RERA COVID-19 relaxation Centre Vs. Rajasthan : Whether valid?

Real Estate (Regulation and Development) Act, 2016, enacted with an aim interlia to protect the interests of the consumers in the real estate industry, has changed the landscape of the industry in numerous ways. The once timid buyers have now become more aware of their rights and the ‘scrupulous’ developers more vigilant in their transactions. The establishment of Real Estate Regulatory Authority (RERA) has provided the buyers with a dedicated forum for raising their claims and quick adjudication of the same.

Real estate sector, once known for its gargantuan returns, has seen a slump in the past few years. A major reason for the same has been the enhanced scrutiny of the hitherto unregulated industry. The ongoing COVID-19 pandemic has brought the real estate sector to a standstill. Extrapolation of short-term losses in the sector are undeniable and the trajectory of recuperation is still uncertain.

STEPS TAKEN BY THE UNION GOVERNMENT

To ease the situation, the Ministry of Housing and Urban Affairs, Government of India issued an office memorandum on May 13, 2020 for extension of completion date automatically by six months for registered projects expiring on or after March 25, 2020. The Regulatory Authorities may issue directions under Section 6 of the Act which provides for extension of registration due to force majeure. It further provides the authorities with discretion to extend the timelines by up to three months. The memorandum, based on the recommendation of the Central Advisory Council, seems to be non-binding and advisory in nature, leaving the authorities free to formulate policies as required. The Regulatory Authorities of Maharashtra, Gujarat, Uttar Pradesh, and Tamil Nadu had already granted such extensions by 3 to 5 months.

ORDER OF EXTENSION BY RAJASTHAN RERA: CONSTITUTIONAL?

One of the most peculiar orders of extension has been passed by the Rajasthan RERA on May 13, 2020. The order grants an across-the-board extension of 12 months for registered projects whose completion date is on or after March 19, 2020. An issue arises from Clause 6 of the Rajasthan RERA’s order, whereby owing to force majeure, interest or compensation payable under Section 12 or Section 18 of the Act is waived for the period covered by such extension. Section 12 of the Act deals with false or incorrect statement made by promoters or developers in notice, advertisement or prospectus, or model plot, apartment or flat. It is intriguing that Rajasthan RERA passed such an order whereby even if a promoter or a developers makes a false or incorrect statement in any notice, advertisement or prospectus for the during of the extension, they shall not be liable to pay compensation for their wrongdoing. The said direction of the Authority is in blatant violation of Section 38(2) of the Act which provides for the Authority to follow the principles of natural justice. To add to the difficulty of consumers in the real estate sector in the state, Rajasthan RERA, under Clause 7 of the said order, has directed that no coercive measures shall be taken for execution of refund orders issued in the past or that may be issued meanwhile. The order makes a blanket stay without making a differentiation for registered projects whose estimated completion date was before the ongoing pandemic and have failed to provide possession to the allottees. The arbitrariness of this direction looms large as it seeks to save the delinquent promoters and developers who had already defaulted on their commitment before March 19, 2020 and therefore hits at the core of fundamental right against arbitrariness by a statutory body enshrined under Article 14 of the Constitution of India.

The doctrine of arbitrariness has been interpreted by the Hon’ble Apex Court under Article 14 in a wide manner so as to form a bedrock against perverse legislative and executive actions. Justice Bhagwati, concurring with the majority opinion in Maneka Gandhi’s case (reported in (1978) 1 SCC 248), has held that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. Expounding the doctrine further, the Hon’ble Court in the case of Ajay Hasia v. Khalid Mujib Sehravardi (reported in (1981) 1 SCC 722) has held that:

“It must therefore now be taken to be well settled that what Article 14 strikesat is arbitrariness because any action that is arbitrary, must necessarily involve negation of equality. The doctrine of classification which is evolvedby the courts is not para-phrase of Article 14 nor is it the objective and endof that Article.

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Wherever therefore there is arbitrariness in State action whether it be of the legislature or of the executive or of“authority” under Article 12, Article 14 immediately springs into action and strikes down such State action. In fact, the concept of reasonableness and non- arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution.”

In the East Coast Railway’s case (reported in AIR 2010 SC 2794) the doctrine has been stretched further to state that non-application of mind is one of the many ways in which arbitrariness in making of an order by an authority can manifest. The order of the Rajasthan RERA, an authority constituted under the Act of 2016, falling on the anvil of established principles, is a classic example of statutory body transgressing its jurisdiction. In comparison, the order passed by the Gujarat RERA follows a balanced approach with extension applying only to those buyer-seller agreements where the project completion date is on or after March 25, 2020, leaving remainder of the projects open to scrutiny.

A WAITING GAME…

In the larger scheme of things, extension of timelines to complete stalled projects will provide some relief to the already stressed real estate sector. However, another significant hurdle currently grappling the sector is that of liquidity and cash-flow. The Indian real estate sector primarily consists of two components: housing and commercial. With forecasts of recovery extending up to 5 to 7 years in both housing and commercial, the enthusiasm of an average buyer, looking to real estate sector for investment purposes, in blocking the funds for a long period with no or little returns, has deeply shaken. The problem aggravates with the state governments issuing directions, like that in Maharashtra, to landlords and house-owners to defer collection of rent for at least three more months and not evicting the tenant during this period. The special liquidity scheme of Rs 30,000 crore provided by the Central Government to non-banking housing and microfinance companies will ease the situation as non-banking channels constitute a substantial part of the real estate debt. Though the Reserve Bank of India has provided relief to certain real estate loans by a year without a downgrade on the asset class, however, restricted liquidity, declining cash-flow and alternate modes of housing and investment keep adding fuel to the fire.

Author ‘Pranjul Chopra’ is an advocate and an alumnus of National Law University, Jodhpur. His practise ranges from property law, commercial and corporate laws to arbitration and taxation matters.