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This article is written by Surbhi Khanna pursuing Certificate Course in Real Estate Laws from LawSikho.

Introduction

An agreement to sale (“ATS”) is a type of executory contract wherein the terms and conditions for a prospective contract for sale are enumerated.

In the real estate industry “ATS” holds a crucial position, even though it itself does not create any right or interest in the property, however it forms the basis for the execution of sale deed.

Further with the enforcement of the Real Estate (Regulation and Development) Act, 2016 (“RERA”), ATS has gained an eminent position for securing the rights of the proposed allottee/buyer and for the financing of the project.

In this article, we will look into the following aspects related to “ATS” in detail.

Role and importance of ATS in real estate transactions

The role of ATS by means of law is restricted to recording the understanding of parties for sale (except the creation of the limited right granted under Section 53A of Transfer of Property Act 1882 (“TOPA”)), however earlier it was often used as a substitute of sale deed to exchange possession. Wherein, buyer and seller execute ATS instead of a proper deed of conveyance in view to avoid statutory dues of stamp duty and registration formalities.

Plunging in this loophole the Hon’ble Supreme Court of India, passed the iconic Judgement in the Suraj Lamp & Industries (P)  vs State of Haryana & Anr on 11 October 2011, wherein it was held that ATS, which is not a registered deed of conveyance (deed of sale), would fall short of the requirements of Sections 54 and 55 of the Transfer of Property Act and will not confer any title, nor transfer any interest in an immovable property hence, ATS was expressly derecognized as a valid mode of transfer of immovable property and it was held that only duly registered deed of conveyance can transfer the title.

With the enforcement of RERA and mushrooming of the “builder and allottee” culture, ats have now gained more face value in the form of builder buyer agreements (“BBA”) or as the Bayana Agreement in other cases.  BBA acts as a safety guard for the interest of buyers, it creates rights and obligations on both parties by stipulating their respective terms on which the property shall be developed.

RERA has made it obligatory on the part of builders to draft the BBA on the terms of the Model Agreement, and get it approved by the authority at the time of registration of the project. Further ATS is required to be executed and registered before the receiving payment of more than 10% of the property value from the buyer.

ATS are enforceable for claiming specific performance in case of its breach and it is entered to bound the parties to commit their obligations.

Stamp duty and registration of ATS

  • Basic concept

Stamp duty is paid under the Indian Stamp Act, 1899 to record the agreement with the government once the stamp duty is paid the document becomes eligible to register under the Indian Registration Act, 1908 with sub-registrar by payment of registration fees.

The Indian Registration Act, 1908 defines the documents which are required to be compulsory and optionally registered under Section 17 and 18 respectively.

Documents on which registration is compulsory, as the sale deed of immovable property, is not admissible in the court as evidence until it is properly registered. Hence stamping and registration ensures enforceability of the document and its admissibility in court.

  • Registration of agreement to sale

Once a document is registered, it becomes a public record and that is the whole intent of registration. It makes the agreement more watertight in terms of enforceability and legality. That is why an agreement of utmost importance shall be registered.

Section 17(2)(v) of the Indian Registration Act, 1908 talks about a document that does not create any right or title or interest in immovable property, but merely creates a right to obtain another document that, when executed, creates such right, title or interest. On analyzing we can see that such documents cover ATS under its ambit. Such document need not be compulsorily registered attributable to the fact that such document does not itself create any right, title or interest over the subject property.

However, this is not in the case of Builder Buyer Agreement(s) in real estate transactions involving builder/ developer and allottee. An ATS holds a peculiar position as an allottee while pays the consideration in advance for the subject property which is not in existence only on the basis of ATS, thereby putting himself in the position of an unsecured creditor. Considering the sensitivity of this unsafe position and the low bargaining power of the allottee, RERA mandates the registration of ATS. This can be inferred from Section 13 of RERA which stipulates that a builder/developer cannot obtain more than 10% of the consideration amount without executing and registering the ATS. Moreover, Section 18 of RERA links the relief to the allottee with ATS as it holds that the builder/developer is liable if he does not give possession in accordance with ATS.

From the above, we can conclude that there is a conflicting stand on the registration of ATS in the registration Act and RERA. However, since RERA categorically provides for registration of ATS between builder and allottee under Section 13 of RERA it will have an overriding effect on Section 17(2)(v) of the Indian Registration Act, 1908  pursuant to the Doctrine of Lex Specialis which states that if two laws govern the same factual situation, a law governing a specific subject matter (lex specialis) overrides a law governing only general matters. Moreover, Section 89 of RERA also provides an overriding effect to RERA over other legislations.

Thus, we can say that although an agreement to sale is not compulsorily registered under Registration Act 1908 however in case RERA is attracted in the transaction or in other words ATS is entered between a developer and allottee it needs to be compulsorily registered.

