Since the beginning of the last decade, the real estate sector was on the verge of collapsing due to reasons such as growing unemployment, recession, low rental yield, inventory build-up, unclear taxation, etc. The real estate sector had been unfairly biased in favour of the developers for the longest time. As a result, the demand in the real estate was declining which directly affected the recovery of the builders’ investment. Introduction of RERA has restored and regained this lost trust in the real estate sector in no time by assuring transparency and accountability. This blog draws a comparison between the dispute resolution processes before and after the establishment of RERA. The author has explored the pertinent issues handled by RERA and the procedure of dispute resolution by RERA. While elaborating the main aim and objective of RERA, the blog also illustrates how RERA ensures accountability and the overriding effect of RERA over several other provisions of law with relevant references to the landmark judgements.
Keywords: “RERA”, “real estate sector”, “dispute resolution process”, “overriding effect”, “transparency”
Concept of RERA
The Real Estate (Regulation and Development) Act, 2016 came into force on 1st May 2016 (Hereinafter referred to as “the Act”). It is a revolutionary act for the real estate industry in India and aims to safeguard homebuyers’ rights while simultaneously encouraging investment in the real estate market by focusing on consumer interest vis-à-vis fair trading practices. The Act provided accountability, efficiency, and transparency to the real-estate developers for the very first time. On the basis of the model rules established by the Act, each state and union territory is required to establish their own regulatory body and set up regulating guidelines for the operation of that body.
The Act established the Real EstateRegulatory Authority (Hereinafter referred to as “RERA”) with the goal of regulating the real estate industry and resolving problems that prospective homebuyers may encounter.
Homebuyers have been claiming for a long time that real estate deals are unfairly biased in favour of developers. A fair and equal transaction between the seller and the buyer of the properties, particularly in the primary market, is what RERA and the government’s model code seek to achieve and establish in India.
Real Estate Resolution Prior to the Act
The Real Estate sector was unregulated prior to the introduction of RERA. There was an acute lack of transparency relating to the financial conditions and the status of the developer, often leaving the homebuyers without an effective remedy. Usually, the agreements on under-construction projects were executed in an absence of a proper regulatory mechanism. Although the buyers before the Act could solve disputes by approaching the Consumer Protection Forum under theConsumer Protection Act, 1986 which was designed to ensure consumers’ rights and safeguard the buyers’ rights. However the same was not time bound or speedy and was not specific to the Real Estate sector.
Arbitration for dispute resolution through a clause in the real estate agreement was also on the table but the same was expensive and there was no right of appeal even if the arbitrator makes a mistake of fact or law.
Before the Act was passed as a specialised venue, the conflict and grievance redressal system for real estate development was governed by general laws such as theIndian Contract Act, 1872, theSpecific Relief Act, 1963, the Arbitration & Conciliation Act, 1996 and, theConsumer Protection Act, 1986. With the implementation of the Act, certain laws and procedures have been established to streamline the many parts of project development, including the resolution of disputes and grievances and the remedies accessible to flat buyers. The question of whether laws would apply to projects that started before the RERA Act went into effect and are still underway is raised by this.
Need for Introducing RERA
Since 2012, the Indian real estate sector was on the verge of collapsing due to various reasons such as growing unemployment, recession, low rental yield, inventory build-up, unclear taxation, etc. As a result, the demand in the real estate sector was declining which directly affected the recovery of the builders’ investment. RERA has restored and regained this lost trust in the real estate sector in no time.
Before RERA, uncertain delays or obstructions were always a concern for the potential homebuyers who invested their entire life savings in a property. Brokers or real estate agents took advantage of the prospective homebuyers by misrepresenting the calibre of the development and timelines of the project completion. The Real estate agents also failed to disclose the litigations faced by a property.
The introduction of RERA created a level playing field for both consumers and developers, lowering the dangers that people previously faced. RERA made registration of real estate agents and projects mandatory which entitles a buyer to all the relevant information regarding a real estate project and the right to obtain all project-related papers.RERA established a state agency to oversee both residential and commercial real estate deals.
Pertinent Issues Handled by RERA
The real estate sector had been largely unregulated and there was no standardization of business practices and transactions. Issues like delays, price and quality of construction always prevailed. RERA covers all property-related disputes, from the stage of planning to the stage of possession of properties.
Delays in projects had been a major issue plaguing real estate sector which has led to huge cost overruns. Moreover, there have been numerous instances where developers cheated property buyers. There existed no specific grievance redressal mechanism, the absence of which encouraged a huge generation of black money in the real estate sector.
