specific timeframe for completion.
  3. Empowering the authority under section 8:
    The learned ASG argued that if a promoter's registration lapses or is revoked, the authority can utilize its powers under Section 8 to take necessary actions, including completing any remaining development work. The authority may instruct the same promoter to continue the outstanding development work under its supervision. Therefore, concerns that a promoter would lose the right to carry out development work after registration lapses are unfounded. RERA addresses such concerns by empowering the authority to act under Section 8, ensuring that promoters are not barred from continuing development work. The authority has extensive powers under RERA aimed at completing pending development work and delivering possession to allottees within specified timelines.

Submissions By The Learned Amicus Curiae:
  1. The counsel argued that when assessing the restrictions imposed by RERA under Article 19(1)(g), their reasonableness must be evaluated based on established principles. Economic legislation typically carries a presumption of constitutionality, and the authority to regulate often includes the authority to impose prohibitions. Individual rights, including those stemming from private contracts, may need to yield to legislative actions undertaken in the public interest. Understanding the true nature of the legislation requires considering factors such as its history, purpose, surrounding circumstances, prevailing issues, and intentions.
  2. Section 6 of RERA imposes a reasonable restriction when viewed in the context of public interest. If a promoter genuinely faces hardship due to the expiration of registration under Section 6, this hardship can be addressed by the Authority when issuing an order under Section 8 or providing directions under Section 37 of RERA. The time limit set by Section 6 is reasonable and serves the public interest. Alternatively, the learned Senior Counsel argued that although Section 6 allows for registration extension up to one year in total, it's possible to deduct the time elapsed due to a court injunction using the principle of "Actus Curiae Neminem Gravabit".[2]
  3. Whether section 18 is contrary to Article 20 of the Constitution: The provisions of Section 18 were designed to serve as a strong deterrent against practices deemed detrimental to the public interest by the Legislature. The learned Senior Counsel proposed an alternative argument, suggesting that if the court deems Section 18 to have a penal nature impacting contractual rights established before its registration, then Section 18 could be interpreted to require interest payment only for delays occurring after registration under RERA, rather than from the original agreement's deadline for handing over the flat. This approach, according to the Senior Counsel, does not impose penalties retrospectively.

    The Legislature holds the authority to enact laws with retrospective effect. Even if RERA is considered to operate retrospectively, it wouldn't be unconstitutional unless such retrospectivity is demonstrated to be unduly severe, unfairly affecting substantial or vested rights. Mr. Khambata, the Senior Counsel, argued that RERA is a corrective or remedial legislation, emphasizing that public interest is a relevant consideration in assessing the constitutional validity of retrospective laws, as affirmed by the Supreme Court.

Court Ruling
The court ruled that the constitutional challenges against various sections of the Real Estate (Regulation and Development) Act, 2016, including the first proviso to Section 3(1), Section 3(2)(a), the explanation to Section 3, Section 4(2)(l)(C), Section 4(2)(l)(D), Section 5(3), the first proviso to Section 6, Sections 7, 8, 18, 22, 38, 40, 59, 60, 61, 63, and 64, have been unsuccessful. These provisions are deemed to be constitutional, valid, and legally sound.

  1. Neelkamal Realtors Suburban Pvt. Ltd. v. Union of India, 2017 SCC OnLine Bom 9302.
  2. Raj Kumar Dey v. Tarapada Dey (1987) 4 SCC 398: AIR 1987 SC 2195.

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