Registered Agreement not mandatory for remedy under RERA

The RERA Act came into effect from May 2016. Consequent thereto the State of Maharashtra notified the applicability of various provisions of the said Act from 1st May 2017. MahaRERA was constituted by the state of Maharashtra as an authority for enforcing the various provisions of the said Act.

As soon as the said authority was constituted, there was a mad rush by the flat buyers to file complaints against errant builders who had delayed or defaulted in handing over the possession of the flat within the time frame as agreed upon between the buyer and the builder.

Different types of transactions were being undertaken by the builders in Maharashtra with the flat buyers resulting in varied documentation.  The authorities faced peculiar situation whereby these varied documentation were produced before them by the complainant purchasers as an evidence of agreement with the Builders. These agreements and documents were made the basis for seeking interest from or levying penalty on the errant builders as per section 18 of the RERA by the complainants.

One of the issues which immediately caught the eye of the authorities was whether a flat buyer who had not entered into a registered agreement is an “allottee” as defined under section 2(d) of the RERA Act. Whether a simple allotment letter could be made the basis for levying interest and penalty on errant builder when he had neither executed nor registered a formal “agreement for sale” after payment of stamp duty. In most of these cases the builder had issued an allotment letter against part payment for the flat. The said allotment letters were complete with the terms and conditions for the transfer of specific unit and were just short of a formal agreement for sale. However the said allotment letter was neither stamped nor registered.

Proceedings before RERA Authorities:

Initially, in some of the orders passed by Maharera, a view was taken that the complainant purchaser is not entitled to file a complaint on the basis of the said allotment letter in absence of a formal registered “agreement for sale”. It was held that claim of interest under section 18 mandates an “agreement for sale” as a precondition before interest can be provided to the flat buyer. To appreciate the said view of Maharera, it would be prudent to consider the said section:

Section 18(1) of the Act states:

(1) If the promoter fails to complete or is unable to give possession of an apartment, plot or building,–

(a) in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or

(b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act:

Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed.

(Emphasis Added)

On the basis of the use of phrase “in accordance with the terms of the agreement for sale” it was held by the authority that in absence of a registered agreement for sale, the complainant purchaser cannot be treated to be an “allottee” under the Act and hence the purchaser is not entitled to approach the authorities for any relief.

The above view was fortified by the adjudicating officer of MahaRERA in the case of Naim Kamruddin Shaikh and 14 Ors vs JVPD properties Pvt Ltd bearing complaint no. CC00600000001358 in the order dated 29^th December 2017, wherein he was of the opinion that allotment letter is the first stage followed by Agreement of sale and therefore it was held that section 19 of the RERA Act is not attracted. Section 19(2) and 19(4) of the RERA is useful to reproduce here:

Section 19:…

(1)…

(2) The allottee shall be entitled to know stage-wise time schedule of completion of the project, including the provisions for water, sanitation, electricity and other amenities and services as agreed to between the promoter and the allottee in accordance with the terms and conditions of the agreement for sale.

(3) …

4) The allottee shall be entitled to claim the refund of amount paid along with interest at such rate as may be prescribed and compensation in the manner as provided under this Act, from the promoter, if the promoter fails to comply or is unable to give possession of the apartment, plot or building, as the case may be, in accordance with the terms of agreement for sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of this Act or the rules or regulations made thereunder.

(Emphasis Added)

Again due to the use of the phrase “in accordance with the terms of agreement for sale” in section 19, it was held that there was no violation by Promoter of section 18,19 and 31 of RERA and the date of completion of the project as registered under RERA shall be applicable and the purchasers are not entitled to any interests under section 18 of RERA.

Proceedings before RERA Tribunal:

Being unsatisfied with the above order passed by the authority the purchasers approached the RERA Tribunal in first appeal. The Tribunal held that an allotment letter has all the trappings of an “agreement for sale” and being specifically enforceable under the law, cannot be lightly brushed aside. Accordingly, it directed the RERA authorities to take into consideration the terms of the said allotment letter and enforce them against the builders.

The Tribunal vide its order dated 12.3.2018 went on to hold that the RERA legislation is a welfare legislation and accordingly effect of the provisions have to be given accordingly. The tribunal placed reliance on the phrase “as the case may be” in section 18(1) of the Act and held that the said phrase is wide enough even to cover the allotment letter. Hence, there is no sense in restricting the said section 18(1) only to the phrase “agreement for sale”.

Further placing reliance upon the definition of the term “Agreement for Sale” as provided in section 2(c) of the Act the tribunal held that the said definition merely talks of an agreement between the Purchaser and the Builder and hence one cannot say that an allotment letter containing the terms and conditions is not an agreement between the parties. The tribunal also held that the said allotment letters have been found to be enforceable under the Specific Relief Act in a number of cases and hence the legality and validity of the said allotment letters are not questionable.

Authors comments:

Prior to RERA, Maharashtra was governed by Maharashtra Ownership Flats (Regulation of the Promotion of Construction, sale, Management, Transfer) Act 1963  (the MOFA). The MOFA contains section 4A which states that the allotment letter issued by the builder shall be enforceable against the builder notwithstanding the provisions of the Indian registration Act.

4A. Where an agreement for sale entered into under sub-section (1) of section 4, whether entered into before or after the commencement of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) (Amendment and Validating Provisions) Act, 1983, remains unregistered for any reason, then notwithstanding anything contained in any law for the time being in force, or in any judgment, decree or order of any Court, it may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1963, or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.]

Accordingly, even under MOFA an unregistered allotment letter is also treated as a binding contract between the flat buyer and the builder. Incidentally the provisions of MOFA have not been repealed and accordingly have to be read along with the provisions of RERA wherever such provisions are not in conflict with RERA.

Even under RERA, there is no provision which debars the complainant invoking his right for claiming interest on delayed possession or refund on the basis of the terms agreed upon in an allotment letter. In fact, the RERA Act itself provides that it is mandatory to register an agreement for sale only where the purchaser has paid more than 10% of the total consideration. If the allotment letter is not taken into consideration by the authorities then it would create an anomalous situation that whenever less than 10% of the consideration is paid by the flat buyers, he will lose all remedies against the builder only because the formal agreement is not registered even though mandated under law. Definitely, this cannot be the intention of the legislature.

Also a practical situation arise that often the defaulting builders do not come forward to register a formal Agreement for sale. A separate complaint is required to be filed by the allottee seeking the authorities direction to the builder to register a formal agreement for sale. Until that is done the purchaser would not be able to claim interest and possession of the unit if the authorities interpretation is accepted. This will entail a whole lot of rounds of RERA which is not the intention of this welfare legislation.

The author believes that even if the authorities wish to enforce the mandatory registration of the agreement between the flat buyer and the builder, necessary directions can be issued by the authorities in their order while admitting the complaint. In fact, the relief of interest on delayed payment can be made conditional to registration of a formal agreement for sale between the parties with a further direction that the builder would be liable for penalty if he delays the registration of the agreement. However, it would be a travesty of justice if a flat buyer is refused relief only on such technicality at the threshold itself thereby giving benefit to the builder for his own defaults.

With the tribunal taking a more pragmatic view it appears that the issue raised herein will soon stand settled and the authorities will not miss the woods for the trees.