Impacts of interpretations on RERA: A legal analysis
Certain interpretation and implementation issues have had a serious impact on RERA. Aradhana Bhansali, Aarti Jumani and Manasi Padwalkar offer an analysis of recent legal developments in the real-estate sector.
The Real Estate (Regulation and Development) Act 2016 (RERA), was enacted to cleanse the real estate sector and obviate and alleviate allottee concerns on account of project delays, refund of consideration paid to the builders along with interest, stamp duty and registration charges. Its purpose was to curtail the unfair trade practices and malpractices plaguing the sector. It also aimed to benefit builders by providing a platform for transparency of information, to enable buyers to take informed decisions, thus benefiting all stakeholders in the sector.
Certain interpretation and implementation issues have had a serious impact on RERA. Aradhana Bhansali, Aarti Jumani and Manasi Padwalkar offer an analysis of recent legal developments in the real-estate sector. ________ The Real Estate (Regulation and Development) Act 2016 (RERA), was enacted to cleanse the real estate sector and obviate and alleviate allottee concerns on account of project delays, refund of consideration paid to the builders along with interest, stamp duty and registration charges. Its purpose was to curtail the unfair trade practices and malpractices plaguing the sector. It also aimed to benefit builders by providing a platform for transparency of information, to enable buyers to take informed decisions, thus benefiting all stakeholders in the sector. Certain interpretation and implementation issues have had a serious impact on RERA; for instance, the provision with respect to the powers of the Authority and Adjudicating Officer (AO) for grant of refund and interest or refund, interest and compensation, either on account of cancellation of booking/allotment of the unit or flat or agreement for sale. These concerns have become so knotted that several matters have travelled from the authority level to the appellate authority, and thereafter the concerned high courts under second appeal and even the Supreme Court. One such judgement is Habitech Infrastructure vs. State of Uttar Pradesh & Others (Writ C No. 9120 of 2020 Allahabad High Court) where the promoter challenged that the Authority did not have the power to grant a refund of the amounts paid by an allottee to a promoter, together with interest under Section 18, and that it was only the AO under Section 71 who was empowered to grant interest and compensation. It was held that, under Section 71, the AO has been given the power under Sections 12, 14, 18 and 19 only for compensation and not with regard to refund of the amount or interest, which power is vested in the Authority under Section 18. A similar question was raised in Sana Realtors vs. Union Of India & Others (CWP No. 38144 of 2018 Punjab and Haryana High Court) along with other questions of law concerning the interpretation of RERA provisions as well as the Haryana Real Estate (Regulation and Development) Rules, 2017. It was inter alia held that the legislative intent is not to diminish the adjudicatory functions of the Authority but rather to provide it with all the trappings of a quasi-judicial/judicial authority. The above judgment in Sana Realtors (supra) was challenged in the Apex Court and the operation of the judgement has been stayed till disposal of the matters. The judicial scrutiny of the provisions of RERA reflects that we still need a robust mechanism for implementation of RERA and to clear the grey areas and gaps to bring about effectiveness in rendering justice to all stakeholders, and to ensure they are not made to run from pillar to post for their rightful entitlement, even after receiving favourable orders, by forcing them to file for an execution application or defend appeals that serve to protract litigation. Insolvency and Bankruptcy Code (Amendment) Act 2020 (IBC Amendment) The threshold requirement that there should be a minimum hundred allottees to support the application or 10% of total allottees, whichever is less, to move an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC Code) to trigger insolvency resolution shall work in favour of promoters who are genuine in delivering what they have projected to allottees as also at the hands of an allottee, who could propel the machinery of the Tribunal. The Apex Court upheld the constitutional validity of the IBC Amendment in Manish Kumar vs. Union of India (Writ Petition (Civil) No. 26 of 2020, thus balancing the rights of allottees and promoters. Union Budget 2021 To boost demand in the real-estate sector and enable developers to liquidate their unsold inventory at a rate substantially lower than the circle rate, giving a benefit to home-buyers, the Finance Act 2020 has increased the safe harbour from 10% to 20% under Section 43CA of the Income Tax Act 1961, for the period from November 12, 2020, to June 30, 2021, with respect to only primary sale of residential units of value up to Rs 2 crore. For these transactions, the circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%. With the objective of Housing for All in the 2021 Budget, it is proposed that affordable housing projects can avail a tax holiday till March 31, 2022; i.e., the additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house shall continue until March 31, 2022. In addition, TDS is proposed to be exempted on the payment of dividend by Real- Estate Investment Trusts (REITs) and Infrastructure Investment Trusts, which will augment funds for the real-estate sector and infrastructure. The Consumer Protection Act 2019 (CP 2019) CP 2019, which comes in place of the Consumer Protection Act 1986 (CP 1986), has included builders engaged in the sale of constructed houses or in the construction of homes or flats under the definition of ‘product seller’. Builders are liable for misleading advertisements that, by definition, falsely describe any product (flats/apartments) or service; provide a false guarantee; are likely to mislead consumers as to the nature, substance, quantity or quality of such product or service; convey an express or implied representation that would constitute an unfair trade practice; or deliberately conceal important information. With the aforesaid inclusions, it compels builders to refrain from resorting to such actions that would drag them into unnecessary litigations to detract them from completing their projects. In conclusion It becomes essential for builders to bear in mind the aforesaid developments that have significant implications to their business in relation to real-estate projects. Considering the steps taken by the Government under Budget 2021, one might want to reap the benefits and contemplate venturing into projects for affordable housing, where there are benefits in terms of safe harbour and the tax holiday period. While doing so, one has to understand the rights and obligations stipulated under various statutes, such as RERA, IBC 2016 and CP 2019. That said, while the Government is taking steps to boost the real-estate sector by providing fiscal measures, RERA remains a work in progress that is still not completely implemented in letter and spirit. If the Government tightens implementation of RERA, where the interests of both allottees and promoters are secured, the real-estate sector will definitely see a surge after witnessing its worst hit on account of the Covid- 19 pandemic. Authors: Aradhana Bhansali is a Partner; Aarti Jumani and Manasi Padwalkar are Associates at Rajani Associates.