Concerns Unaddressed in Supreme Court RERA Ruling
By Nishant Arora, Senior Principal Partner, Lumiere Law Partners
The Supreme Court of India (“SC”) renders its Judgment of November 11, 2021, in the case of Newtech Promoters and Developers Private limited v State of UP and others (“Judgment”) set a precedent in with regard to the applicability of Estate Regulation and Development Act, 2016 (“RERA”) as a retroactive act on “ongoing projects”.
This judgment also focused on various other aspects such as –
(i) the scope of authority of the adjudicating officer appointed under section 71 of the RERA;
(ii) whether the power of authority of the RERA may be delegated to a single member to hear complaints under section 31 of the RERA;
(iii) requirement of a prior deposit by the promoter before appealing the judgment of the RERA authority; and (iv) the power of the authority to issue a recovery certificate for the principal amount due under the RERA.
The ruling clarified the retroactive applicability of RERA to ongoing projects and answered questions raised about its operation.
However, the judgment further raised some questions as it overlooked a few aspects that may need to be deliberated on to ensure a smooth and uniform operation of RERA across the country and to balance the interests of buyers and developers.
RERA came into effect five years ago and various projects registered under RERA have been delivered to homebuyers. However, some ambiguities still surround RERA and need to be clarified.
1. Ambiguity regarding the definition of “ongoing project”
The term “ongoing project” has not been defined in the RERA, however, the proviso of Article 3(1) of the RERA creates an obligation for promoters to obtain registration for projects that are in progress on the start date of the RERA, i.e. 01 May 2017. and whose certificate of completion has not been issued, within 3 (three) months from the date of entry into force of the act.
The conditional clause of Article 3 (1) implies that all projects in progress at the start date of the RERA and for which the certificate of completion has not been issued by the competent authority are required to obtain the record.
The judgment clarifies RERA’s intention to say that the legislative intention is to make the law applicable not only to projects that began after the law became operational, but also to bring into its fold all ongoing projects. on the start date of the RERA. The judgment further clarifies that the legislative intention is to protect from the creation of the RERA the inter se rights of the stakeholders, including the assignees/purchasers, developers and real estate agents, while imposing certain duties and responsibilities on each from them and to regulate, and administer and supervise the unregulated real estate sector within the real estate authority.
Although the term “ongoing project” is not defined under RERA, it has been defined under RERA rules regulated by various states. For example, (a) the Uttar Pradesh Real Estate (Regulation and Development) Rules 2016 defines “ongoing project” which excludes projects (i) where services have been transferred to the local authority for maintenance; or (ii) when common areas and facilities have been turned over to the Association or Residents Welfare Association for maintenance; or (iii) when all development works have been completed and the deeds of sale/lease of 60 (sixty) percent of the apartments/houses/lands have been signed; or (iv) when all the development works have been completed and an application has been made to the competent authority for the issue of a certificate of completion; (b) the definition of ongoing projects under the Telangana Real Estate (Regulation and Development) Rules, 2016 excludes projects for which building permits were approved before 1 January 2017 by the relevant authorities; (c) The Punjab State Real Estate (Regulation and Development) Rules 2017 define ongoing projects to exclude the area from part of the project for which a Certificate of Partial Completion or Occupancy, as the case may be, has been obtained by the project proponent.
The examples illustrated above show that states have exempted some ongoing projects that would otherwise have been covered by the RERA. It would not be incorrect to state that the states attempted to dilute the RERA requirement by deviating from the intent of the RERA by formulating rules under the RERA. Although the judgment clarifies that the application of the RERA is retroactive based on the provision of the RERA, the question that remains to be answered is whether the exemptions provided by the States in the rules of the RERA to some projects are contrary to the intent of RERA.
2. Non-compliance with the RERA by certain states
The Ministry of Housing and Urban Affairs released an implementation progress report on March 19, 2022 outlining the status of the implementation and establishment of the RERA authority for all states and territories in the union of the country. The progress report states that Nagaland has not notified general RERA rules and that states such as Meghalaya, Nagaland, Sikkim and West Bengal have not put in place any authority, permanent or interim, as required by RERA. The SC also recognised, in its order of February 14, 2022 in Ashwini Kumar Upadhyay v. Union of India and others, as West Bengal State and some of the North Eastern States except Jammu & Kashmir and Ladakh. The order further mandated the State of West Bengal to immediately implement RERA in the state.
Since the judgment provides that the application of the RERA is retroactive, projects that were in progress on the start date of the RERA, i.e. 1 May 2017, would require registration. However, projects that were ongoing on the start date of the RERA, i.e. May 1, 2017, but were completed prior to the date authorities were put in place by those states, the applicability of RERA to these projects in all implementation perspectives is unclear. This ambiguity regarding the applicability of RERA on completed projects that were ongoing on the start date of RERA, i.e. 1 May 2017, may further lead to a situation where buyers of home covered by RERA are deprived of their rights and benefits in these states.
3. Other concerns surrounding RERA
The RERA was intended to protect home buyers and regulate the real estate industry. Since its inception, various projects have been registered under RERA, some of which have also been completed. However, there are still some aspects of RERA that need to be looked at, some of which are as sub-
a) Lack of uniformity across states with respect to RERA rules
As mentioned above, some states, when formulating their own RERA rules, have deviated from the central rules as formulated. This has led to a situation where there is a lack of uniformity across the country regarding the implementation of RERA rules. The Supreme Court, in its February 14, 2022 order in Ashwini Kumar Upadhayay v Union of India and Others, recognized that the protections given to homebuyers must be uniform across the country.
(b) Delay in Obtaining Approvals from Government Authorities
The RERA does not create an obligation for government authorities to approve real estate projects in a timely manner. This leads to a situation where projects are delayed due to late approvals from these authorities. Although developers are required to complete projects on time, failure to receive approvals from government authorities negatively impacts developers and, therefore, project delivery times. This was not addressed in RERA and should be deliberated.
The judgment sought to clarify various ambiguities regarding the applicability and operation of RERA and attempted to uphold the rights of homebuyers. However, issues such as non-uniformity in defining ongoing projects and late implementation of RERA by some states can lead to home buyers being deprived of RERA benefits.
Reflections should also be initiated on the aforementioned ambiguities in order to clarify the proper functioning of the RERA so that the stakeholders can benefit from the law.
(Eksha Narayan, Partner, Lumiere Law Partners also contributed to this article.)