The Real Estate (Regulation and Development) Act, 2016, a central legislation, became effective on May 1, 2017. Over the course of six years of its successful implementation, the Karnataka RERA website reports 7486 projects applying for registration and 9472 registered complaints. This article seeks to elucidate the necessity behind the enactment of this legislation, its objectives, and an assessment of the progress made in accomplishing these goals.
Need for regulatory framework:
As a result of urbanization, the availability of employment in metropolitan areas and the influx of the labour force into cities have been consistently on the rise since 2000 Consequently, this led to an increased demand in the real estate sector, with the trend of multi-storeyed buildings gaining popularity in housing preferences. The owner of a larger piece of land wishes to convert their land into apartment complex due to economic benefit.
The consumers in the supply chain i.e. the home buyers, suffered unfulfilled promises by the builders even after making full payment. In India, it is a general practice to invest a significant portion of life earnings in real estate. Many home buyers lost their life savings due to a lack of awareness and redressal measures. This led to unrest within the entire system. There were no specific laws in place to safeguard the interests of home buyers. Neither the Indian Contract Act, 1872, nor the Consumer Protection Act, 1986. proved to be effective in resolving the ongoing distress experienced by the buyers.
The landowners encountered various challenges such as lack of transparency in pricing, mode of payment, deficiency in quality, inordinate delay in delivery, heightened litigation costs and the complexities of direct and indirect taxation, and delayed project completion among other issues.
The grievance mechanisms available through the then-judicial forums were time-consuming and curative in nature. Furthermore, the outcome of the remedy in terms of time value of money was insignificant to the genuine home buyers. This scenario highlighted the necessity for a comprehensive regulatory framework to protect the interest of the larger public.
Constitutional basis of RERA:
The transactions relating to real estate, majorly the immovable property-related transactions were governed by the Transfer of Property Act, 1882, Indian Easement Act, 1882 and Indian Stamp Act, 1899. The Government recognised the necessity of implementing sector-specific laws. In a series of landmark amendments starting from the First Amendment in 1951, and the introduction of the Ninth Schedule and ending with the 44th Constitutional Amendment Act, 1978, the right to property, a fundamental right under Article 31, was transformed into a constitutional right under the new Article 300A. The Republic of India consisting of 28 States and 8 Union Territories is governed by laws enacted and rules framed, by the Parliament on the subject in the Seventh Schedule,
List III, concurrent List
Entry No.6, “Transfer of property other than agricultural land; registration of deeds and documents”
Entry No.7 “Contracts, including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land”
Entry 46, “Jurisdiction and powers of all courts, except the Supreme Court, with respect to any of the matters in this List”
the Central Government has powers to collect taxes arising out of the transfer of capital value of assets including agricultural land while the States have the power to collect taxes on the land and building.
According to Article 246, “land” is one of the subjects covered by List 2 or the State List of the Seventh Schedule.
Given that the power to legislate on matters related to land fell under the Concurrent powers, the Parliament would be derived from Article 246 of the Constitution, i.e “Subject-matter of laws made by Parliament and by the Legislatures of States”, under entries 6,7 of the List III, Schedule VII, which covers “Transfer of property other than agricultural land, registration of documents and deeds”, “Contracts other than for agricultural land”, and related terms.
Promulgation of RERA :
With this constitutional backdrop, in the year 2008, the Ministry of HUPA (Housing & Urban Poverty Alleviation first prepared a Concept Paper on the regulation of the real estate sector and a model law for legislation by States/UTs. With the due process of deliberation and consultation, the bill was passed in the year 2016. Initially only 59 Sections of the Act were notified making them effective from May 1, 2016 enabling preparation of Real Estate Rules, setting up of Regulatory Authorities and other infrastructure. On April 19, 2017, the remaining 32 Sections of the Act notified making them effective from 1st May .requiring registration of projects within three months. With effect from 1.5.2017, the new era began for development of real estate sector in an atmosphere of investor confidence.,
Structure of RERA:
Primarily the Central Act, the RERA,2016 contains 92 Sections in 10 Chapters. The summary of sections and the broad outline of the subject are as below:
| Chapters | Sections | Subject |
| I | 1-2 | Preliminary |
| II | 3-10 | Registration Of Real Estate Project And Registration Of Real Estate Agents |
| III | 11-18 | Functions And Duties Of Promoter |
| IV | 19 | Rights And Duties Of Allottees |
| V | 20-40 | The Real Estate Regulatory Authority |
| VI | 41-42 | Central Advisory Council |
| VII | 43-58 | The Real Estate Appellate Tribunal |
| VIII | 59-72 | Offences, Penalties And Adjudication |
| IX | 73-78 | Finance, Accounts, Audits And Reports |
| X | 79-92 | Miscellaneous |
On 10th July 2017, vide No:DOH 109 KHB 2017, the Karnataka Real Estate Regulations and Development Rules 2017 were notified.
After roll of RERA, the validity of the various provisions of the act were constitutionally challenged in various High courts.
