In this article Pragya Mishra of New Law College, BVDU underlines the responsibilities of promoters under Maharashtra ownership flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963

Maharashtra ownership flats (Regulation of the promotion of construction, sale, management and transfer) act, 1963

Everyone dreams of their house. Real Estate Sector is one of the growing sectors, and it is very dynamic. But this sector is highly plagued. The cases like Adarsh Scam, Campa-Cola scam, bring to light the irregularities in this sector. The builders often defraud the buyers, and there are sundry abuses, malpractices, and there are troubles relating to promotion, sale, management and transfer of the flats. The Courts are flooded with these litigations and the people who dream of buying their house; their dream remains a dream.

Rationale behind enacting this Act

After the independence, there was a need to develop India as a country. In those days people were not aware of anything. Law and order were necessary to maintain peace in the society. The country was developing as a whole. But sadly the Real Estate Sector was plagued at that time as well. The State Government of Maharashtra was made aware of the malpractices within this sector and due to which there was an acute shortage of housing within the State of Maharashtra. The State Government appointed a Committee in 1960 to advice itself in a manner that should be adopted to deal with these matters and the Committee submitted its report in June 1961. The report was published for general information. The Act is enacted to implement the suggestions by the Committee and to deal with the defaulters in a strict manner.

Applicability of the Act

This Act applies to whole the of Maharashtra, and the other provisions of this Act shall come into force in[1][such] areas, and on dates as the State Government may, by Notification in the Official Gazette, appoint, and different dates may be appointed for different areas.

Important Definitions Under the Act

The important terms defined in the Act are as follows

FLAT

The MOFA defines the term to inculcate within itself:-

• A separate and self-contained premises;
• Which is used or intended to be used as a Residence, office, showroom, shop, godown, carrying on of any industry or business including a garage;
• And the premises forms part of a building.

The term flat also includes an apartment. The Explanation to the section provides that even if a provision is made for sanitary, washing, bathing or other convenience as common to two or more sets of premises, the premises shall be deemed to be separate and self-contained.

All the criteria of this definition must be fulfilled to be able to apply the provisions of MOFA, and it is a misconception that it applies only to residential premises.

PROMOTER

The promoter includes as per this act:-

• A person,
• A Partnership Firm,
• A body or association of persons whether registered or not

And who constructs or causes to be constructed

• A block or buildings of flats or apartments
• For selling all or any of them to a Company, Co-operative Society, Association of Persons

All the criteria of this definition must be fulfilled to construct a promoter, and the term also includes his assigns and thus, if a person assigns his interests in the land to another person then the assignee would become a promoter. If the builder and the person selling the flats are different, then both of them are promoters.  It happens many times that the builder who builds the flats gives the contract to an advertising agency to promote the flats than in this case both of them are promoters.

JUDICIAL PRONOUNCEMENT ON MAHARASHTRA OWNERSHIP FLATS (REGULATION OF THE PROMOTION OF CONSTRUCTION, SALE, MANAGEMENT AND TRANSFER) ACT, 1963

The Bombay High Court in Ramniklal Kotak vs. Varsha Builders[2] held that the Promoter must fall within the category of the promoter and a mere builder or contractor cannot be a promoter.

• COMPETENT AUTHORITY

A Competent Authority means an Authority appointed under Sec 5A of this act.

• CONVERSION ALSO INCLUDES CONSTRUCTION

The phrase “to construct a block or building of flats or apartments” includes converting a building or part thereof into flats or apartments.

General liabilities of the Promoter

Section 3 deals with the general liabilities of the promoters under this act.

• Clause (1) states that a Promoter can be asked to produce the documents of the transaction to the person buying the flats in any state if he has constructed or intends to construct blocks or building of flats and he gives them on ownership basis.
• Clause (2) obligates the Promoter, who constructs or intends to construct a block or building of flats to make the following disclosures:-
• To make full and true disclosure of the nature of his title to the land on which flats are constructed or are to be constructed, and such title must be duly certified by the Advocate having at least three years of Practice [3]and having been duly entered in the Property card or extract of Village Forms VI or VII and XII or any other relevant revenue record;
• To make full and true disclosure of all encumbrances on such land, including any right, title, interest or claim of any party in or over such land;
• He should give inspection if asked by a seven-day prior notice or demand of the plans and specifications of the building built or to be built on the land and such plans and specifications have been approved by the local authority which he is required to do so by any law for the time being in force;
• disclose the nature of fixtures, fittings and amenities (including the provision for one or more lifts) provided or to be provided;
• The promoter is obligated to disclose the design and material used for the construction of the flat, and if he is not the builder, then he should disclose all the agreements entered into with architects and construction companies relating to design and constructions of the flat as well as material used.
• specify in writing the date by which possession of the flat is to be handed over (and he shall hand over such possession accordingly);
• He should also maintain a list of flats taken or are supposed to be taken with parties name, address and the proposed amount that is charged and also any terms and conditions of taking such flats;
• state in writing, the precise nature of the organization of persons to be constituted and to which title is to be passed, and the terms and conditions governing such organisation of persons, who have taken or are to take the flats;
• The Promoter shall not hand over the possession until and unless he has received completion certificate from the local authorities
• Make full and true disclosure of all the outgoings (such as rent, taxes, charges for water and electricity, interest on encumbrances such as mortgage, etc.)
• make a full and true disclosure of such other information and documents in such manner as may be prescribed, and give on demand true copies of such of the documents referred to in any of the clauses of this sub-section as may be prescribed at a reasonable charge therefor.
• He should have kept all the relevant documents at the site, and he should permit their inspection by the prospective buyer.

