Case Law Details

Case Name : Neelkamal Realtors Suburban Pvt. Ltd. and anr. Vs. Union of India and ors. (Bombay High Court)
Appeal Number : Writ Petition No. 2737 Of 2017
Date of Judgement/Order : 06/12/2017
Related Assessment Year :
Courts : All High Courts (3862) Bombay High Court (691)

Neelkamal Realtors Suburban Pvt. Ltd. and anr. Vs. Union of India and ors. (Bombay High Court)

Relevant Extract from the Judgment

3. In this batch of Writ Petitions, petitioners had challenged legality and constitutional validity of certain provisions of the Real Estate (Regulation and Development) Act, 2016 (for short “ the RERA”) as being violative of the provisions of Articles 14, 19(1)(g), 20 and 300-A of the Constitution of India. The petitioners prayed for a declaration that the first proviso to Section 3 (1), Section 3 (2)(a) & (c), Explanation to Section 3, Sections 4(2)(c) & 4(2) (d) (e) (f) (g) (k), Sections 4 (2) (l) (C) and 4 (2) (l) (D), Sections 5(1)(b), 5 (3) and the first proviso to Section 6 of the RERA are unconstitutional, illegal, ultra vires, without jurisdiction and without authority of law. The petitioners have also challenged validity of provisions of Sections 4, 5, 7, 8, 11 (h), 14 (3), 15, 16, 18, 22, proviso to Section 27(1)(a), Section 40, proviso to Section 43(5), proviso to Section 50(1)(a), Sections 53(1) & 53(3), 46, 59, 60, 61, 63, 64 and Section 82 of the RERA and Rules 3 (f), 4, 5, 6, 7, 8, 18, 19, 20, 21 of the Maharashtra Real Estate (Regulation and Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2017 (for short “the Maharashtra Rules of 2017”).

4. During the course of hearing, the learned counsel appearing for the petitioners restricted their challenge to first proviso to Section 3(1), Section 3(2)(a), explanation to Section 3, Section 4(2)(l)(C), Section 4(2)(l) (D), Section 5(3), first proviso to Section 6, Sections 7, 8, 18, 38, 40, 46(1) (b), 59, 60, 61, 63, 64 of RERA and have advanced their submissions. We have dealt with the submissions of the learned counsel accordingly. Though in Writ Petition Nos.2711 and 2256 of 2017 validity of certain Rules of the Maharashtra Rules of 2017 was challenged but during the course of arguments none of the learned counsel advanced submissions regarding challenge to the Rules. Therefore, We would not deal with the challenge to the Rules framed under the RERA by the State of Maharashtra.

5. The RERA was enacted by the Parliament as Act 16 of 2016 in the year 2016. Some of the provisions of the RERA came into force on a date prescribed by the Central Government under the notification published in the official gazette. Different dates were appointed for different provisions of the RERA. By Notification No. S.O. 1544 (E), dated 26-4-2016, the Central Government appointed 1st day of May 2016 as a date on which some of provisions of the RERA came into force, namely, Sections 2, 20 to 39, 41 to 58, 17 to 78 and 81 to 92. By Notification No. S. O. 1216, dated 19-4-2017 some more provisions of the RERA came into force, namely, Sections 3 to 19, 40, 59 to 70 and 79, 80 w.e.f. 1st May, 2017.

259. A perusal of Section 18 indicates that payment of interest including compensation or interest, as the case may be, is payable on account of default committed by the promoter. Although this Section does not consider a situation where the promoter is unable to complete or handover possession for no fault of his own, it would be open to him to claim frustration in such a case and return the money to the allotee with interest thereby stopping the interest that is to be paid till handing over possession. The provisions of RERA ensure that the allotees’ money is not misused or unreasonably retained by the promoter.

260. As noted earlier, because of the failure on the part of the promoter in completing the project within a reasonable time and handing over possession to the prospective purchasers, the Parliament has thought it fit to enact RERA so as to ensure completion of project or phase, as the case may be, in a time bound manner. Before RERA coming into force, the provisions of MOFA were applicable. However, the completion of construction of building/project was not envisaged in MOFA. This was a serious lacuna in the law which gave rise to institute suits for specific performance of contracts and/or claiming damages. The object of RERA is that the prospective purchasers can consider booking apartment at the time of launching of the project or when the building is under construction. It is common knowledge that there is substantial difference in price when the apartment is booked at the time of launching of the project or when the building is under construction vis-a-vis when the building is complete in all respects along with Occupation Certificate. Naturally the buyers are interested to book the apartment at the time of launching of the project or when the building is under construction. RERA assures completion of a project in time bound manner. If for any reason the promoter is required to be replaced under Section 8, the promoter’s obligation to complete the project is taken over by the Authority.

261. In my opinion Section 18 is compensatory in nature and not penal. The promoter is in effect constructing the apartments for the allottees. The allottees make payment from time to time. Under the provisions of RERA, 70% amount is to be deposited in a designated bank account which covers the cost of construction and the land cost and has to be utilized only for that purpose. Interest accrued thereon is credited in that account. Under the provisions of RERA, 30% amount paid by the allottees is enjoyed and used by the promoter. It is, therefore, not unreasonable to require the promoter to pay interest to the allottees whose money it is when the project is delayed beyond the contractual agreed period. Even under Section 8 of MOFA on failure of the promoter in giving possession in accordance with the terms of the agreement for sale, he is liable to refund the amount already received by him together with simple interest @ 9% per annum from the date he received the sum till the date the amount and interest thereon is refunded. In other words, the liability under Section 18(1) (a) is not created for the first time by RERA. Section 88 lays down that the provisions of RERA shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.

