Tanishka Tiwari
Published on: February 19, 2024 at 15:26 IST
The real estate sector is a critical component of the economy, acting as a catalyst in addressing the country’s housing and infrastructure needs. While this business has grown dramatically in recent years, it remains mainly unregulated, with little standardisation and inadequate buyer protection. Though the Consumer Protection Act of 2019 gives a platform for real estate buyers to express their concerns, the choice is only curative. It needs to sufficiently address all the issues confronting buyers and promoters in the sector. Lack of standardisation has hampered the industry’s healthy and orderly expansion. As a result, the need to regulate the industry has been highlighted in various venues.
The Real Estate (Regulation and Development) Act of 2016, often known as the RERA Act, was enacted to regulate the real estate business. Before the implementation of the legislation, the real estate business was extremely unregulated, with everything happening according to the builders’ whims and fancies. Homebuyers were hounded, compelled to pay additional fees, and, in some cases, the property was not delivered on time or at all. However, with the implementation of the RERA Act, buyers now have a faster and more effective recourse for all of the builder’s activities since they can now approach the Real Estate Regulatory Authority (RERA) and take action against the builder in such cases.
However, it has been noted that even after RERA issues orders against builders, most builders fail to comply, causing a burden for buyers. With all of these eventualities in mind, lawmakers have included measures in the act to assist buyers if the builder refuses to comply with RERA directives and authorities for RERA to execute orders.
Need for the Real Estate (Regulation and Development) Act, 2016
Here are some key reasons highlighting the need for the Real Estate (Regulation and Development) Act:
- To supervise and regulate the real estate business by preventing malpractices;
- To protect consumers from risks such as delayed delivery, property title transfer, the level of amenities provided, and necessary improvements to be done before purchase;
- Appoint authorities to govern the real estate sector and establish an appellate tribunal in each state. To allow homebuyers to file complaints in the event of any misconduct perpetrated by builders or developers;
- To contribute a significant percentage of India’s GDP;
- To establish accountability and responsibility for the authority so appointed;
- To strengthen the security of investments made by home buyers or investors;
- To possess ultimate authority over the registration process for the projects that necessitate registration;
- To uphold a high standard of excellence in executing projects for the purchasers following their desires while allowing grievances to be expressed to the governing bodies in the event of structural deficiencies.
Salient features of the Real Estate (Regulation and Development) Act, 2016
The Real Estate (Regulation and Development) Act, 2016 (RERA), is a significant piece of legislation in India aimed at regulating the real estate sector. The Act came into effect on May 1, 2017, and its primary purpose is to protect the interests of homebuyers and promote transparency and efficiency in the real estate market. Here are the salient features of the Real Estate (Regulation and Development) Act, 2016:
- The Real Estate Regulatory Authority was established to govern and develop the industry.
- To sell plots, buildings, or flats as needed and all real estate projects transparently and efficiently.
- To defend the interests of consumers and buyers while preventing misconduct against them.
- To establish competent and timely conflict resolution processes and Appellate Tribunals to hear and adjudicate appeals from the Real Estate Regulatory Authority’s orders, directions, and conclusions.
- RERA is an acronym for state-level regulatory authorities.
- Work on residential real estate projects and register any projects undertaken; otherwise, the promoters cannot promote or sell.
- To impose obligations on the individuals who promote the project to upload comprehensive details of the undertaking on the designated website, encompassing the layout and site plans.
- To ensure that a considerable majority of the beneficiaries, amounting to two-thirds, grant their express written consent in conjunction with the written approval bestowed by the Real Estate Regulatory Authority (RERA) when a promoter is required to transfer or delegate a significant portion of the entitlements and obligations in a real estate endeavor to a third party.
- To ascertain that the buyer or promoter, depending on the circumstances, bears an equal sum in the event of any default.
- In cases where the promoter incurs any loss upon the buyer due to claims made by other individuals regarding the property (namely, the defective title of property) that has been or is being developed, the promoter shall bear the responsibility of compensating the buyer.
- To ensure that the funds procured from project buyers are deposited in a segregated bank account and utilized solely to construct the project. This sum may be amended at the discretion of the State Government.
- The legislation accords the right to legal representation on behalf of the client through a Chartered Accountant (CA), Company Secretary (CS), Cost and Management Accountant (CMA), or legal practitioners.
- It imposes a severe penalty on promoters and real estate agents, in addition to prescribing the possibility of imprisonment.
RERA Authority under Real Estate (Regulation and Development) Act, 2016
Section 20 of the the Real Estate (Regulation & Development) Act, 2016 provides for forming a state-level Real Estate Regulatory Authority (RERA). This committee was established to monitor and resolve conflicts in the real estate industry. The Real Estate Regulatory Authority, commonly known as RERA Authority, was instituted by the government to oversee the operations of the real estate sector. The government enacted this legislation to enhance accessibility and transparency in buying and selling properties, benefiting both parties.
