Bombay HC upholds the valadity of RERA

Bombay High Court Upholds the Constitutional Validity of RERA

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RERA Act has been a point of controversy ever since its enactment. Having lived a very short life, the practicality of the Act should be used as the basis for judging its worth.Unless  practical cases come into play it is difficult to spell out the true intention of the legislature. Many provisions of various sections of RERA are not very clear even now and demand clarity. This article tries to clarify certain ambiguity with the help of a few judgements given by the Bombay High Court, being one of the high courts who has deliberate the most on this Act. The Bombay High Court has upheld the validity of almost all sections and provisions of RERA that were challenged by the following 

  1. M/s. Mudassar Builders and Developers
  2. D. B. Realty Limited and anr.
  3. Swapnil Promoters and Developers Private Limited and ors.
  4. MIG (Bandra) Realtors and Builders Pvt. Ltd.

The following topics were of main discussion and are reproduced hereunder in two parts, being the arguments on both sides followed by the decision of the court.

READ THE JUDGEMENT HERE

Registration of ongoing projects

The crux of the argument lied in the applicability of registration with the Real Estate Regulatory Authority of on-going projects initiated prior to the coming into force of the Act.

Argument of Learned counsel on behalf of petitioners:

The counsel for the petitioners took a strong objection against compelling the promoters of on going projects to get their projects registered under RERA,from the date of notification of the provisions of Sections 3 to 19 i.e. the 1st of May, 2017.Under the RERA, “the ongoing project” has been defined under Section 3 as the project where development is going on and for which a completion certificate has not been issued.

The counsel on behalf of the petitioners submitted that it would be illegal, arbitrary unreasonable and furthermore  unconstitutional that the promoters of ‘on going’ projects be compelled to register their projects under RERA and thus making the provisions of the Act applicable to the Project (on going) retrospectively or retroactively. While making the provisions retrospective or retroactive in nature, the RERA fails to take into account the various agreements already entered into between the promoter and the allottees prior to the implementation of the Act and the rights and liabilities accruing arising from such agreements. The counsel submitted that this is contrary to agreements entered into  under the Indian Contract Act and the Transfer of Property Act. The counsel submitted that the proviso to Section 3(1) needs to be declared as illegal and unconstitutional as the RERA has failed to provide a reasonable, fair and transparent mechanism by applying the provisions of the Act retrospectively The learned counsel places reliance on the judgements of the Kolkata High Court and other courts. With respect to the retrospective applicability of the Act, the counsel relied on the matter ofBadrinarayan Shankar Bhandari  Vs. Omprakash Shankar Bhandari  wherein it was stated:

“A prospective statute operates forwards from the date of its enactment conferring new rights on parties without reference to any anterior event, status or characteristic;Retrospective statute, on the other hand, operates backwards, attaches new consequences, though for the future, but to an event that took place before the statute was enacted. It takes away vested rights. Substantive benefits which were already obtained by a party are sought to be taken away because of a legislation being given effect from a date prior to its enactment. The Rules of Interpretation of Statutes raises a presumption against such retrospective effect to an enactment.”

In other words, if the Legislature has not expressly or by necessary implication given effect to a statute from a date prior to its enactment, the Court will not allow retrospective effect being given to a legislation so as to take away any vested rights that occurred prior.

To provide an example, statutes enacted for regulating succession are ordinarily not applicable to successions which have already opened, as otherwise the effect will be to divest the estate from persons in whom it had vested prior to the coming into force of the new statute.

Argument of learned Additional Solicitor General on behalf of respondents:

The learned ASG submitted that provisions of Section 3 are reasonable and have been made in view of the larger public interest. 

Regulation of transactions made retrospective

The crux of the argument here related to the requirement under the RERA Act to maintain a separate account wherein 70% of the funds received by the promoter was to kept.

Argument of Learned counsel on behalf of petitioners:

The petitioners prayed that it was not possible to comply with this requirement where 80% of the work of the project was completed, of depositing 70% the amount realised from the allottees in a separate self maintained account as per the provisions of section 4(2)(l)(D) of the RERA. The learned counsel submitted that the ongoing project should not be made to register under the RERA as it would be affecting the past transactions of the parties and consequently the promoter’s interest. The provisions are contrary to Articles 19(1)(g) of the constitution. According to the learned counsel this would inflict financial loss on the promoters and jeopardize the entire Real Estate sector or Industry.

