RERA is Retroactive: SC

News: Recently, the Supreme Court (SC) interpreted that the Real Estate (Regulation and Development) Act, 2016 (RERA) is retroactive. The SC’s ruling is aimed at protecting homebuyers, the ruling brings a major relief for the buyers, speeds up the resolution process, and makes it difficult for state governments to dilute the intent of the law.

Retroactive Implementation:

  • The SC affirmed that the provisions of the RERA 2016 are applicable to projects that were ongoing and for whom completion certificates were not obtained at the time of the enactment of the law. Under the Act, registration of real estate projects was mandatory.
  • It mandated that for projects that were ongoing on the date of commencement of the Act, specifically projects for which the completion certificate had not been issued, the promoters shall be under obligation to make an application to the authority for registration of the project.
  • Regulations of RERA authorities in states including Uttar Pradesh, Haryana, Punjab, Karnataka, Telangana and Tamil Nadu are currently not in line with this position and may need to amend their rules to ensure all ongoing projects get covered under RERA.

Recovery of Invested Amount:

  • SC also held that the amount invested by the allottees, along with interest as quantified by the regulatory authority or the adjudicating officer, can be recovered as arrears of land revenue from the builders. The builders had contended that homebuyers are only entitled to recover interest or penalty as arrears of land.
  • However, taking into consideration the scheme of the Act, the court observed, what is to be returned to the allottee is his own life savings. The amount with interest as computed/quantified by the authority becomes recoverable and such arrear becomes enforceable in law.

Penalty for Developers:

  • It is mandatory for real estate developers to deposit at least 30% of the penalty ordered by the regulator, or the full amount as the case may be, before they challenge any RERA order. This is expected to ensure that only genuine appeals are filed and homebuyers’ interests are protected.
  • SC noted that the obligation cast upon the promoter of pre-deposit under the Act, in no circumstance can be said to be in violation of Article 14 (Equality before law) or Article 19 1(g)(freedom to practise any profession, or to carry on any occupation, trade or business) of the Constitution of India.
  • Builders/promoters who are in appeal are required to make the pre­deposit to get the appeal entertained by the Appellate Tribunal. A promoter is defined as a person who is entrusted with the task of promoting the project (real estate project), which was developed or constructed by the developer.
  • The intention of the legislature appears to be toensure that the rights of the decree holder (the successful party) is to be protected and only genuine bonafide appeals are to be entertained.

Real Estate Regulation and Development Act, 2016

  • The Act provides for State governments to establish more than one regulatory authority with the following mandate:
    • Register and maintain a database of real estate projects; publish it on its website for public viewing,
    • Protection of interest of promoters, buyers and real estate agents
    • Development of sustainable and affordable housing,
    • Render advice to the government and ensure compliance with its Regulations and the Act.
  • Decisions of RERAs can be appealed in Real Estate Appellate Tribunal
  • All projects with plot size of minimum 500 sq.mt or eight apartments need to be registered with Regulatory Authorities.
  • Depositing 70% of the funds collected from buyers in a separate escrow bank account for construction of that project only. Developer’s liability to repair structural defects for five years.
  • Both promoter and buyer are liable to pay an equal rate of interest in case of any default from either side.
  • A promoter cannot accept more than 10% of the cost of the plot, apartment or building as an advance payment or an application fee from a person without first entering into an agreement for sale.
  • Defines Carpet Area as net usable floor area of flat. Buyers will be charged for the carpet area and not the super built-up area.
  • Imprisonment of up to three years for developers and up to one year in case of agents and buyers for violation of orders of Appellate Tribunals and Regulatory Authorities.