This regulatory body mandates that builders and property promoters disclose all pertinent project information. Moreover, all agents within the real estate industry must register themselves and their respective projects with the relevant authorities. The primary objective of the RERA Authority is to provide prompt resolution of disputes, thereby providing relief to buyers. Additionally, the Authority is responsible for enforcing accountability and transparency within the industry.
Every state government shall establish an Authority known as the Real Estate Regulatory Authority within one year of the effective date of this Act to exercise the authority given and perform the functions assigned to it. The State/UT Government may also establish one or more Real Estate Regulatory Authorities inside the state or territory. Until the establishment of RERA, the State Government shall designate any Regulatory Authority (such as DDA, GDA, or GNDA) or any officer, preferably the Secretary of the Housing Department, as the Regulatory Authority for this Act.
- Term of office of the Chairperson and Members
Under Section 23 of the RERA, the Chairperson and Members shall serve for a term of five years from the date of their appointment or until they reach the age of sixty-five, whichever occurs first, and shall be ineligible for reappointment. Before appointing someone as a Chairperson or member, the competent authority must ensure that the individual has no financial or other interests that could jeopardise his or her duties.
- Removal of the Chairperson and members from office in certain circumstances
Under the prescribed procedure stipulated under this Act, the competent government is obligated to dismiss the Chairperson or other members from their positions if either of them has been declared adjudged insolvent, convicted of an offense involving moral turpitude, or has become incapacitated, either physically or mentally, to fulfill their duties as a member. Furthermore, suppose the Chairperson or member possesses any financial or other interests that may prejudice their exercise of power as Chairman or other members. In that case, they shall also be subject to removal by the appropriate government.
The removal of the Chairperson or member from their office on the grounds specified in clauses (d) or (e) of sub-section (1) is contingent upon the issuance of an order by the appropriate government after an inquiry conducted by a Judge of the High Court. During this inquiry, the Chairperson or member must be duly informed of the charges against them and be afforded a reasonable opportunity to present their defense and be heard concerning said charges.
What are the functions of RERA Authority?
The RERA Authority performs the following functions:
- Regulation & Registration: This authority has the jurisdiction to list and control real estate agents and the numerous projects in the real estate business.
- Keeping and publishing records: It must publish and maintain project records for community viewing.
- Preserve Promoters’ Database: It must maintain a database of all initiatives on its website. The database contains proof and images of the promoters or projects whose licences were cancelled.
- Maintain Record of All Real Estate Agents: The RERA authority must retain a registry of all real estate agents. It also details and photographs agents whose licences have been cancelled or banned.
- Rebuild Regulations: The RERA Authority is responsible for reconstructing the regulations and guidelines that govern each jurisdiction within its purview. Furthermore, it has the authority to stipulate the fees that are to be paid by property allottees, promoters, and real estate agents.
- Ensures Obligation Compliance: The primary objective of this authority is to guarantee that all obligations imposed on builders, property allottees, and estate agents are duly fulfilled.
- Ensures Order Compliance: This authority must ensure that its guidelines and orders are strictly followed.
What are the Powers of Real Estate Regulatory Authority?
The Real Estate Regulatory Authority (RERA) is empowered with several functions and powers to regulate the real estate sector and safeguard the interests of homebuyers. The powers of the Real Estate Regulatory Authority (RERA) include:
- To request information and undertake investigations into the affairs of any promoter, real estate agent, or allottee, including an examination of their books of accounts, records, and papers;
- To have all of the authorities that are vested in the civil court under CPC, 1908 during the examination of the suit;
- Interim orders may be issued to prevent promoters, real estate agents, or allottees from violating the Act’s provisions. Directions may also be issued to promoters, real estate agents, or allottees to fulfil their responsibilities under the Act;
- To provide required orders from time to time to any Promoter, real estate agent, or allottee to carry out its duties under the provisions of this Act;
- To impose a penalty or interest on any promoter, real estate agent, or allottee for performing such acts that violate the provisions of this Act;
- The Competition Commission of India has the authority to refer cases where market power or monopoly situations are abused against the interests of allottees.
- They can also correct or amend any order errors within two years.
- They can also recover interest, penalties, or compensation from promoters, real estate agents, or allottees who do not pay these amounts.
Functions of the Real Estate Regulatory Authority for the Promotion of the Real Estate Sector
To promote the expansion and advancement of a thriving, transparent, efficient, and competitive real estate industry, the Authority will provide recommendations to the Government on the following relevant aspects:
- Safeguarding the interests of allottees, promoters, and real estate agents.