Argument of the ASG on behalf of respondents:

The learned ASG submitted that in case of a completed project if the promoter shows that the promoter had spent 70% of the amount realised from the home-buyers on the “project” , 70% of the amount need not be deposited again on registration of the project under RERA.

Extension of registration (section 6)

Argument of Learned counsel on behalf of petitioners:

The period or tenure that will be required by the promoter to complete a certain project must be specified in the agreement for sale and then in the affidavit that the promoter needs to submit under section 4 along with certain documents. Under section 6 of RERA the extension of registration granted under section 5 of RERA is limited to a period of a maximum of one year. This, in the submission of the counsel is arbitrary and unreasonable and fails to take into account some inevitable circumstances beyond the control of the promoter, apart from ‘force majeure’ ,like shortage of raw material in the market or a genuine dispute between the buyer and the promoter resulting in a stay/injunction order in respect of an on-going project from the courts or many more such orders. The learned petitioner submitted that the tribunals/authority should have discretionary power to grant extension period as per the needs of individual cases.

Therefore, the counsel submitted that the proviso to Section 6 be declared as illegal, unreasonable, unconstitutional and contrary to Articles 14, 19(1)(g) and 20 of the constitution.In the alternative, the counsel submitted that such a provision could be held to be directory and not mandatory so that individual cases are not generalised and judged on the basis of their own circumstances.

Argument of the ASG on behalf of respondents:

For timely completion of the remaining development work, such a restriction is necessary otherwise on one or the other ground, completion of the remaining development work could be further delayed for an indefinite period. The learned ASG submitted that these provisions were very thoughtfully made to protect the interest of the allottees who wait  for many  years to get possession of their homes/flats/units and have put their life savings behind such purchase. Keeping in view the object behind the enactment of such provision, it cannot be held to be unreasonable or unconstitutional. The ASG asks the court to reject the contention of the petitioners because if the prescribed period of extension of not more than one year is extended then it would defeat the purpose of enactment.

carrying out of remaining development work (section 8)

Section 8 of the RERA refers to the obligation of authority upon lapse or revocation of registration.

Argument of Learned counsel on behalf of petitioners:

The learned counsel submitted that the   provisions of section 8 are against the interest of both the promoter and the allottees. He submitted that this provision adversely affects the past contractual agreements between the allottee and the promoter. The provisions according to the counsel are vague and lacks clarity and thus would be difficult in being practically implemented. This would further cause delay in completion of the project under development and thus would cause harm to the interest of the promoter as well as the allottee.

Upon lapse of registration, Section 8 contemplates the taking over of the project by RERA Authority. No proper guideline or measures have been prescribed under this section to realistically implement the carrying on of the project under development by the RERA authorities. This section confers wide powers on RERA but it fails to properly contemplate the procedure for handing over of the possession of the project. What happens if the RERA authority takes over the project and never gives it back to the promoter? Handing over of the project back to the promoter is necessitated because RERA requires that after a real estate project  has received the completion certificate, it is the promoter who has to transfer title. If the project is taken over by the RERA Authority and the project is not returned, it shall be in contrary to section 17 of the Act.

There can be no sale of property by the RERA authority in the nature of unsold flats unless and until the provisions of Section 8 empowers and vests the property in the RERA authority with a right to sell the same. All the unsold flats actually belong to the promoter. The learned counsel submitted that the provisions of section 8 are expropriatory in nature and are violative of Article 300 A of the constitution. As soon as section 8 comes into play, the authority may sell or dispose off the unsold flats to raise funding for the project. This would amount to expropriation of property.

Equally threatening is that there is no prescribed time period within which the authority has been mandated to complete the work. This is violative of article 14 of the Constitution and defeats the object and purpose of the Act.

With reference to the argument on article 300A of the Constitution, reference was made to the case of K. T. Plantation Private Limited vs. State of Karnataka, wherein the Supreme Court observed that a statute should satisfy the twin principles of public purpose and adequate compensation, none of which was contemplated under the RERA Act.

Reliance was also placed in the judgement of the Supreme Court in the case of Rajiv Sarin  vs. State of Uttarakhand  wherein it was observed:

“With regard to claiming compensation, all modern Constitutions which are invariably                                                                                                                                         of democratic character provide for payment of compensation as the condition to

exercise the right of expropriation. The Commonwealth of Australia Constitution Act, the French Civil Code (Article 545), the 5th Amendment to the Constitution of U.S.A. and the Italian Constitution provided principles of “just terms”, “just indemnity”, “just compensation” as reimbursement for the property taken, that has been provided for.Under Indian Constitution, List III Entry 42 relates to ‘acquisition and  requisitioning of property’. The right to property being no more a fundamental right, a legislation enacted under the authority of law as provided in Article 300-A of the Constitution is not amenable to judicial review merely for alleged violation of Part III of the Constitution.

