The inability in the completion of a project

The Real Estate (Regulation and Development) Act, 2016 (“RERA”) which came into effect on May 1,
2017 had at its heart the interest of home buyers while balancing the interests
of all stakeholders in the real estate space. The onus has thereafter been on
enforcement agencies to ensure that RERA is strictly enforced in the same
spirit in which it was drafted, which depends on the timely delivery of homes
to buyers and not on the amount of penalties and levies imposed or collected from
promoters/developers or the amount of interest provided to buyers or how many
registrations got cancelled.

As per the records shared by the Ministry of Housing and Urban Affairs, about
20,000 projects have been registered under RERA in the past 6 months. While a
section of real estate developers has started using the registration under RERA
even as a marketing strategy, others appear to be still shying away in view of the
penal provisions of RERA.

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One of the major concerns raised by developers is that RERA, while
covering ongoing projects, is trying to regulate in a retrospective manner,
which has also prompted some developers to challenge the constitutional
validity of RERA itself.

Upholding the validity of RERA as a beneficial legislation, the High
Court of Maharashtra in a recent judgment of D. B. Realty & Another has
observed that the act of providing the proposed date for the completion of ongoing projects is a voluntary act by
a developer, and as such, the provision gives a fair chance to developers to
provide a date of completion of the project which could be different from the
date as provided in existing contracts. It also gives teeth and discretion to
the Regulator to review the time proposed by a developer (from a perspective of
buyer’s benefit) to either grant or reject the proposal of the developer.

The Hon’ble Court has also observed
that the consequences of breach of RERA apply only once a project is registered
under RERA, and in that sense, the application of RERA is not retrospective but
is only prospective in nature. Further, the Hon’ble Court has clarified that by
harmonious construction of the provisions of RERA, the interest of the
bonafide, non-defaulting promoters have been taken care of, and if there
existed exceptional and compelling circumstances behind developers’ inability in the completion of a
project within the stipulated time and manner, the Regulator has the power to
grant further extension, without penalizing them, though this condition shall
apply only on a case-to-case basis.

The Hon’ble Court has clarified that the provisions relating to penalty
are compensatory in nature and a balance has been struck under RERA by ensuring
that not only developers but also buyers are penalized for delays attributable
to them in making payments on time and getting the documents registered once a developer
has issued the handover notice.

A view is that the judgment and actual implementation of RERA may put a
lot of pressure on projects which are already at the
implementation/construction phase and which require registration under RERA for
being completed within the time declared by them, so much so that the entire project
borders on viability. Thus, from the perspective of developers, it is pertinent
that enforcement agencies ensure that developers are not subjected to excessive
regulation or rigid conformity to formal rules in a manner that the provisions
of RERA or bureaucratic actions hinder and prevent actions and decision-making,
ultimately hampering the intention behind the enactment of RERA, i.e., timely
completion of projects.

The focus thus needs to be on enabling timely completion in a manner
which is beneficial to buyers as well as developers rather than on penalizing
developers for non-compliance. Inferring the apprehension amongst developers,
the government has reiterated that RERA is for promotion and not for the strangulation
of the development of the country and intends to come up with a single-window
clearance to remove exploitation, corruption, middlemen, and unwanted delay in

A spate of litigations has been triggered in this initial phase as
clarity sets in on these aspects. In a recent order of the Bombay High Court
where, on an appeal filed by home buyers against the Regulator for denying them
compensation for delay by Epitome Residency in handing over flats, the same
Court referred the matter back to the Regulator for reconsideration with an
observation that the principles of natural justice were not followed. The
developer in this case had contended that the delay was caused due to the loss
of files in the Mantralaya fire and incorrect classification of land under CRZ
for years before it was rectified by the order of the High Court in 2016, and
therefore, the delay was clearly beyond the control of the developer.

Provisions of RERA required developers, projects, and agents to
mandatorily register their projects (including ongoing projects for which
completion certificate was not issued) with the Real Estate Regulatory
Authority (“Regulator”) established
under RERA by July 31, 2017. Although a project not registered until such date
would have been deemed to be unauthorized by the Regulator, several states
provided exemption from the ambit of RERA to certain categories of ongoing

The role of the states therefore has been very critical for the smooth
implementation of RERA. Keeping most of the ongoing or incomplete projects out
of the ambit of RERA by some states needs to be rectified as once the ambit of
RERA is effectively widened, more projects will come under the regulation and
these can be tracked for the benefit of buyers. Also, the states need to fasten
the process of constituting regular Real Estate Regulatory Authority.

A recent half-yearly report, India Real Estate, released by Knight Frank
India on 10th January 2018 has credited the government of Maharashtra for
proactively implementing RERA in letter and spirit. As per the report,
effective implementation of RERA coupled with falling real estate prices has
led to lifting the real estate market in Mumbai, resulting in 19 percent
increase in residential sales in the Mumbai Metropolitan Region (MMR) between
July and December 2017 as compared to the same period in 2016, which witnessed demonetization.
However, at the same time, it is interesting to note that as per the recent
order, the Maharashtra Regulator refused to entertain an application filed by
Shanti Niketan Cooperative Housing Society, Vikhroli (East), against Matrix
Construction, a builder, for failing to handover new flats even after 11 long
years, citing that disputes with regard to the redevelopment of housing
societies fell outside the ambit of RERA. Therefore, it would be interesting to
see how in the long run RERA would benefit the residents of Mumbai, where it is
estimated that almost 85% of the entire construction is in the form of
redevelopment of housing societies.

We surely are gearing up for interesting times, especially since the
thrust of the government is on the growth of the real estate sector for overall
economic growth of the country, for which customer confidence is the key, and a
lot will hinge upon how effectively the government and the Regulator
collectively work with other stakeholders towards bringing back the same.