This article is written by Ridhi Jain, pursuing a Certificate Course in Real Estate Laws and edited by Nishka Kamath, Team LawSikho.
It has been published by Rachit Garg.
The initiative of the Ministry of Housing and Urban Poverty Alleviation, Government of India, in 2013 gave impetus to regularising the real estate sector through the enactment of the Real Estate (Regulation and Development) Act, 2016, hereinafter referred to as “RERA” or “RER Act”. The Real Estate industry in India was highly unregulated and fragmented, therefore resulting in an increase in black money, lack of professionalism, and consumer protection. The absence of standardisation led to limitations on the healthy growth of the sector. Due to the above-mentioned reasons, this sector failed to attract or maintain the trust of the investors or buyers and increased litigation due to discontentment and unscrupulous practices of the calcitrant developers. With the advent of the RERA, enforced on May 1st, 2016, the problems of delay in delivery, unilateral unfair practices of the developers, deficient delivery of service, and issue of false/defective titles were effectively remedied. The procedure for approval of real estate projects before the Act was primarily sanctioned by the state government departments, under the power enlisted in the State List of the VII Schedule of the Indian Constitution. RERA was enacted by the Centre, deriving its powers from entries 6, 7, and 46 of the Concurrent List of the VII Schedule of the Indian Constitution. RERA carves the path of safety for all the stakeholders engaged in the real estate business and consumption. The objective of RERA is to regulate, monitor, develop, and secure the interests of the consumers/investors in the sector.
Need for a dedicated regulation
The Real Estate (Regulation and Development) Act, 2016, will ensure impetus for the development of the real sector because of the integration of investment, regulation, and transparency that it brings for the stakeholders. The rudimentary objective of RERA was to provide effective protection to property purchasers and eliminate the unfair practices adopted by the developers in the absence of a regulatory and monitoring regime. The above protections are satisfactorily achieved through excessive disclosure requirements, clarity on definitional clauses resulting in better execution, and the establishment of the Real Estate Regulatory Authority. The sector, which was earlier plagued with an opaque system of functioning at all operational and transactional levels, is now operating in a controlled environment leading to a reduction in endemic irregularities. The focus on transparency in the growing real estate trajectory will ensure massive investment, increased creditworthiness, urbanisation, and participation of all.
RERA, CPA, and IBC- friends or foes
In the case of M/S M3M India Pvt. Ltd. & Anr. v. Dr Dinesh Sharma & Anr. (2019), the Delhi High Court passed a judgement in multiple petitions filed by multiple real estate companies against an order passed by the National Consumer Disputes Redressal Commission (NCDRC). The issue in question was ‘Whether proceedings under the Consumer Protection Act, can continue or begin against developers after the commencement of RERA, 2016 or not?’
While reaching an inference, the Delhi High Court relied upon the recent landmark judgement passed by the Apex Court in the case of Pioneer Urban Land & Infrastructure Limited & Others v. Union of India (2019). This case, commonly known as the “flat buyer’s” case, is discussed below. In this case, the Delhi High Court asserted that “the remedies given to allottees of flats are concurrent” and “they are in a position to avail remedies under the CPA, RERA, as well as trigger the IBC.” The Court also stated that the remedies available to the allottees under several laws like RERA, CPA, and IBC are concurrent, and that if there is a conflict of laws in these laws, then IBC would prevail.
The interplay of RERA with other legislations
The remedies available for property purchasers have significantly broadened with the enactment of RERA and amendments made to the Insolvency Bankruptcy Code, 2016, over and above the existing remedies under the Consumer Protection Act, 2019, and civil courts. RERA primarily focuses on and regulates the responsibilities and liabilities of the promoters, the role of real estate agents, and the protections and rights of the allottees. The locus standi of allottees in seeking remedy has been clearly defined in all the laws. Apart from RERA offering a comprehensive remedy to the home allottees, the Insolvency Law Committee found a need to amend the Insolvency Bankruptcy Code (IBC) and include home allottees in the definition of financial creditors. Prior to the 2018 amendment, home allottees had no participation or remedy available in the Code, apart from being categorised as “other creditors” in the priority list. The Insolvency Law Committee Report highlighted the amounts raised by the developers from home allottees significantly contributed to financing the real estate project, and the rise in the delay of the delivery of possession became a common phenomenon, therefore allowing the home allottees to trigger the code in situations of delay and default would give the allottees the right place and representation in the committee of creditors “COC” meeting and not leave them in the lurches and behest of the developers. This amendment gave rise to immense opposition from the developers, and several petitions were filed, calling it arbitrary, excessive, and disproportional in nature. The Supreme Court, in the landmark case of Pioneer Urban Land & Infrastructure Limited & Others v. Union of India (2019), not only upheld the constitutional validity of the IBC amendment but also held that RERA provisions must give way to the IBC provisions in a situation of a clash. The Supreme Court opined that the operations of RERA and IBC are distinctly different, therefore, nullifying the position of RERA as a special sector-specific enactment. The former deals with the protection of individual investors, whereas the latter deals with the rehabilitation of corporate debtors. The remedy under Section 7 of the Code was required to be advanced to the home allottees so as to equip them with adequate representation in the Committee of creditors meeting and the last resort to seek their return. Apart from seeking legal remedy under RERA or IBC, traditionally, before these enactments were legislated, the allottees would file a suit under the consumer protection laws before the consumer forums. However, consumer forums and civil courts have become the least preferred legal resources due to the exhausting amount of time and money it demands in the process.