When the State exercises the power of acquisition of a private property thereby depriving the private person of the property, provision is generally made in the statute to pay compensation to be fixed or determined according to the criteria laid down in the statute itself.

Payment of market value in lieu of acquired property is not a condition precedent or sine qua non for acquisition. It must be clearly understood that the acquisition and payment of amounts are part of the same scheme and they cannot be separated. It is true that the adequacy of compensation cannot be questioned in a court of law, but at the same time the compensation cannot be illusory.A distinction and difference has been drawn between the concept of ‘no compensation’ and the concept of ‘nil compensation’. As mandated by Article 300A, a person can be deprived of his property but in a just, fair and reasonable manner.”

Argument of the ASG on behalf of respondents:

The learned ASG submitted that the Authority may take actions as it deems fit under the referred section and thus, it may even direct the same promoter to continue with the development work under the supervision of the authority. Hence, the fear of expropriation against the promoter is baseless.The learned ASG submits that there are sufficient safeguards in case the registration is revoked under the provisions of Section 7. The promoter is provided with a forum to approach the Tribunal and ultimately to the High Court. Right of judicial review of the decisions taken by the authority is made available under the RERA. Therefore, the submissions advanced that the promoter is left with no other choice but to face the consequences on expiry of the period / tenure  is baseless.The learned ASG submitted that the authority will take necessary steps to complete the work of the project under development and once completed, the project will be handed back to the promoter who shall convey the title and discharge the other obligations as priorly contracted between the allottee and the promoter. These provisions cannot be expounded to mean there is  automatic cessation of rights of promoter over the property. An honest and dedicated promoter need not worry about the provisions of the RERA. The authority would be manned by Senior Officers of vast experience. They would certainly look into all the aspects and issue necessary directions to fulfill the objects of the RERA.

Interest payable to allottees (Sec 18)

Argument of Learned counsel on behalf of petitioners:

The counsel by referring to provisions of Section 18 submitted that the provisions of Section 18(1)(a) are highly arbitrary in nature. Their operation is retrospective / retro-active in nature. Its application 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). It was submitted that in case an allottee does not withdraw from the project and the registration of the promoter gets revoked or if the promoter is unable to give possession of an apartment, then till the possession is handed over to the allottee, a promoter has to pay interest, at such rate as may be prescribed, for every month of delay till the handing over of the possession. The learned counsel submitted that the mandate to pay interest and compensation under Section 18 be held to be unreasonable, arbitrary and unconstitutional. In the alternative, the counsel submitted that at the most the promoter may be directed to pay interest in respect of the delay from the date of registration and not from the date of agreement of sale.The provisions of Section 18 are retro-active in nature which affects the past transaction entered into between the promoter and allottee prior to registration of the project under RERA. 

Reliance was made on the case: of Ritesh Agarwal Vs. Securities and Exchange Board of India  which states that retrospective applicability of penal provisions are unconstitutional.

In yet another petition of the same batch, It was submitted by the learned counsel that section 18 of the RERA is retrospective in nature and that the interest rate is exorbitantly high and is to be paid even if the registration of the promoter is revoked and the project has been handed over to the authority under section 8. He has drawn a comparison between section 8 of MOFA (Maharashtra Housing and Building Laws) and the current section of RERA in dispute. He submitted that under section 6 and 7 there is no mechanism of redressal for the promoter and he further submitted that section 18 of the RERA bore penal consequences retrospectively.The same was construed to be  unreasonable and unconstitutional as a person cannot be punished for the act done by him prior to enacting the penal provision, this safeguarded under Article 20 of the constitution.

Argument of the ASG on behalf of respondents:

The learned ASG submitted that section 18 thoroughly seeks to protect the interest of allottees. There is no dearth of examples to show that numerous allottees had reached the consumer forum, civil courts and higher courts by filing a petition requesting the courts to direct the promoter various reliefs, including completion of remaining work, withdrawal of amount, payment of interest till handing over possession, monthly compensation while they were  awaiting possession. This provision merely safeguards the interests of such allottees who would in the absence of such law be running around the place to secure their rights against the promoter. The learned ASG submitted that a mechanism is prescribed for assessing interest and compensation. The Parliament had the legislative competence to frame subject law, particularly the provisions of Section 18. There is absolutely no arbitrariness in framing the provisions of Section 18(1)(a) and conferring rights on the allottee to claim interest and compensation.