Constitutional Validity of the provisions of RERA:
After the implementation of RERA, the Constitutional validity of various provisions of RERA was challenged before the High Courts on the following grounds: In the case of Neelkamal Realtors,[1]in the High Court of Judicature at Bombay,
1. As per Sec.3 to 19 of the RERA 2016, compels registration of the ongoing projects registered under RERA from the date of notification i.e 1.5.2017. It was contended that it would be illegal, unreasonable, arbitrary and unconstitutional to compel the promoters of the ongoing projects to register their projects under RERA by applying provisions of RERA retrospectively.
2. The unreasonable restrictions placed by certain provisions would seriously prejudice and affect the rights of the promoter in carrying out trade and business. It is, therefore, contrary to the Articles 14 and 19(1)(g).
3. The absence of a Judicial Member in the Authority constituted under Section 22 and the definition of the Judicial Member as defined under Section 46 of RERA.
Held:
- It was held that The RERA has been introduced in the public interest of the consumers and in order to cure existing evils. The requirement to register ongoing projects under the proviso to section 3(1) is not retrospective, is legal, valid and not arbitrary. It constitutes a reasonable restriction as contemplated by Article 19(6) of the Constitution of India. Legislative power to make law with retrospective effect is well recognized. In the facts, it would not be permissible for the petitioners to say that they have vested right in dealing with the completion of the project by leaving the proposed allottees in helpless and miserable condition. In a country like ours, when millions are in search of homes and had to put entire life earnings to purchase a residential house for them, it was compelling obligation on the Government to look into the issues in the larger public interest and if required, make stringent laws regulating such sectors. We cannot foresee a situation where helpless allottees had to approach various forums in search of some reliefs here and there and wait for the outcome of the same for indefinite period. The public interest at large is one of the relevant consideration in determining the constitutional validity of retrospective legislation.
- The provisions were held to be constitutional, valid and legal.
- The two member Bench of the Tribunal shall always consist of a Judicial Member. In the constitution of the Tribunal, majority of the members shall always be judicial members.
Journey of RERA:
In essence, the objective of RERA assures the following:
1. To Maintain Transparency in real estate transactions
2. To bring out standardisation in terms of collection of advance, progressive payment and deliverables as promised by the builder
3. To ensure greater accountability towards consumers.
4. To enhance the investor confidence in the real estate sector.
5. To address the grievance and protection of rights of home buyers.
The above objective can be broadly classified into two -Transparency & Accountability and Investor Confidence and protection of rights. Let’s assess the progress made in the past six years in achieving the defined objectives.
Transparency and Accountability:
In the case of Vinod Kumar Agarwal Vs. Jaipur Development Authority , the seller raised more than 10% of the cost of the plots as advance payment without first entering into a written agreement for sale and registering it. The seller being a statutory development authority, he is guided by the Rajasthan Improvement Trust (Disposal of Urban Land) Rules, 1974. It was contended by the seller that the auction conditions did not stipulate any specific requirement for the execution of agreement for sale and that the plot was auctioned on as-is-where-is basis. It was held that, RERA being a Central Legislation, would prevail over the rules framed by the State Government. The seller while registering under RERA has promised development work to the prospective buyers. The non-fulfillment of the same is in violation of Sec.13 of RERA Act. The interest of home buyer was protected through a transparent valid contract and clear terms of deliverables by paying only 10% of the cost of the apartment.
Investor Confidence and protection of rights:
There were many instances where, the home buyer made substantial investment out of their hard-earned savings under the belief that the developer would hand over the possession as per the agreement. The developer didn’t fulfill the terms and conditions as per the agreement. The buyer instituted a case against the builder claiming refund of the investment along with interest as per Sec.18 of the RERA. The Sec.18(3) of the Act, states where the promoter fails to discharge any obligation under the Act or the rules or regulations framed thereunder or by the terms and conditions of the agreement for sale, the promoter shall be liable to pay ‘such compensation’ to the allottees, in the manner as prescribed under the Act. The provisions of RERA were made applicable with retroactive effect. It means the Registration, Complying with the stipulations specified in the act, payment of compensation, and redressal mechanism were made to be applicable for the ongoing projects on which the completion certificate was not obtained. Though those projects were commenced prior to RERA coming into force, the provisions of the act were retroactively held to be applicable. Further, the Supreme Court held that the power to deal with matters of refund vests with the Adjudicating officer. The judgment, of M/s. Newtech Promoters .[2]will bring relief to home buyers who neither got refund of the investment nor possession. This decision restores buyer’s confidence in the real estate sector and resolves apprehensions relating to legal disputes.
Conclusion:
This article aims to delve into the legal context that led to the enactment of RERA and the historical perspective behind the formulation of this legislation. By establishing RERA, the government sought to create a balance between the interests of all stakeholders in the real estate sector, promote responsible and timely project delivery, and build trust among homebuyers. In summary, RERA was a crucial response to the challenges faced by the Indian real estate industry. In reviewing the progress made over the past six years, it is evident that this legislation will ultimately prove advantageous for both homebuyers and developers while simultaneously contributing to the economic growth of our country.
CA. Sujatha G
[1] Neelkamal Realtors Suburban Pvt. vs The Union Of India, wp-2737-17 & ors-RERA-JT, W.P2737 of2817
[2] M/s. NEWTECH PROMOTERS AND DEVELOPERS PVT. LTD vs STATE OF UP & ORS. ETC CIVIL APPEAL NO(S). 6745 6749 OF 2021
Author Bio
