September 15, 2020: A series of decisions on the Insolvency and Bankruptcy Code, the Consumer Protection Act and RERA over the last few months has added to homebuyers’ misery.
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Let’s take a look at some of the key issues:
The Insolvency and Bankruptcy Code, 2016 (IBC) has been amended to introduce a minimum threshold requirement. Now, 100 homebuyers or 10 percent of the total number of homebuyers, whichever is lower will be needed to trigger an IBC petition at the National Company Law Tribunal (NCLT) against a defaulting developer for the purposes of grievance resolution or liquidation, as the case may be.
Under the Consumer Protection Act, 2019, the pecuniary jurisdiction of various consumer forums has been raised substantially.
A homebuyer will now have to approach the district forum for amounts paid up to Rs 1 crore, the state forum for amounts paid from Rs 1 crore up to Rs 10 crore; and the national forum for amounts over Rs 10 crore. These thresholds were at Rs 20 lakh, Rs 20 lakh to Rs 1 crore, and over Rs 1 crore, respectively under the Consumer Protection Act, 1986, that was applicable before the latest amendments.
The ministry of housing and urban affairs, Government of India, vide an Office Memorandum dated May 13, 2020, issued an advisory for extending the registration of real estate projects due to Force Majeure under the provisions of the Real Estate (Regulation & Development) Act, 2016 (RERA).
The Office Memorandum states: “The registration of all real estate projects whose completion date, revised completion date, or extended completion date expires on or after March 25, 2020, may be automatically extended by 6 months with a further extension of 3 months”.
When RERA was enacted and brought into force, it was expected that homebuyers would prefer to approach RERA Regulatory Authorities / Appellate Tribunal, as an Act having real estate specific clauses, both preventive and curative.
Important among them are — mandatory registration of real estate projects; deposit of 70 percent of the money received from allottees in a separate bank account; prohibition on modifications of sanctioned plans without the written consent of two-third allottees; bar on collecting more than 10 percent of the value of the property as a booking amount without entering into an Agreement for Sale with the allottee among others.
It didn’t take long for homebuyers to realise that RERA was way-off its goal not by miles but by light-years. Not only was its implementation lethargic (since the Rules were diluted and there were inordinate delays in setting up Regulatory Authorities by most states), but also the Regulatory Authorities were found passing orders which were not strictly as per the provisions of the Act.
To add to the agony of homebuyers, these orders were also not being enforced. Thus, with developers not obeying the orders, RERA was proving to be completely ineffective.
The Authorities also strayed away from the core objective of RERA i.e. to protect homebuyers’ interests, by focusing on a subsidiary provision – section 32 of RERA – Functions of Authority for promotion of real estate sector.
Section 32 has a limited mandate for providing recommendations to the State Government and/or Municipal Authorities/Town Planning Authorities based on the authorities’ experience with time, which is also not binding, for the promotion of the sector. RERA was not enacted for this purpose, but is a side event.
Altogether this has distanced home buyers from any hope of justice, thereby eroding their faith in RERA to protect their life savings, to a point of no return.
The failure of RERA led to homebuyers approaching NCLT under the IBC or the Consumer Forums under the Consumer Protection Act. It was felt that these forums were more effective in getting a fair and just outcome, and ensuring its timely enforcement.
This, however, made the developers uncomfortable. Consequently, they started demanding, not only by themselves but also through other agencies that all forums other than RERA which are currently available to homebuyers be barred, namely NCLT under IBC and the Consumer Forums under the Consumer Protection Act.
The builders’ community has been vehemently demanding that like civil courts, Consumer Forums should also be barred under RERA. Even though the Consumer Forum has not been barred outright, by increasing the monetary thresholds under the new consumer protection law, the time periods for final disposal of consumer (home buyers) complaints would automatically jump by a few years, due to downgrading of forums based on pecuniary jurisdiction.
It is pertinent to mention that since the enactment of RERA in 2016 the Central Advisory Council (CAC) (an advisory body under RERA) met for the first time on May 14, 2018. Fast forward to April 29, 2020, when an emergency virtual meeting of the CAC was called for the second time to give an extension to all real estate projects registered under RERA.
The FPCE raised objections during the meeting and subsequently also in writing through and email followed by a letter, that the decision to grant a blanket extension of six to nine months to all real estate projects was both unfair to home buyers and patently illegal. After all, the actual lockdown during which construction was not permitted lasted less than a month, whereas Force Majeure tenure was for six months, extendable up to nine months.
This is illegal not only because the extension was to be given over and above the period of one year already provided under section 6 (Extension of Registration) of RERA, but also because no such power to give direction/advice by the Central Government to RERA Authorities exists under the provisions of RERA.
Needless to say, the recent decisions have given great relief to builders as they will not be liable for any interest, compensation or penalty for this period. Meanwhile, homebuyers will be the ultimate sufferers during this already-difficult time.
This is obviously sending a wrong message, which will only embolden the builders to continue their wrongdoings, as recourse to legal action against them is now restricted and the options available under compulsion (read RERA) is proving to be ineffective.
It is now time to introspect what is wrong with the sector despite RERA and direct sops doled out over the years in annual Budgets and why the real estate sector continues to be a drag on the economy. The Covid-19 pandemic has rung alarm bells across the society and economy. A sharp V-shaped recovery in economic activity is not possible if citizens remain stripped of their purchasing power and fraud remains the accepted normal. The real estate sector needs to lead from the front. That is only possible if we adopt a policy of zero tolerance for any kind of malpractices in the sector; ensure a time-bound justice mechanism for suffering homebuyers and restore the faith and confidence among prospective homebuyers by ensuring that performance surpasses promises by a wide margin.
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