The nitty-gritty of RERA
Before we dive deep into the interplay of RERA with other legislation, let us first have a brief overview of the crucial points relating to RERA.
Who can file a complaint under RERA?
Any home buyer or prospective buyer who was given an offer to buy a particular apartment can file a suit under RERA. Further, the complaint can be filed by a corporate legal entity as well as an individual.
How much time does it take to resolve a dispute under RERA?
Cases filed under RERA can be resolved in a few months to a few years, depending on the issue and gravity of the case.
What about the accessibility i.e., where can a complaint be filed?
Depending on the locality and the government of that state, there are 1-2 RERA offices in every state. For instance, Maharashtra has RERA offices set up in Mumbai, Pune, and Nagpur.
The interplay of RERA with the Insolvency Bankruptcy Code
The Insolvency and Bankruptcy Code (IBC), 2016, is one of the most efficient instruments to deal with the recovery of money and revive sick companies. This Code also included the allottees of financial creditors”. This provided an alternate remedy to the aggrieved homebuyers in India.
Under the new amendment, any aggrieved party, whether an individual or a corporate entity, can file an insolvency application under Section 7 of the IBC. This change occurred because, post-amendment, the allottee of the project is said to be a financial creditor.
Talking about redress or solving the issue, IBC takes around 6 to 12 months to resolve the dispute, with the adjudicating body being the National Company Law Tribunal (commonly known as NCLT). The NCLT has 16 benches throughout India and is typically made up for each state.
Under the IBC, once an application is filed, the IRP (Insolvency Resolution Process) comes into play for managing the affairs of the company. In the event that a decision cannot be reached, liquidation of the company would begin.
Let’s talk about the conflicting interests now.
IBC v. RERA
The Supreme Court in the Pioneer Urban case asserted that the provisions of RERA were in addition to the already prevailing laws and not against the ones already in force. This means that RERA is an addition and not a derogation of any law, thus, remedies under RERA are additional and not exclusive in nature. Further, the Court stated that RERA and IBC must “coexist” and in case if there is any conflict of laws, “RERA must give way to the Code.”
The interplay of RERA with the Consumer Protection Act
Under the CPA, any consumer who fulfils the requirement of being a consumer under Section 2(d) of the Act and who has entered into an agreement to buy a flat or an apartment can lodge a complaint for any grievance. The redressal period under the Consumer Protection Act is around 5 to 6 years by way of consumer forums. Further, district forums, too, are set up in every district of the state. The consumer forums have the authority to carry out their own proceedings and pass an order by themselves, and since their scope is quite limited, the relief sought along with its execution becomes quite a speedy affair.
CPA v. RERA
In the case of Imperia Structures v. Anil Patni (2020), the Supreme Court stated that the remedies available to flat buyers are in addition to each of the legislation and not a derogation of the other. It also held that Section 79 (bar of jurisdiction) of the RER Act would not act as a barricade in inferring a decision.
While thinking about CPA v. RERA, a question might occur to your minds- “Will the scope of CPA be reduced after enacting the RER Act?” The simple answer to this will be Section 3 of the Consumer Protection Act, which states that the provisions under this Section are in ‘addition‘ and not in ‘derogation‘ to any other legislation, so no, it won’t reduce the scope of CPA but support or benefit the consumers, thus providing an additional or alternate remedy.
To sum the argument of which Act prevails over the other, it can be stated that the RER Act neither overrides the provisions of the Consumer Protection Act nor is there a need to consider both the acts while reaching an inference in a case. Moreover, RERA can be said to have been an extension of the Consumer Protection Act, instead of a rival as it has been seen to have addressed the growing need for transparency in favour of consumers as well as builders.
The interplay of RERA with the Arbitration and Conciliation Act
Under the Arbitration and Conciliation Act, arbitration can only take place when both the parties to the dispute agreed to appoint an arbitrator and resolve the issue via arbitrator(s) in the relevant contract concerned. It is noteworthy that prior to the 2015 Amendment there was no limitation on deciding a case that is up for arbitration, however, after the amendment, an award has to be made within twelve months from the date of appointing the arbitral tribunal and an extension of up to six months can be granted, at the most. Moreover, with the 2019 Amendment, a time-frame of 12 months after completing the pleadings have been added.