As perSection 14 of the Act, any alteration in the plans and specifications of an individual apartment is permitted only with the prior written consent of two-thirds of the homebuyers (or allottees). The Bombay High Court, in the case ofMadhuvihar Cooperative Housing Society and others vs Jayantilal Investments and others, in 2010, had the opportunity to interpretSection 7 of the Maharashtra Ownership of Flats Act (MOFA), 1963, which is in line with the said section.
RERA has not only provided measures for consumers but also for the developers. The initiative to start a project in the property sector has been provided by the Act. Financial reforms like the inclusion of GST and the liberalization of the FDI have helped RERA facilitate business. Since the Act has renewed faith and transparency, the lenders are more willing to supply builders with income. This has resulted in greater institutionalized capital inflows, making it possible for property projects to be applied more easily.
Procedure for Disputes Resolution by RERA
Aggrieved consumers can file a complaint against the developer or real estate agents underSection 31 of the Act. The complaints can be filed online or offline either through the RERA portals or by visiting the respective RERA authority of that particular state.
RERA offers faster resolution than any other forum and also as an Act is specifically designed for real estate issues. Once you file a complaint, within a month or 45 days, an action is initiated by RERA. Usually, it takes a maximum of five to sixhearings to decide the case and conclude it.
Once a complaint is registered under RERA, a ‘complaint number’ is issued by the authority which is used for further reference till the complaint is disposed of.
RERA often issues notice to the developer within a week after the complaint is filed.
Two sets of documents are submitted by the complainant on the first date of the hearing. Documents required to prove your claim include complaint copy, builder-buyer agreement, receipts of the amount paid, tripartite agreement copy, etc.
The developer is given an opportunity to file his reply against the complaint. This reply has to be presented before the authority in the presence of the complainant and the same is scrutinised and argued on the upcoming date. Further arguments are heard for final orders. It may take anywhere between 15-30 days for the order to be released. This order also has to be posted online on the RERAportal.
According to the Act, once an order is passed, it needs to be executed within a fixed time period. After RERA issues an order for compensation or refund, the execution of the order can also be addressed by the complainant, if the developer fails to abide by the order. An execution complaint can be filed online after 45 days of the order being passed by RERA and the necessary action can then be taken. If the developer fails to honour the order then there are provisions for penalties and imprisonment of up to three years.
The Main Aim of RERA is
- To safeguard the allottees’ interests and assure their accountability;
- To uphold transparency and lower the risk of fraud;
- To establish professionalism and pan-India uniformity;
- To improve the exchange of accurate information between consumers and sellers;
- To place higher obligations on investors and builders alike; and
- To boost the industry’s dependability and investors’ confidence.
The Indian judicial system has shown admirable interest in the right to housing and has construed it in light of the right to life guaranteed under article 21 of the Constitution.
How RERA ensures Accountability
Under RERA, registration of under-construction properties is mandatory else, a penalty can be as high as 10% of the project cost. Builders are now mandated to maintain a separate account and provide complete financial disclosure in terms of the progress of the project, thereby giving buyers and financiers more visibility. Developers can no longer charge more than 10% of the property cost as the advance, before entering into the sale agreement.
There are insurance measures as well that are provided by RERA to the allotees against the promoters. The promoter shall obtain all such insurances as may be notified by the appropriate Government including the title of the land and building as a part of the real estate projects and construction of the real estate project. The act also provides that the promoter shall hand over all insurance papers to the association of the allottees. This will protect the interest of home buyers against title defects and construction defects.
Financial Accountability is also assured to allotees.The Act requires a declaration to be signed and submitted by the promoter that seventy percent (70%) of the amounts realized for the real estate project from the allottees, from time to time, shall be deposited in a separate account. This account is to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose. However, the promoter shall withdraw the amount from the said account only after it is certified by an engineer, an architect, and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project. This prevents the diversion of funds from one project to another with an improved assurance of timely completion of the existing on-going projects.
The act provides control of allottees over the promoter by making allottees’ approval mandatory in certain situations, like written consent of two third of allottees for any significant addition or alteration in the sanctioned plan or for transferring majority rights to the third party.
The Act also lays down the explicit functions and duties of a promoter which brings transparency and accountability. Provisions like the creation of a webpage and providing details of the project for public viewing, obtaining the completion certificate or occupancy certificate from the competent authority, executing and registering conveyance deed in favour of the allottee along with an undivided proportionate title in common area to the association of allottees.
The act has made it mandatory to establish Real Estate Regulatory Authority in each state and union territory. Its functions include protection of the interests of the stakeholders, accumulating data at a designated repository, and creating a robust grievance redressal system. The act has also provided time-line for disposal of the application within 60 days to prevent time lags.
