Whether the Project intended to given for Lease hold or free hold requires RERA registration ? – Penalty Charged by GUJ RERA

Introduction

It’s a known fact that RERA registration is applicable for the Projects if the area of land proposed to be developed does exceeds five hundred square meters or the number of apartments proposed to be developed exceeds eight inclusive of all phases. However, if the Project is not intended for sale but it is developed only for the purpose of giving it as lease hold or free hold units – whether RERA Registration is required in such cases?

RERA registration of Project intended to be given for Lease or free hold

On 2nd November 2021, GUJ RERA Authority has issued a decision on such similar facts. As per the said decision RERA registration is required if the project is intended to be given for free hold or lease hold purposes. The said inference can be made from Section 2(d) of Real Estate Regulation and Development Act, 2016. While issuing the decision the RERA Authority has also relied on letter issued by Awas department in Ministry of Housing and Urban Poverty Alleviation. As per the said letter, allotee includes free hold or lease hold allotee. The only exclusion is of “Rent” i.e. Project intended to be given on Rent is exempt from RERA Registration. If the Project is intended to be given for free hold or lease hold, then RERA Registration is required to be taken provided other Provisions of Section 3 of the RERA Act, triggers. Let’s understand the details of the decision issued by GUJ RERA Authority in case of Goyal & Co. Developers – Project named “Commerce House Six”, Prahlad Nagar, Ahmedabad.

The Authority had issued suo-moto notice to the promoter for violation of Section 3 r.w. Section 11(2) of Real Estate Regulation and Development Act, 2016. It was observed from the Project advertisement given by the Promoter in the new paper named “Times of India” wherein RERA registration number as well as other required details mandatory as per Section 11(2) of Real Estate Regulation and Development Act, 2016 were not mentioned. Considering the above discrepancies, GUJ RERA Authority had issued a notice to the Promoter as mentioned above and opportunity of being heard was granted.

Decision given by Guj RERA Authority

During the course of hearing, it was submitted by the Promoter that the Project under consideration is intended to given for Lease for 3-4 years and the same is not intended for sale. As per the opinion of the Promoter, since the project was not intended for sale RERA registration was not applied for in accordance with Section 3 of the Real Estate Regulation and Development Act, 2016 and consequently other details such as RERA registration number, RERA website were not mentioned in the advertisement given in newspaper in accordance with Section 11(2) of the Real Estate Regulation and Development Act, 2016.

Therefore, while issuing the final order, the submission made by promoter was considered by the GUJ RERA Authority and definition of “Allotee” under Section 2(d) of the Real Estate Regulation and Development Act, 2016 was accentuated which is read as

allottee” in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent

As per Section 2(d) of the RERA Act, allotee includes allotment of units whether freehold or lease hold. Therefore, even if project is not intended to be sold but only for free hold or lease hold, RERA registration is required to be taken provided the project falls within the ambit of scope mentioned in Section 3 of the RERA Act. Since, RERA registration was not obtained and advertisement was given in new paper, Section 11(2) is incidentally violated.

It has been further highlighted by the GUJ RERA in its decision, that a clarification regarding definition of Section 2(d) of the RERA Act, in mentioned in Letter dated 27.10.2017 No. 17024/41/2017-H/EFS-702333 issued by Awas department in Ministry of Housing and Urban Poverty Alleviation. As per the said letter, allotee includes free hold or lease hold allotee. The only exclusion is of “Rent” i.e. Project intended to be given on Rent is exempt from RERA Registration. If the Project is intended to be given for free hold or lease hold, then RERA Registration is required to be taken provided other Provisions of Section 3 of the RERA Act, triggers.

As a result of above violation, Penal provision under Section 59(1) giving discretionary powers to the RERA Authority to charges penalty up-to- 10% of estimated project cost, was triggered for violation of Section 3 of the RERA Act. Further, penal provisions under Section 61 of the RERA Act, giving discretionary powers to RERA Authority to charge penalty up to 5% of estimated project cost, was also triggered for violation of Section 11(2) of the RERA Act. The estimated project cost for the above project was Rs 40 Lakhs.

However, considering the above facts and circumstances, penalty of Rs 3.5 Lakhs was levied on Promoter by the Guj RERA Authority. Further directions were issued to promoter that the amount of penalty cannot be withdrawn from RERA designated bank account, cannot be booked as expenses in the Project and further cannot be collected from the allotted. In nutshell, all the above directions were issued with the intention that the amount of penalty of Rs 3.5 Lakhs is paid by the promoter from his own funds and not from the project fund

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Qualification: CA in Practice
Company: Sonecha & Amlani
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I am an Indian Entrepreneur in the field of Finance & Tax Consultancy since last 8 years. I am pursuing my passion of Tax advisory and Tech Based Book keeping practice. View Full Profile

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