Even though ATS is mandatorily registrable, still builders as a business practice (except in the case property is financed through bank loan) execute ATS only on simple stamp paper. This proves to be a business tactic in favour of builders as in case any future dispute arises in connection with violation of ATS they may shield themselves under the defence of the absence of any registered ATS recognized under RERA. 

  • Effect of non-registration of ATS

As we discussed above, ATS registration is compulsory under RERA. However, its non-registration does not deprive the allottee to enforce the terms of ATS against the builder and vice-versa in the court of law.

Section 48 of the Registration Act 1908 states only those documents which are compulsorily registrable under Registration Act 1908 or Transfer of Property Act 1882 are not admissible in the court of law without registration. Since ATS is compulsorily registered under RERA not under any of the supra its enforceability is not dependent on registration. 

Further, Maharashtra Real Estate Appellate Tribunal in Naim Kamruddin Shaikh vs  JVPD properties Pvt Ltd has ruled that a registered agreement is not mandatory for obtaining a remedy under the Real Estate (Regulation & Development) Act, 2016 on the basis of the contention that RERA is welfare legislation, further Section 18(1)  no sense restrict the relief to the parties who have executed  “a registered ATS only”.

Relaxation in registration of ATS 

As discussed above, ATS is to be registered under Section 13 of RERA. The concerned parties have to present the document for registration within 4 months of its execution, however, in exceptional circumstances, the registrar may condone the delay subject to payment of penalty.

During the COVID-19 situation and considering the restriction on movement of people, the stamping and registration process has itself become challenging and uncertain. Not only was the registration suspended during the lockdown phase, but even post lockdown, the functioning of the registration department remained hampered owing to restrictions provided under Standard Operating Procedure (SOPs). This has caused agony especially to the buyers whose approval of loan agreement is preconditioned with submission of registered ATS to the bank. Consequently, indirectly impacting the liquidity of builders as the buyer is not able to meet his/her payment commitments owing to pendency in the loan application(s), overall impacting the pace of working of real estate industry.

RERA Act does not itself provide for an exemption from registering ATS, however, Section 37 of RERA has enabled RERA Authorities of respective states to issue directions from time to time for discharging their functions.

Irrespective of power granted, very few State RERA Authorities have acknowledged this concern of Buyers. For instance, Maharashtra RERA via its order No.13/2020 read with 14/2020 and UP RERA via its order No. 2789 allowed the extension of statutory compliance including the registration of ATS  till 30th June 2020.

Further, Rajasthan RERA via its order dated 15th May 2020 has allowed proceeding with the agreement to sale with pending registration till 31st March 2021 provided the registration formalities are completed up to 8 months of execution.

Although other states have not directly provided relaxation in stamping and registration efforts for buyers, some states have facilitated and supplemented the process with initiatives like reduction of stamp duty and developing infrastructure to complete major parts of property registration online. Some of the instances of such initiatives are compiled below:

  1. Karnataka Government in May 2020 cut the stamp duty charges from 5% to 3% for the properties in the range of INR 21 Lakh to INR 35 Lakh.
  2. Maharashtra Government introduced the scheme to encourage registration wherein with effect from August 2020 stamp duty was cut from 5% to 2% till 31st December 2020, afterwards reinstated the stamp duty to 5%.
  3. To meet the revenue loss states like Haryana have continued registration facilities even amid lockdown 2.0.
  4. West Bengal from April 2020 introduced online property registration with biometric verification.
  5. During September 2020, the Centre had also urged states to reduce stamp duties in order to boost up the real estate sector after it was massively affected by the first lockdown.

Conclusion

With the decrease in real estate prices and availability of cheap lines of credit, many buyers are looking for investment opportunities in real estate leading to the increase in ATS. ATS is compulsorily registrable under RERA nevertheless not registered ATS is also enforceable under law.

Irrespective of the fact that respective RERA authorities of states have the power to issue directions the concern of registration of ATS remained untouched.

None of the RERA authorities of the major cities in terms of real estate transactions like   Mumbai, Delhi, Ahmedabad, Bangalore, Chennai have addressed the registration of concern of buyers. Only effective relaxation has been ordered by Rajasthan RERA directing banks, promoters and buyers to proceed without registration till 31st March 2021.

We can say that the practical challenges in the registration of ATS have been left untouched by most of the states. The authorities shall be more empathic and proactive in their approach to ensure the seamless working of the real estate sector and protection of buyers’ interest as this is for what RERA has been introduced.

With the view that stamping and registration is a major source of revenue, the states have a vested interest and are reluctant to provide any relaxation in the forms of extended time for completing the formalities of registration as this will directly delay their revenue proceeds that is why they are giving the incentive to encourage stamping irrespective of unavailability of proper resources to execute it.

The relaxation provided by Rajasthan RERA to extend the timeline for registration of agreements from 4 months to 8 months till 31st March 2021 is commendable, however, it will not provide the desired benefit till the penalty for the delay is also waived off during registration by the respective state authorities.

We hope that more states will follow the precedent/ example set by Rajasthan RERA and provide some clarity and/or exemptions for Registration.

References


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