Analysis of RERA Act: Dispute Resolution Clauses
One of the main goals of passing the Act was to establish a specialised agency to offer quick dispute resolution. This is due to the fact that consumer forums, despite being attentive to the interests of consumers, suffered from the backlog of Indian court cases. A lot of builders have taken advantage of this and devised a strategy of aggravating the consumer until they give up their legal claim or exhausting them to the point where they accept a meagre payment. The process would be lengthy, difficult, and taxing for the buyers because they would have to approach the district forum first, then the state forum, and eventually the National Forum.
Most builders, especially those regarded as large conglomerates, recruited specialised legal counsels to design biased contracts, and as a matter of routine, added arbitration clauses to dissuade buyers from filing lawsuits, which served to exacerbate the problem.
The Act also establishes rigorous deadlines (sixty days) for the Appellate Tribunal to decide appeals, which guarantees prompt remedy and minimises the wait time experienced before the consumer forums.
The process for filing a complaint with the RERA is outlined inRule 34 of the Rules, while the process for filing a complaint with the AO (“Adjudicating Officer”) is outlined inRule 35 of the Rules. Given that Section 72 of the Act specifically outlines the considerations to be considered when determining the compensation, it is puzzling why the legislature would establish two distinct forums for such redress. The creation of several forums for the enforcement of such rights would unduly require addressing questions of jurisdiction and can undermine the law’s core goal, which is to assure swift justice.
Under RERA, Homebuyers can seek Compensation for
1. Loss or damage sustained by homebuyer due to false/ incorrect statement/ information included in an advertisement or project prospectus by the Promoter [Section 12].
2. In the event of the Promoter’s failure to rectify structural and other defects incurred in five years from the date of giving the possession within thirty days of being brought into the notice of the Promoter [Section 14(3)].
3. In case the allottee wishes to withdraw from the project due to the failure of the Promoter to complete or give possession in accordance with the terms of the agreement for sale or due to discontinuance of his business [Section 18(1)].
4. Loss caused to allottee due to defective title of the land on which project is developed or has been developed [Section 18(2)].
5. If the Promoter fails to discharge any other obligations imposed on it under RERA/terms and conditions of Agreement for sale [Section 18(3)].
Another important feature of the RERA’s redressal process is that it preserves the authority of the consumer forums. The Act specifies that the buyer may terminate a lawsuit already in progress before a consumer forum and submit a claim for reimbursement to the AO.
Overriding Effect of RERA over other Legislations
The provisions the Act states the following:
Section 88: Application of other laws not barred.—The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.
Section 89: Act to have overriding effect.—The provisions of this Act shall have an effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”) provides that the provisions under the said Act shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any suchlaw when ruling on the question of the applicability of RERA while SARFAESI Act is also activated. Section 89 contains a similarly worded provision that gives the RERA Act precedence. As said before, this Section states that the requirements of the aforementioned RERA Act shall be applicable despite any provisions that are conflicting with them in any other laws now in effect.
The Maharashtra Real Estate Authority (“MahaRERA”) has decided in the case ofGanesh Lonkar v. DS Kulkarni Developers Ltd. that, despite the existence of an arbitration agreement between the parties, it has the authority to decide disputes that are covered by the arbitration agreement. The decision’s justification is built on two pillars. First off, as the legislature is assumed to be aware of all legislation it has passed, RERA would take precedence over the Arbitration and Conciliation Act of 1996 (“ACA”) because it was passed later. Second, section 89 of the RERA contains a non-obstante language that was explicitly included by the legislature. According to this, the RERA shall be in force despite any inconsistencies with other currently in force laws. Section 8 of the ACA, which requires a judicial authority to refer to arbitration matters that are covered by an arbitration agreement, is thus superseded by the provisions of RERA.
The stance of the Judiciary in this regard is however still dicey and there hasn’t been any precedent that can conclusively answer this question.
The arbitration clause does not oust the jurisdiction of the Consumer Court even after the amendment to Section 8 of the Arbitration Act. A whole regime of special legislation where such conflicts were declared to be non-arbitrable could not be flooded by the change to Section 8 of the Affordable Care Act. This was also established by the Hon’ble Supreme Court in the case ofAftab Singh v. Emaar MGF Land Limited & Anr. The phrase “notwithstanding any judgement, decree or order of the Supreme Court or any Court” was only intended to refer to those precedents that stated that the judicial authority had the right to consider the arbitration agreement’s various aspects, including whether the arbitration agreement is valid and enforceable and whether the arbitration agreement’s subject matter is still pending or has expired. There can be no other meaning intended for the terms inserted in Section 8.
However, the apex court made it clear that there is no restriction on disputes proceeding to arbitration if a party that is entitled to seek an additional special remedy under the statutes chooses not to do so and is a party to the arbitration agreement. Judicial authority can only decline to send the parties to arbitration in situations where specific/special remedies are offered and are chosen by the party who was wronged.