The learned ASG further submits that section 71 and 72 refers to the powers of adjudicating officers and the considerations such officers should make while taking into account matters before the authority. Every party is given an opportunity to be heard before which no decision can be made. Thus, there is a proper mechanism prescribed under RERA which equally protects the interests of the promoter. An aggrieved promoter will always have the right to appeal further upto the High Courts. Thus, these grounds are baseless.

It was also submitted that the petitioner has filed a petition for a mere declaratory opinion. He has done no act under the Act, nor has any action been taken under the Act to his detriment. He has not even made a demand for a permit, & thus there is no demand & refusal. The Act has not been enforced against him as such. His only complaint is that as a result of the impugned Act he cannot do many things which he has in his mind. Mandamus cannot issue unless there is a demand & a refusal or some act or omission is to be ordered. It is not to be expected that this Court will sit down to examine the constitutionality of all the sections of the Act & the rules & notifications with a view to finding out what is constitutional or what is not.

Section 22 and Section 46(1)(b) of RERA

This argument was in reference to the constitution of the appeal tribunal.

Argument of Learned counsel on behalf of petitioner:

The learned Senior Counsel submitted that there is no provision in law to appoint a judicial member as one of the members of the authority constituted under Chapter V of the RERA. The counsel narrated functions to be carried out by the authority under Chapter V. By referring to various other provisions of the RERA, it was submitted that the `authority’ would carry judicial scrutiny of the matters coming before it and would take decisions on the conflicting claims of the parties by looking into the material brought before it. It was submitted that under the provisions of Section 44 of the RERA, appeal is prescribed against the order passed by the authority to Appellate Tribunal. The composition of Appellate Tribunal is prescribed under Section 45, which mandates that the Appellate Tribunal shall consist of a Chairperson and not less than two whole time Members of which one shall be a Judicial Member and other shall be a Technical or Administrative Member. Section 46(1)(b) refers to the definition of a Judicial Member, which includes a Judicial Member, a Member of the Indian Legal Service having held the post of Additional Secretary of that service or equivalent post or an Advocate having 20 years practice. In the submission of the counsel, reference to `inclusion of Member of the Indian Legal Service who had held the post of Additional Secretary’ is contrary to the settled law in the case of Union of India vs. R. Gandhi, President, Madras Bar Association and to that extent the definition prescribed under Section 46(1)(b) shall be held to be arbitrary, contrary to law and against the letter and spirit of provisions of Section 45. The learned counsel submits that whenever an authority would discharge adjudicatory functions, the presence of a Judicial Member has been held to be mandatory. 

 The learned counsel has also raised a challenge to the Selection Committee and its constitution under Section 22 as bad in law and against the principles settled in the case of Madras Bar Association above mentioned.

Argument of Learned ASG on behalf of respondents:

The learned ASG submitted that section 22 of the RERA is legal and constitutionally valid. There are many statutory authorities that are discharging judicial function with no judicial member present. Reference was made to SEBI Act ,especially section 15. A further reference was made to the provisions of Section 48 of the Prevention of Money-Laundering Act, 2002, Sections 58-A and 146 of the Representation of the People Act, 1951, Sections 3 and 8 of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 and Sections 40 and 44 of the Maharashtra Rent Control Act, 1999.

It was further submitted that 323B of the constitution of India does not mandate for a tribunal to have a judicial member. This should be left to the wisdom of the legislature.

Ruling of the Court

We find broadly three grounds on which the petitioners have challenged the various provisions of RERA, namely, (i) retrospective / retroactive application of certain provisions, (ii) unreasonable restrictions placed by certain provisions contrary to Article 19(1)(g) and violation of Article 14 of the Constitution of India and (iii) absence of a Judicial Member in the Authority constituted under Section 22 and definition of the Judicial Member as defined under Section 46 of RERA.

Speaking of retrospectivity of section 3, the Bombay High Court held that the projects already completed are in no way affected and neither are the accrued or vested rights. The provisions of RERA are prospective in nature because RERA applies only upon registration. Even then, The parliament is competent to frame laws affecting antecedent events.

For Section 4(2)(l)(D) , The court held that throughout the country so many cases came to light showing that the promoters were syphoning funds realised from the allottees. Thus to stop this, this section of RERA is very necessary and is not at all unreasonable or arbitrary. 

