Whether a society, being landowner can be held as a ‘promoter’ under Real Estate Rgulation Act, 2016 (RERA 2016)?

The article that we tend to discuss today focuses on critically summarizing the judgement passed by the Hon’ble Maharashtra Real Estate Appellate Tribunal in common appeals filed by Udayachal Goregaon Co-operative Housing Society Limited to challenge the interim order dated 6th August 2018 passed by the Ld. Member and Adjudicating Officer, Maharashtra Real Estate Regulatory Authority.

Facts of the Case

Complaint before MahaRERAUdayachal Goregaon Cooperative Housing Society Limited entered into a Development Agreement dated 15th April 2013 with M/s. Jaycee Homes Pvt Ltd wherein it was agreed that the Developer would redevelop the then existing building of the Society and utilize Floor Space Index/ Transfer of Development Rights to sell the sale component to third parties. Due to the alleged inability of the Developer to complete the project as per the terms and conditions discussed and put forth in the Development Agreement, the Society terminated the Development Agreement sometime in 2018. In the midst of these actions, before the termination of the Development Agreement third party rights were created in so far as the sale component of the Developer was concerned.

The Society raised an initial objection to the maintenance and satisfied that it is the owner of the land but is not the developer, as the Privacy Agreement between the Society and the Flat Purchasers of the selling portion is not valid. The judgment of the High Court in Vaidehi Akash Housing Pvt was based on Hon’ble Bombay High Court. Nagar Co-op, Ltd. vs. New D.N. Writer. Ed. Soc.-Soc. Ltd. & Ors.1  held that third party buyers who demand sales / allocation letters via Developer have no justification for their respective Society agreements to be fulfilled by the third parties of their own accord.Development of free sale component was inextricably linked to construction of rehabilitation component. Cost of construction of rehabilitation component had to be necessarily funded from and out of development and sale of the free sale component. Members could not be asked to wait indefinitely for years for getting something which they were legally entitled to and which legal entitlement was not even questioned by any other stakeholders.In connection with the fore mentioned events a complaint was lodged with MahaRERA by third-party flat purchasers against the Society and the Developer on the grounds that they entered into legal and binding sales agreements with developers. The flat stakeholders requested advice against the Company and against the developer to hand over their property to complete construction or to complete the remainder of the house.

Ld. Member and Adjudicating Officer, MahaRERA had passed an provisional order and held the complaints to be maintainable on the basis that Society, being owner of the land is “Promoter” within the definition of 2(zk) of the said Act and in the changed circumstances, the judgement of Vaidehi v. D.N. Nagar would not apply as it was passed during the reign of Maharashtra Ownership of Flats Act, 1963 (“MOFA“) and that the definition of Promoter has become broader in said Act. It also held that since the Society has terminated the Development Agreement, it has regained control over the sale component and therefore can be regarded as a ‘Promoter’.The observation of the Ld. Member is reproduced hereunder:

…the owner of the land who wants to redevelop the land and the person who is engaged for redeveloping it and selling it also became the promoters and their liability is joint. Such provision is not there in MOFA. Respondent No.2 by cancelling the Development Agreement of respondent no.1 and revoking their power of attorney regains the control and ownership of the sale component. Therefore, the definition of promoter defined by RERA is comprehensive definition and in my humble opinion includes the land owners who retain, share there are free of cost and allows to regain the control over sale component also.”

Appeals before Appellate Tribunal

1. Non-existence of privity of contract between the Society and Flat purchasersThe Society, aggrieved by the Impugned Order of MahaRERA challenged the same on the following main grounds:

2. Land owner cannot be Promoter taking reference from the Vaidehi v. D.N. Nagar ruling

3. Complex civil disputes cannot be summarily done away with that.

4. That Society cannot be held responsible if the Developer fails to perform his obligations in respect of the Agreement for Sale.

The Society, in its appeal, also contended that MahaRERA Circular no.12 dated 4th December, 2017 (“aforesaid Circular“) stated that the Society, though a land-owner, is excluded from the definition of the ‘Promoter’ under the Real Estate (Regulation and Development) Act, 2016 (“said Act“). The aforesaid Circular was passed by the MahaRERA in light of the Order dated 14th November 2017 passed by the Hon’ble Bombay High Court in Ismail Ibrahim Patel &Ors. Vs. State of Maharashtra & Ors2. The said Writ Petition challenged the validity of the MahaRERA Office Order dated 11th May 2017 wherein the definition of “co-promoter” was notified. The impugned Office Order was withdrawn by MahaRERA and replaced with the aforesaid Circular. The aforesaid Circular promulgates that only such individuals/organizations would fall within the definition of “Promoter” in RERA, on account of being landowners, as would be specified as such at the time of on-line registration of the project with the Authority.

Judgement

The Court of Appeal noted that it was only based on a comparison of ‘Promoter’ meanings under the MOFA and that Act that were the focus of the impugned order. Clauses in the selling and allocation agreement / letters have not, however, been made when deciding if the business falls under the “Promoter” category. The challenged Order also holds that the above- Circular does not contain or state that the Society believed that the concept of “Promotor” was omitted. The challenged Order also found that it was not sufficient to point out that the concept of “promotor” was different under MOFA and said Act. In light of the aforesaid, the appeals were allowed and the matter was remanded back to the Ld. Member and Adjudicating Officer, MahaRERA for deciding the issue of maintainability of the complaints afresh without being influenced by the observations made in the Order passed by the Appellate Tribunal.

Conclusion

The Law was decided now by the High Court of Hon’ble Bombay in V. Seema Mahadev Paryekar, in Goregaon Pearl, in which the principle set out in Vaidehi v. D.N. was upheld. Nagar: the firm, which is only in its place vis-à-vis the third-party purchasers, can not be regarded as “Promoter” within the scope of MOFA, and fulfils the Promoter’s responsibilities with regard to purchasers with respect to the product. It was held that there are no differences between the provisions of this Act.

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