31st July, 2021 – ANALYSIS OF RERA ACT, 2016 by Vasu @LEXCLIQ

“Real Estate cannot be lost or stolen, nor can it be carried away, purchased with common sense, paid in full & managed with reasonable care, it is the safest investment in the world”

  • Franklin D. Roosevelt

Introduction

The infrastructure sector is one of the largest and growing sectors of the Indian economy. The government of India has always focused on its betterment by allocating a huge part of the budget to it. Recently Government is planning to spend US dollar 1.4 trillion on infrastructure during 2019-23. Unfortunately, the real estate sector faced a lot of malpractices & fraudulent activities. As there was no statute available for the regulation of such a developing sector, it became necessary to regulate this sector with proper transparency, accountability & efficiency. To fulfill this requirement back in 2013, the Congress government introduced the Real Estate (Regulation & Development) Bill. In 2015 the bill was again introduced in the parliament where 20 important amendments were approved by the union cabinet. Finally, in 2016, the bill was passed by both the house of parliament.

Key Objectives of the Act

  • The main objective of the RERA Act is to promote accountability, efficiency & transparency in the real-estate sector.
  • It aims to protect the rights of the allottee through a grievance redressal system by RERA regulatory authority.
  • The Act has imposed liability on promoters, agents & brokers so that mal-practices could be prevented.
  • Provisions of penalties have been added for defaulters.[1]

 

 Common Malpractices & Remedies available in RERA Act, 2016

  • Long Delays

 Many buyers have faced unnecessary delays when it comes to getting possession of the property. Builders extend the time unnecessarily for years. According to ANAROCK Research, the Mumbai Metropolitan Region & National Capital Region are worse affected due to long delays in possession of the property. Both the regions together contribute up to 57% of the under-construction residential stock in the country. Hence, long delays are one of the most common problems exasperating the sector currently. As everything was largely unregulated, this gave builders the freedom to run this sector as per their benefits.[2]

According to Section 18 of the RERA Act, 2016, if the promoter of the project is causing a delay in handing over the possession of the apartment, plot, or building as mentioned in the terms of the agreement of sale then the promoter shall be held liable.

  1. If the allottee decides to evacuate the project then the promoter has to return the money received by him in respect of the apartment, plot, or building with the interest as may be prescribed.
  2. If the allottee decides to not leave the project then the promoter shall be liable to pay interest of every month till the date of giving possession of the apartment, plot, or building.

 

  • Fund Deviation

Deviating funds is not a rare practice of builders. They collect funds in the name of one specific project but behind the back of the buyers, they deflect this amount in some other project. This leads to a delay in the completion of the project in which the buyers had invested their money. Buyers get trapped in a vicious circle. They are forced to wait for years & years for their dream flat or building. According to Section 4(2)(l)(D) of RERA Act, 2016, the promoter or a person authorized by promoter shall sign a declaration mentioning that 70% of the fund realized by allottee for the project from time to time has to be deposited in a separate bank account in any scheduled bank. That fund is to be maintained only for the various construction costs or land costs and not for any other purpose.[3]

  • Clarity & Liability

The real-estate sector is full of unwanted surprises for home-buyers. The notorious reputation of this sector represents a lack of transparency & accountability. When it comes to investment in this sector, nobody knows what will happen next. Because those who are responsible never take the accountability of the same. The RERA Act is designed to protect the rights of buyers and promote clarity & liability in the sector.[4]

Section 31 of the RERA Act, 2016, empowers an aggrieved person to file a complaint against any violation of any provision under this Act. The complaint has to file before Real-Estate Regulatory Authority.

Section 35 of the Act, gives power to the regulatory authority to take Suo moto cognizance of the case. Hence, the regulatory authority need not wait for the complaint filed by any aggrieved person. It can take action on its own against any promoter/allottee/real-estate agent.

  • Identifying Carpet Area

Many home-buyers are unaware of the term carpet area. Hence, the agents are exploiting these people by selling them built-in based area. Carpet area in general means an area where one can spread a carpet. But after the implementation of the RERA Act, the definition of carpet area has become clear & precise. According to Section 2(k), the “carpet area” under the Act means net usable floor space excludes space occupied by the – external walls, service shafts, balcony, or verandah but includes area occupied by the internal partition walls of the apartment.[5]

 

Punishments under RERA Act, 2016

  • Punishment for Buyers
Offense Punishment/Penalty
Failure or refusal to comply with any provision of RERA Penalty up to 5% of the estimated cost of the project.
Failure or refusal to comply with the Appellant Tribunal Imprisonment up to 1 year or fine of 10% of the estimated cost of the project.

 

  • Punishment for Promoters
Offense Punishment/Penalty
Non-registration of the project The penalty of 10% of the approximate cost of the project.
Giving or promoting false information The penalty of 5% of the approximate cost of the project.
Violation of laws Imprisonment may extend up to 3 years of a fine of 10% of the approximate cost of the project.

 

  • Punishment for Agents[6]
Offense Punishment/Penalty
Non-registration of the project A daily fine of Rupees 10,000 or 5% of the approximate cost of the project
Giving or promoting false information A daily fine of 5% of the approximate cost of the project
Violation of laws Imprisonment may extend up to 1 year or a fine of 10% of the project’s approximate cost.

 

 

Conclusion

The statutory Act of the Real-estate sector was introduced to regulate the unregulated housing sector by promoting transparency in the system, protecting the rights of buyers & imposing liabilities on defaulters. But it has been seen that there exists conflict between center & states regarding the applicability of the RERA Act. The states have made their changes in the Act as per their convenience. Provisions related to punishments & charges are different in every state. They have not fully implemented the Act. The housing sector in the northeast region is still unregulated as those states have not implemented RERA. The Act is diluted by states hence, resulting in non-compliance with the provisions of the actual Act. The implementation of the RERA Act, 2016 is a big step in the housing sector. The Act needs proper implementation in every state to achieve its true purpose. RERA regulatory author needs to work efficiently to curb the defaulters who are running their business through mal-practices.

[1] Drishti, RERA Act, 2016, https://www.drishtiias.com/to-the-points/Paper2/rera-act-2016.

[2] Sanjeev Sinha, No more project delays, builder malpractices, Financial Express, https://www.financialexpress.com/money/no-more-project-delays-builder-malpractices-heres-how-rera-will-help-homebuyers/635021/.

[3] Rahul Sharma, RERA: Diversion of funds in Real estate sector & its implications, Centrik,

https://www.centrik.in/blogs/rera-diversion-of-funds-in-the-real-estate-and-its-implications/.

[4] Diksha, RERA: Conceptualization of Transparency & Efficiency in Real Estate Sector, Centrik, https://www.centrik.in/blogs/rera-conceptualization-transparency-efficiency-real-estate-sector/.

[5] Vinay Thyagaraj, Carpet Area under RERA, Tax Guru, https://taxguru.in/corporate-law/carpet-area-rera.html.

[6] M Nikitha, Critical Analysis of RERA Act, 2016, B&B Associates, https://bnblegal.com/article/critical-analysis-of-rera-act-2016/.

 

*The views in this article are author’s point of view. BSK Legal may or may not subscribe to the views of the author. This article is not intended to substitute legal advice. Any portion or part of this article can be reproduced, copied or used, in whole or in part, after giving due credit to the publisher. The Copyright of the article is with the author.

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