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An Analysis of Real Estate (Regulation and Development) Act, 2016 (A Real Relief to Real Estate Consumer)

This article was submitted by Varchasva tiwari from Jagran School of law , Dehradun for National Legal Writing Competition,2016.

INTRODUCTION

After a long time much awaited Real Estate (Regulation and Development) Bill got the assent of President of India 25th March, which brings out in itself 20 major amendments in original Real Estate (Regulation and Development) Act 2013. The object of the Act is to regulate and promote the Real Estate Sector by forming Regulatory and Adjudicating Authority and thus thereby ensure transparency and purchaser welfare.

SITUATION PRIOR TO THE ACT

Prior to the coming of Real Estate Act purchasers of the real estate is treated like a consumer within in the meaning of Consumer Protection Act 1986 or he has an option to move his application under civil court. Painting all by same brush is always against the law of natural justice thus by treating buyer or prospective buyer of real estate as a consumer within the meaning of Consumer Protection Act only brought hardship for them to get justice or resolve their issue speedily and appropriately.

Having one’s own house is a priority in everyone’s life but it is not an easy task in India among many legal complexities one is involvement of agent between buyer and seller where all three parties want to pull the string in his own direction and another one is timely possession of the property for which amount is already paid.  Supreme Court of India in its

The Supreme Court has directed India’s real estate major to pay a fine of Rs 630 crore for exploiting its dominant position to the disadvantage of its customers in three projects in Gurgaon[1]. The case pertains to 2011 when the residential welfare society of DLF’s Belaire project in Gurgaon filed a case against the builder for beguiling and entrapping them. The Competition Commission of India had in 2011 indicated that DLF had used this dominant position for unfair practice and imposed a penalty of Rs 630 crore which the apex court has now asked the company to pay. Commission also pointed out the need of separate legislation for protection real estate buyer.[2]

WHAT IS CHALK OUT IN THE ACT

The Act brings certain new reforms under it ambit to bring out more transparency and accountability in real estate transaction. Some features of the act are explain below which makes real estate developer accountable :-

  • Real Estate Regulatory Authority

Section 20 the Act empower the Appropriate Governments to form Real Estate Regulatory Authority in their respective area of governance. And thus the Act ensures the separate forum for matters concern and for the dispute arising out of real estate transaction. Thus now there is no need to move under consumer forum or under civil court for getting resolve dispute related to real estate.

  • Compulsory Registration

Under Section 3 of the Act makes it obligatory for any project of real estate to be register with regulatory authority before any advertisement to sell or invite for sell or market to sell. Though it is provided by the section 3(2) that a project proposed a land to be developed is not more than five hundred square meters did not require any registration under this Act from the Regulatory Authority.

Thus legislature ensure protection of general public from any type of false and misleading advertisement.

  • Safeguarding Allotees valuable money

Section 4 of the Act makes it obligatory to promoter or any person so authorized by the promoter to deposit 70% of the amount realized from the allotees shall be deposited to the separate bank  account and the amount so deposited shall not be used for any purpose other than one stated below  :-

The amount so realized shall eligible to utilize amount to cover the cost of the project, in proportion to the percentage of completion of project. But it also comes with condition precedent that such withdrawal for project must be certified by an engineer, architect and chartered accountant in practice certifying that such withdrawal is necessary for project and he must get his accounted audit by every six month from chartered accountant.

Thus it become difficult for real estate developers to defraud allotees hard earn money for any other purpose than what it deposited for.

  • Minimize the scope of Misinterpretation

The act is very elaborative in nature as definition clause define key words which prevent confusion and exploitation of allotees by not giving any scope to misinterpretation of words such as carpet area (Sec2(k)), common area (Sec2(n)), planning area (Sec2(zh)) and rate important of interest (Sec2(za)).

  • Limitation on Advance Payment

Section 13 of the Act make it mandatory on promoter not to accept any deposit from any person amounts to more than 10% of the cost of the apartment, plot or building as an advance payment without first entering into an agreement for sale with such person. Thus by setting up the limit of advance payment legislature assures safety from any kinds of frauds. It is found in the most of cases the where real estate developer charge large sum by way of advance payment and they either postpone the project or flew away with money as there is no legal protection to stop their action.

As per a landmark decision passed in 1993 in the case of Lucknow Development Authority vs. M.K.Gupta[3], the Honourable Supreme Court of India passed a judgement stating that “all builders/contractor(s)/all concerned authorities of any State engaged in Housing Construction activity in any manner are amenable to Consumer Protection Act, 1986 for any act or omission relating to housing activity such as:
“Delay in delivery of possession, non-completion of construction within the stipulated time, defective and faulty construction and more…”
The judgement states the fact that a builder who constructs a house or hires the services of a contractor to develop a property is engaged in the act of providing service to his customer, and for which he is getting monetarily compensated. This makes him a service provider and hence liable under the clauses of Consumer Protection Act, 1986.

  • Refund of amount invested (Monetary Whip)

Section 18 of the Act empower allotees to demand money he had invested according to the sale agreement and interest thereon from the promoter in case promoter fail to complete the project on time as per agrees terms and condition of the agreement or unable to give the possession of plot, apartment or building as the case may be.

It is also provided in the Act if the allotee is not willing to withdraw from the project the promoter shall be liable to pay monthly interest to allotee for delay in handing over the possession. Similar was laid down by National Consumer Forum in Yogesh Sharma and Ors. v. Unitech Limited[4] where real estate owner directed to refund the amount paid to it by the complainants, along with compensation in the form of simple interest on that amount, at the rate of 18% per annum from the date of deposit till the date of payment.

  • Establish of Appellate Tribunal

The Act also has provision for establishment of the Appellate tribunal where the party aggrieved by the decision of Regulatory authority may seek remedy which shall be constituted within one year of the commencement of this Act. Thus the Act ensures the basic provision of the Constitution of India by providing right to appeal.

  • Overriding in nature

Section 89 of the Act make this Act overriding in nature thus it superseded any other law inconsistent with it and by such effect ‘The Maharashtra Housing (Regulation and Development) Act  2012’  become ineffective from the commencement of this Act.

ARGUMENT OF REAL ESTATE COMPANIES/ PROMOTERS

It is argued by the Companies involved in real estate business that the Act reduces the capital efficiency of company by depositing the 70% of amount to separate account and the process of withdrawing from such account is also not easy. They argue it is very difficult to meet out contingent need of capital by deposing such capital.

The companies were also not satisfied with the approval process required to be complied before starting the project they argue that the Act does not provide any single window for approval and thus which may lead to further delay in project.

CONCLUSION

The Act is an effort by legislature to regulate the unregulated but important Real Estate Sector of India which not only contributes 6.3% to Indian GDP but also provide jobs to millions of people. Though unlike other developed countries Indian legislature makes delay in framing out the legislation but the Act will help to bring more transparency and accountability on the part of Real Estate companies and ensure safety of purchaser of real estate from any frauds or misrepresentations.

REFERENCES

[1] https://www.firstpost.com/business/dlf-beguiled-and-entrapped-home-buyers-says-cci-order-65347.html

[2] Belaire Owner’s Association v. DLF Limited Haryana Urban Development Authority Department of Town and Country Planning, State of Haryana -MANU/CO/0044/2011

[3] MANU/SC0/178/1998

[4] MANU/CF/0816/2015

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