It was submitted that there is no prescribed process for the deposit of the 70%. Cases may arise where the promoters invest money from their pockets or where the allottees make default in timely payment etc . To this, the court replied that a legislation cannot be drafted by keeping in view all the possible eventualities. Nothing can be said before actual implementation and the challenge cannot be maintained as it is in an academic stage.

The first proviso to Section 6 has been challenged by the petitioners as being contrary to Articles 14 and 19(1)(g). The court held in it’s finding that this provision required serious attention. It is possible that a genuine promoter, after making good efforts may fail to complete the project in time due to reasons stated by the petitioner (already mentioned). But again on behalf of UOI it was held that if the provision was made directory instead of mandatory then it would open floodgates for promoters and allottees to delay the project in one way or another for self interests. The Court held in such cases the entire purpose of RERA would get defeated. The court held that this provision cannot be approached one sidedly and the aggregate scheme is to protect private transactions in the Real Estate sector and keeping this in mind, the aggregate Act has to be taken into consideration for preserving the interests of both parties. The provision of section 7 refers to revocation of registration. This provision confers wide powers on the authority to regulate conduct of the promoter but only in deserving cases, cancel the registration. The authority shall be entitled to take into consideration reasons and circumstances and give an opportunity to both parties to be heard. The court found that a balanced approach should be adopted, keeping in mind the purpose of the enactment. The court held that just on the basis of plea of the petitioners, this provision cannot be held to be violative of Art. 19 (1) (g) and Art. 14.A and therefore, harmonious and balance construction of the provisions shall suffice to uphold the constitutionality.

With reference to section 8, the Court heldthat a promoter would always remain promoter under RERA and what is registered is the project and not the promoter. There is a crucial distinction. For generating finance, the authority may ask the promoters to sell off constructed flats , for remaining development works. The project or the money shall not be taken away from the promoter by the authority and thus there is no question of expropriation.

The court held that it requires a harmonious and balanced construction of the provisions of Section 8 read with other provisions of RERA because it would do harm in case individual provision of this nature and their clauses are considered in isolation and by separating them from other provisions. Powers conferred on the authority shall be exercised on case to case basis. The court held that while exercising powers in this regard, the authority shall be bound to hear the promoter, allottee or associations of allottees, as the case may be. The authority, while dealing with such cases, shall be bound to pass a reasoned order. This provision in no way means that in any case of failure of the promoter, he shall be ousted from the project entirely.

For section 18, the court held “Such provisions are necessary to be incorporated because it was noticed by the Select Committee and the Standing Committee of the Parliament that huge sums of money collected from the allottees were not utilized fully for the project or the amounts collected from the allottees were diverted to other sectors than the concerned project. We do not notice any constitutional impropriety or legal infirmity or unreasonableness in incorporating these provisions under the RERA.”

The court held that section 17 and section 19 of RERA are safeguards for the promoter in this regard and thus a balance has been struck. The provisions of Section 18 must be read with Sections 71 and 72. The adjudicator would consider each case on its merits and unless such cases emerge and decisions are taken by the authority, it would not be appropriate at this stage to hypothetically consider a situation and decide the constitutional validity of statutory provisions.

In view of the scheme of the RERA and the powers to be exercised by the authority, we find that the authority would be discharging

not only administrative functions but also quasi-judicial functions. But, then after considering the submission made on behalf of the UOI, the court did not find that a judicial member is mandatory to be appointed. The challenge to the validity of the constitution of Selection Committee and qualification of members of authority under Section 22 of RERA fails.

In the context of contradiction between section 45, and 46 the Court held that a Member of Indian Legal Service, who has held the post of Additional Secretary of that service or any equivalent post is neither a retired Judge nor qualified to be appointed as a Judge. He can never fall within a definition of “Judicial Member”. Section 46(1)(b) being contrary to the express mandate of Section 45 of the RERA is, therefore, bad in law. 

It is well settled that a Court can sever an unconstitutional provision from an otherwise constitutional measure. The court, therefore, held that expression of the definition relating to member of Indian Legal Service could be severed and be declared as unconstitutional and be struck down accordingly.

To conclude, the validity of the act along with its provisions was upheld.

READ THE JUDGEMENT HERE

Krishnachura Kunda

Krishnachura Kunda

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Krishnachura is a compendious and powerful writer. She keeps herself updated about social issues and loves to write her opinions over the same. If you are looking for someone to debate over a social issue, well then Krishnachura is the right person.

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