262. As far as interest under Section 18(1)(b) is concerned, it was submitted that under Section 8 the Authority appoints facilitator/agency for carrying out remaining development works. After ouster of the promoter, he cannot be held responsible on account of delay in handing over possession by the facilitator/agency so appointed by the Authority. It was contended that it is quiet possible that the amount of 70% deposited under Section 4(2) (l)(D) may have been utilized by the promoter for carrying out construction. In that event, it will be extremely harsh and unreasonable to direct the promoter to pay interest till handing over possession after his ouster. The provisions of Section 18(1)(b) are, therefore, violative of Articles 14, 19(1) (g) of the Constitution of India. I do not find any merit in this submission. The promoter is liable to pay interest on account of suspension or revocation of the registration under the Act or for any other reason. The basic presumption is that the promoter was unable to complete the construction despite prescribing the time period under Section 4(2)(l)(C). The amount of 70% is already credited in a dedicated bank account under Section 4(2)(l)(D). The promoter has retained 30% paid by the allottee to him. Thus the allottee has parted with entire consideration for purchasing the apartment and still he is not given possession. The allottee cannot be said to be acting gratuitously. The promoter enjoying the benefit is bound to make compensation to the allottee. In other words though it is a case of unjust enrichment on the part of the promoter, still he is not liable to compensate the allottee by paying interest on the amount retained by him. In view thereof, it cannot be said that Section 18(1)(b) is violative of Articles 14 and 19(1)(b) of the Constitution of India. It also cannot be said to be a penal provision.

263. Insofar as Section 38 is concerned, the Authority is empowered to impose penalty or interest in respect of contravention of obligations cast upon the promoter/allottees under the Act or the Rules and the Regulations made thereunder. Thus, the Authority can also impose penalty or interest on the allottees for contravention of the obligations cast upon them. At the same time, the Authority can impose penalty or interest on the promoter on account of contravention of obligations cast upon him. The legislation has done balancing of rights and liabilities of the promoters and allottees. While exercising the power, the Authority is guided by the principles of natural justice. It, therefore, cannot be said that Section 38 violates Articles 14 and 19(1)(g) of the Constitution of India.

264. Insofar as challenge to Sections 59, 60, 61, 63 and 64 is concerned, these provisions fall in Chapter VIII entitling “Offences, Penalties and Adjudication”. A perusal of these provisions shows that these provisions are prospective in nature and on account of contravention of certain provisions of RERA, the Authority is empowered to impose penalty. Section 76(1) lays down that all sums realised, by way of penalties, imposed by the Appellate Tribunal or the Authority, in the Union Territories, shall be credited to the Consolidated Fund of India. Sub-section (2) thereof lays down that all sums realised, by way of penalties, imposed by the Appellate Tribunal or the Authority, in a State, is to be credited to such account as the State Government may specify. Payment of interest and compensation under Sections 12, 14, 18 and 19 is to be adjudicated by the Adjudicating Officer as per Section 71. The amount of interest and compensation is payable by the promoter to the allottee or by the allottee to the promoter [under Section 19(7)]. As against this, under Section 76 the sums realised by way of penalties imposed by the Appellate Tribunal or the Authority in the Union Territories, is to be credited to the Consolidated Funds of India and in a State it shall be credited to such account as the State Government may specify. In short, the penalties imposed by the Appellate Tribunal or the Authority are not payable to either promoter or the allottee as the case may be but are compulsorily required to be credited either in the Consolidated Funds of India or such account as the State Government may specify. Section 76 does not include determination of Adjudicating Officer under Section 71 of RERA. This is also pointer to indicate that the interest and compensation determined by the Adjudicating Officer under Sections 12, 14, 18 and 19 is not by way of penalty but is essentially compensatory in nature. As the penalties under Sections 59, 60, 61, 63 and 64 are on account of acts of commission or omission on the part of either promoter or the allottee as the case may be and which are prospective in nature, it cannot be said that these provisions are violative of Articles 14 and 19(1)(g) of the Constitution of India and amount to unreasonable restrictions.

Held by High Court

Provisions of RERA are prospective in nature. The penalty under Sections 18, 38, 59, 60, 61, 63 and 64 is to be levied on account of contravention of provisions of RERA, prospectively and not retrospectively. These provisions, therefore, cannot be said to be violative of Articles 14, 19(1)(g), 20(1) and 300-A of the Constitution of India.

We hold that challenge to constitutional validity of first proviso to Section 3(1), Section 3(2)(a), explanation to Section 3, Section 4(2)(l)(C), Section 4(2)(l)(D), Section 5(3) and the first proviso to Section 6, Sections 7, 8, 18, 22, 38, 40, 59, 60, 61, 63, 64 of the Real Estate (Regulation and Development) Act, 2016 fails. These provisions are held to be constitutional, valid and legal.

However, one of the qualifications for appointment of a Judicial Member prescribed in Section 46(1)(b) as, “or has been a member of the Indian Legal Service and has held the post of Additional Secretary of that service or any equivalent post,” is severed and struck down.

We hold that two member Bench of the Tribunal shall always consist of a Judicial Member. We hold that in the constitution of the Tribunal, majority of the members shall always be judicial members.

The prayers which are not specifically granted shall be deemed to be rejected.

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