Things to be Disclosed by the Promoter while Advertising

Advertising is an important aspect of Real Estate. Whenever a new building is constructed, and it has to be promoted so as to get prospective buyers advertising plays an important role. Most of the time it happens that the advertisements are misleading, so to increase transparency following disclosures should be made on behalf of the promoter:-

1. Extent of carpet area of the flats as well as balcony and it should be shown separately;
2. The prospective price including the price that has to be paid of the common areas and facilities and the intervals of instalments which are to be paid;
3. the nature, extent and description of the common area and facilities; and
4. the nature, extent and description of limited common areas and facilities, if any;

The promoter shall sell the flats by their carpet area only although he can charge separately for common areas and facilities.

The explanation to this section includes balcony of the flat in carpet area.

Registration of the Sale Agreement

The registration of the sale agreement is compulsory under the Registration Act, 1908 and then only the promoter can accept the advance money as a deposit, but such money shall not be more than 20% of the sale price.

Responsibilities of the Promoter

There exists a fiduciary relationship between the promoter and the buyer and the Promoter in all circumstances must value such relationship. The promoter is responsible and accountable to his prospective buyers. For ex: – If a promoter thinks to cater his selfish needs and hence defrauds the buyer he can do it just once. A person cannot be fooled twice. His reputation will be at stake in the market, and he will most probably not get any buyers for his future projects. So, the promoter should be transparent, and he should value the trust of his buyers. The responsibilities of promoters enlisted under this Act are:-

• As per Section 5 of this act, the Promoter should maintain a separate account of sums taken as advance or deposit and to be trustee therefore and disburse them for purposes given. Such account can be maintained in any bank, and the transactions of such account are open to scrutiny by an officer appointed by general or special order by the State Government who demands that in writing.
• As per Section 6 of this act a promoter shall, while he is in possession and where he collects from persons who have over flats or are to take over flats sums for the payment of outgoings even thereafter, pay all outgoings (including ground rent, municipal or other local taxes, on income taxes, water charges, electricity charges, revenue assessment, interest on any mortgage other encumbrances, if any), until he transfers property to the persons taking over the flats, or to the organization of any such persons. If the promoter fails to pay such outgoings, he is liable to pay it even after the transfer of property, and he can also be made liable for legal action by such persons or organisation.
• As per Section 7 of this act, the promoter cannot make any additions or alterations to the disclosed specifications and plans without the consent of prospective buyers, and if he comes to know within three years of any unauthorised change, then he should take care of it without charging anything extra from the prospective buyers.
• As per section 8 of this Act if the promoter fails to give the possession on the specified date or on any date agreed by the parties and for any reason he is unable to give possession even after providing extension of time, he shall be liable to refund the amount with simple interest@ of 9% from the date he received such sums to the date on which he finally returns those amounts.
• As per Section 9 of this Act No mortgage etc., can be created without the consent of parties after execution of an agreement for sale.
• As per Section 10, the promoter shall help in the formation of Co-operative Societies and Companies.
• As per Section 11 of this Act the promoter shall convey title, etc., and execute documents, according to the agreement for sale and if he fails to do that, then such persons or Organization can approach the Competent Authority in writing and can take action against such promoter.

Offences

• If a Promoter fails to comply with or contravenes Sections 3,4,5, 10 or 11 and if he is convicted is liable for imprisonment which may extend to 3 years or with fine or with both.
• Any promoter who commits criminal breach of trust of any amount advanced or deposited with him for the purposes mentioned in section 5 shall, on conviction, be punished with imprisonment for a term which may extend to five years, or with fine, or with both;
• Failure to comply with any other provisions or rules made under this Act can attract an imprisonment up to six months or a fine of 10,000rs which may extend to 50000rs or both in the case of conviction.

Conclusion

The Act increases transparency and provides various rights to the Flat owners against the Promoter. The Act is an important piece of Legislation to curb the malpractices going on in the Real Estate Sector. The Act is very stringent in its provisions and leaves no scope for the Promoter to escape his liabilities. The Act is yet not repealed, and it aims to tackle various problems faced by the Flat buyers or owners. It aims to reach the heart of the problems as the Real Estate industry is plagued.

This was all you need to know about the Responsibilities of promoters under Maharashtra ownership flats (Regulation of the promotion of construction, sale, management and transfer) act, 1963.

References

[1] Greater Bombay on the 10th day of February 1964 (vide G. N., U. D. & P. H. D., No. FOE. 1062/432/ Unification (a) dated the 8th February 1964).

[2] AIR 1992 Bom 62

[3]These words were added by Mah. 36 of 1986, s. 3(a).