- Establishing a streamlined system to ensure timely project approvals and clearances for the prompt completion of projects.
- Establishing a transparent and robust mechanism for addressing grievances related to the actions, omissions, and commissions of competent authorities and their officials.
- Implementing measures to encourage investments in the real estate sector, including increasing financial support for affordable housing.
- Encouraging the construction of environmentally sustainable and affordable housing, promoting standardized construction materials, fixtures, fittings, and techniques.
- Encouraging the grading of projects based on various development parameters, including the grading of promoters.
- Facilitating the amicable resolution of disputes between promoters and allottees by establishing dispute settlement forums by consumer or promoter associations.
- Promoting the digitization of land records and establishing a system for conclusive property titles with title guarantees.
- Provide advice to the government on matters related to the development of the real estate sector.
- Addressing any other issues the Authority deems necessary for promoting the real estate industry.
- Offering its opinion to the Government on any matter that may potentially impact the real estate sector within 60 days of receiving such reference from the Government.
Judicial Powers of RERA
Let us consider a hypothetical scenario wherein ‘A,’ a prospective homeowner, purchases a residential property in a development project undertaken by builder ‘X.’ ‘A’ initiated the purchase process in 2013, and ‘X’ assured ‘A’ that the possession of the house would be granted in 2016. ‘A,’ relying on ‘X’s commitments, diligently fulfills the payment obligations within the stipulated time frame. However, ‘X’ continuously postpones the possession date when delivering the property, citing various reasons.
Despite persistent inquiries, ‘A’ consistently receives the same response, urging patience for six months until the project is ready for occupation. Subsequently, following the pandemic, ‘A’ took legal action and filed a case with the Real Estate Regulatory Authority (RERA), specifically seeking compensation from ‘X.’ This legal recourse was undertaken in mid-2021. A expresses a lack of interest in taking possession of the apartment, instead requesting a full refund per Section 18 of the applicable Act.
Finally, in February 2022, ‘A’ receives an order from RERA, dictating that ‘X’ is obligated to reimburse the entire amount invested by ‘A,’ inclusive of interest calculated at the rate of the Marginal Cost of Funds Based Lending Rate (MCLR) plus 1% (as applicable in the state of Uttar Pradesh), within 45 days from the date of order upload on the dedicated portal. However, despite numerous reminders, ‘X’ must show more support to comply with the aforementioned orders. Given this situation, ‘A’ can file an execution request with the State Real Estate Regulatory Authority through their online portal.
Under the provisions of the RERA Act, both the RERA Authority and the adjudicating officer are vested with the authority to recover funds from builders, treating them as outstanding land revenue in the event of non-compliance by the builder. In this context, relying on the powers conferred upon it by Section 40(1), the authority issues a Recovery Certificate against the builder, which the collector subsequently enforces. Upon receipt of such orders from RERA, the Collector issues a recovery citation and possesses the authority to freeze the promoter’s bank accounts and initiate the auctioning of the builder’s properties by issuing a public notice.
As per the act, a Recovery Certificate can only be issued when there is a default in the payment of interest, penalty, or compensation imposed by the authority. However, the authorities were also issuing the same certificate for the Principal Amount. The Hon’ble Supreme Court resolved this issue in the landmark judgment of Newtech Promoters and Developers Pvt. Ltd. Vs. the State of UP and Others. The Hon’ble Court held that considering the scheme of the Act, what needs to be returned to the allottee is their life savings with the interest computed/quantified by the authority, which becomes recoverable and enforceable in law.
There seems to be some ambiguity in Section 40(1) of the Act. In our opinion, by aligning the provision with the purpose of the Act, the provisions can operate without rendering either redundant. Considering the intention of the legislature and the aforementioned principle, we clarify that the amount determined and refundable to the allottees/home buyers by the authority or the adjudicating officer following the order is recoverable within the scope of Section 40(1) of the Act.
Conclusion
The influence of RERA in overseeing the real estate domain should not be underestimated. Through the enhancement of consumer rights, facilitation of transparency, imposition of responsibility, and simplification of dispute resolution processes, RERA has emerged as an influential catalyst for transformation within the Indian real estate sector. In the future, ongoing implementation and enforcement of RERA’s provisions will play a pivotal role in guaranteeing sustainable progress and advancement in the industry while safeguarding the interests of all relevant stakeholders.
References
- RERA Authority – Duties & Functions (vakilsearch.com)
- Power of Execution of its orders by RERA Authorities – Redlaw Legal Services | A Law Firm
- Functions and Powers of RERA Authority – Corpbiz
- Role of Real Estate Regulatory Authority under RERA (taxguru.in)