Is RERA Retrospective?

By Sanjay Chaturvedi LLB, Ph.D.

WRIT PETITION NO. 2737 OF 2017, Bombay High Court. Judgement pronounced on 6th December 2017

The Writ transferred from Supreme Court to Bombay High Court has answered many important questions. The Judgement had specifically said that the provisions of Section 18 is not having penal provisions but compensatory in nature. Read the various para of the judgement.

Para 181. There was no accountability as to entity or persons responsible and/or liable for delivering on several projects that were advertised and in respect of which amounts had been collected from individual purchasers.

What was promised in advertisements/broachers, such as amenities, specifications of premises etc. was without any basis, often without plans having been sanctioned, and was far from what was finally delivered. Amounts collected from purchasers were either being diverted to other projects, or were not used towards development at all, and the developer would often be left with no funds to finish the project despite having collected funds from the purchasers. For a variety of reasons including lack of funds, projects were stalled and never completed and individual purchasers who had invested their life-savings or had borrowed money on interest, were left in the lurch on account of these stalled projects.

Individual purchasers were often left with no choice but to take illegal possession of premises offered to them under the guise of fit-outs etc., and without the developer having obtained an occupation/completion certificate, which in turn would be on account of a range of different acts of omission and commission such as non-adherence to the sanctioned plans, excess construction, lack of having obtained the requisite permissions etc. Agreements entered into with individual purchasers were invariably one sided, standard-format agreements prepared by the builders/developers and which were overwhelmingly in their favour with unjust clauses on delayed delivery, time for conveyance to the society, obligations to obtain occupation/completion certificate etc. Individual purchasers had no scope or power to negotiate and had to accept these one-sided agreements. 182. The real estate sector has largely been opaque, with consumers often unable to procure complete information, or enforce accountability against builders and developers in the absence of effective regulation. The biggest fallout affecting the sector has been (1) the delay in project completion; (2) diversion of funds collected from buyers, (3) one-sided contracts due to power asymmetry; (4) reneging on contractual commitments by both the developers and the buyers; and (5) constraints in financing and investment options available to the sector, thereby affecting its long-tern growth.

Para 253. The learned Counsel for the petitioners submitted that the first proviso to Section 3(1), Sections 18, 38, 59, 60, 61, 63 and 64 are retrospective/retroactive and are penal in nature. First proviso to Section 6, Section 7(4)(a) and Section 8 are penal in nature. They are violative of Articles 19(1)(g) and 20(1) of the Constitution of India. As against this the learned Counsel for the respondents submitted that first proviso to Section 3(1), Sections 18, 38, 59, 60, 61, 63 and 64 are prospective in nature. They submitted that first proviso to Section 3(1), first proviso to Section 6, Sections 7(4)(a) and Section 8 are not penal in nature.

Para 254. I have already held that Sections 3, 4, 5, 7 and 8 are required to be construed harmoniously. These provisions cannot be said to be violative of Articles 14, 19(1)(g), 20(1) and 300-A of the Constitution of India. These provisions cannot be construed as penal in nature. They impose reasonable restrictions on the promoter in larger public interest. These provisions regulate the construction activities in the planning area.

Para 255. Section 18 provides for refund of amount and compensation on account of – (a) failure of the promoter to complete or his inability to give possession of an apartment, plot or building either 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 revocation or suspension of the registration under the Act or for any other reason. The plain language of Section 18(1)(a) shows that if the promoter fails to complete or is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein, he would be liable to return the amount received by him together with interest including compensation. In case the allottee does not intend to withdraw from the project, the promoter is liable to pay interest for every month’s delay till handing over of possession. The purpose of Section 18(1)(a) is to ameliorate the buyers in real estate sector and balance the rights of all the stake holders. The provisions of RERA seek to protect the allottees and simplify the remedying of wrongs committed by a promoter. The intention of RERA is to bring the complaints of allottees before one Authority and simplify the process. If the interpretation suggested by the petitioners, namely, that the provision is applicable only

after coming into force RERA is accepted, this would result in allottees having to approach different fora for interest prior to RERA and subsequent to RERA. In fact Section 71 of RERA provides that the cases pending before the Consumer Court can be transferred to Authority. Reference to pending cases is obviously a reference to claims for interest and / or compensation pending when the RERA came into force.

Para 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.

Para ….. 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.

Para 285. For the reasons already indicated, aforesaid decisions are not applicable to the facts of the present case. I have already indicated that the 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.

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