Arbitration and Conciliation Act v. RERA
While reading about the overlap between the Arbitration and Conciliation Act v. RERA, you might wonder: when did this issue first occur? The answer is in 2017 in the case of Ganesh Lonkar v. D. S. Kulkarni Developers, wherein the respondents argued that the problem was to be resolved by means of arbitral proceedings as opposed to MahaRERA’s claim that they had the authority to resolve the dispute as the respondent had not fulfilled the requirement of Section 8 of the Arbitration Act. Further, MahaRERA contended that the provisions laid down in RERA would have an “overriding effect” over the provisions of the Arbitration Act and that MahaRERA would have the authority to resolve the issue.
Similarly, in 2017, in the case of Anil Kumar Arya v. SVS Buildcon Private Limited, the Madhya Pradesh Real Estate Regulatory Authority (MP RERA), asserted that its jurisdiction would not be ousted even if an arbitration clause is present in a contract. It further said that the RER Act would supersede the Arbitration Act “by application of the principle that a special law prevails over a general law and the later law overrides the previous law.”
Astonishingly, in the recent case of Ayyaz Khan and Saba Khan v. Era Realtors, MahaRERA gave a contradictory opinion. In this case, the contract was signed before RERA was implemented, and thus MahaRERA asserted that the arbitration clause must supersede RERA as the contract was signed before RERA was enacted, and thus MahaRERA would have no power to decide the case.
Furthermore, in the cases of Booz Allen & Hamilton Inc. v. SBI Home Finance and Vidya Drolia v. Durga Trading Corporation, the High Court of Delhi affirmed that in cases where disputes can be resolved by arbitration, the remedies under RERA should not be referred to. Moreover, in the Emaar MGF Ltd. v. Aftab Singh (2018) case (which was actually in relation to the Consumer Protection Act, 1986), the Hon’ble Supreme Court held that the doctrine of election would be applicable and arbitration will be barred when the specialised remedy under the RER Act had already been opted for by a party.
To bring this argument to a conclusion, the Delhi High Court in one of its cases opined that the aggrieved parties have the right to choose from the remedies available; however, the MahaRERA and MPRERA seem to defy this opinion.
Impact on the Indian economy
Real estate in India will have a market size of 1 trillion by 2030 and is expected to grow exponentially. Gurgaon, a small agricultural village in India, is currently ranked 3rd highest in per capita income, solely due to the development of real estate in the city. Earlier, the sector was narrow and restricted to a few transactional and conservative operations, but now, with globalisation, an increase in population and purchasing power, favourable demography, and relaxations of government policies on Foreign Direct Investments (FDIs), increased attention on urbanisation, township development, and other government missions like the Smart City Mission and the Make in India policy, has led to a tremendous contribution to the Indian economy. Moving from conservative dealings like buying and selling properties and shifting to an investment approach in the sector has resulted in massive participation from all levels of players. The SEBI has established investment trusts like Real Estate Investment Trusts and Infrastructure investment trusts to foster investment in the real estate industry. The integrated involvement of both government and the private sector in infrastructure has been witnessed, with USD 1 trillion invested in the sector. India has ranked to be the 4th largest country to receive FDI in the real estate sector because of the 100% relaxations offered by the government. SEBI, in order to prevent companies from developing an increased dependency on foreign capital, introduced alternative domestic capital-raising machinery through Qualified Institutional Placement. Capital raising through QIP in the real estate sector has increased rapidly. For example, Unitech garnered 1620 crores, Indiabulls Real Estate completed a raising of 865 crores, and Macrotech Developers raised 3547 crores, thereby leading to drastic investment and financing from domestic and foreign markets in the real estate industry, positively impacting the Indian market.
Prevailing concerns of the industry
There are several grey areas in the laws defining and providing rights to the allottees. In the case of a ready-to-move-in property, the allottee will not have locus standi before a consumer forum because it will not fall within the purview of the consumer as per Section 2(7) of the Act. In such a scenario, it becomes pertinent to see whether the developer obtained the competition certificate before the enactment of RERA or after. The remedies of RERA will be inapplicable if the completion certificate is obtained before the enactment since it would not qualify as an ongoing or new real estate project, therefore leaving the allottee unarmed and vulnerable.
The establishment of a Real Estate Investment Trust (REIT) will create a massive opportunity for all kinds of investors to participate in investment in the real estate sector. Currently, there is a shortage of housing to the tune of 10 million, and the government has envisioned an additional 25 million units required to meet the demand of the rising population by 2030. Under the Pradhan Mantri Awas Yojana (PMAY), the government is expected to build 20 million affordable housing units in urban areas across the country. RERA has compelled the developers to revamp their way of doing business by mandating disclosures and encouraging transparency in the sector. The growing flow of FDI, a well-informed consumer base, and an increase in globalisation have cautioned developers and compelled them to adopt a more transparent approach to business and accept the challenges ahead.
- Indian Real Estate Industry: Overview, Market Size, Growth, Investments…IBEF (n 5)
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