As a result, the Review Petitions were denied by the Honourable Supreme Court, which upheld the NCDRC’s decision.
As per the RERA Act, properties where the area of land proposed to be developed did not exceed five hundred (500) square meters or the number of apartments proposed to be developed does not exceed eight, the project need not be registered with RERA. This was upheld in the case ofGeetanjali Aman Construction v. Hrishikesh Ramesh Paranjpe where two homebuyers complained that the developer had not registered the ongoing project with RERA, the construction company filed a petition with the MahaRERA Appellate Tribunal to challenge the decisions made by RERA. According to state RERA regulations, the developer must pay a fine equal to 3% of the project’s cost. Later, the developer requested a review of the order due to issues with the project’s location and the number of apartments. As there were more than eight apartments, the RERA enforced an extra fine until the project was registered. Upon approaching the Tribunal, it invalidated both of the orders, holding that one need not register the housing project with RERA if any of the two criteria is satisfied.
Multiple proceedings on the same issue are not permissible under the Act. In the case ofMr. Jatin Mavani Vs. M/s. Rare Township Pvt. Ltd, the record mentioned that the complainant was also one of the members of the Rising City Ghatkopar Association. In the said complaint, MahaRERA had already given a verdict directing the respondent promoter to execute registered agreements for sale with members of the Rising City Ghatkopar Association. MahaRERA examined the present case’s facts and determined that the complainant had exhausted his remedy when he first approached the forum and that he no longer had a basis for approaching the court because if he is recognised as the allottee, multiple proceedings before the same court would result, which was not permitted.
As per the Act, an individual cannot sell an open parking space, which has been handed over to the legal entity of the allottees when it is formed. In the case ofSanjeev Dhakar v. M/s. Arkanade Realty, the complaint alleged that the Respondent was selling open car parking by collecting in cash without any documentation. The court determined that the project’s developer was required to give all of its residents who had purchased apartments in the development the requisite parking space after hearing the arguments from both parties.
In the case ofAir Force Naval Housing Board Air Force Station v. U.P. Real Estate Regulatory Authority and Anr. the meaning of the word ‘promoter’ was interpreted.
For the purpose of this act, where the person who constructs or converts a building into apartments or develops a colony for sale and the persons who sell apartments of plots are different persons, both of them shall be deemed to be promoters.
It was held that the promoter was liable to pay interest on account of suspension or revocation of the registration under the Act or for any other reason.
According to the SC’s ruling inBooz Allen, rights relating to RERA violations would be regarded as rights in rem because the builder’s breach would have an impact on all buyers and not just one particular buyer. The breach would also fall under the purview of real estate sector regulation and oversight, affecting the general public. On the other hand, the compensation claim under RERASections 12, 14, 18, and 19 read with Section 71 would come under the category of rights in personam. As a result, arbitration is not an option for RERA violations, but it is an option for compensation claims.
The RERA is greatly needed and is a positive step towards protecting the buyers, who up until now had to rely on unfair agreements and protracted, onerous legal proceedings to secure their rights. The RERA grants statutory recognition to the rights of buyers that were previously not included in builder-buyer agreements since buyers were not in a position to freely negotiate such agreements. The RERA also brings transparency which will reduce real estate frauds.
The existence of arbitration clauses in builder-buyer agreements, however, appears to be at odds with the redressal mechanism provided under the RERA and the Arbitration Act because the RERA also applies to projects that have not yet received an occupancy certificate and because this is standard practise in the real estate industry. Which legal action would take precedence in the event of a dispute between the builder and the buyer is unclear. The jurisdiction of the Tribunal should be abolished and the buyers should be allowed to approach the RERA for the enforcement of their rights.
In addition, the RERA should be made a member of the AO, with all complaints being brought before the RERA solely, in order to eliminate the needless duplication of two venues, namely the RERA and the AO, and in order to appropriately protect the interests of the buyers and ensure quick dispute resolution. Additionally, the RERA should be changed to forbid the jurisdiction of any other forums and not leave it up to the parties. As the enforcement and redress will be handled by a single entity, i.e., the Real Estate Settlement Procedures Act, this would not only help in accomplishing the goal of rapid dispute settlement but also further the goal of regulating, monitoring, and promoting of the real estate sector.
About the Authors
Mr. Bhavya Shah is an Associate at A&P Partners.
Ms. Charvi Devprakash is a 4th Year Law Student at PES University, Bengaluru, and an Associate Editor at IJPIEL.
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Muskaan Singh
Senior Editor: Aribba Siddiqui
Associate Editor: Charvi Devprakash
Junior Editor: Vedant Bisht
Preferred Method of Citation
Bhavya Shah and Charvi Devprakash, “Dispute Resolution: An Analysis Pre and Post RERA” (IJPIEL, 31 August 2022)