RERA is Retroactive: SC


Recently, The Supreme Court had suggested some changes in the Real Estate Regulatory Authority Act (RERA) to protect the interests of homebuyers

Details of the verdict

The judgment dated November 11 came in Newtech Promoters and Developers Limited v. State of UP case. Apart from the technicalities of RERA, one of the issues considered by the Apex Court was whether RERA is retrospective/retroactive in its operation and what will be its legal consequence if tested on the anvil of the Constitution of India.

Following are the key observations of the verdict:

  • Taking note of the statutory provisions especially Section 3 of the RERA, the court observed that the RERA is retroactive (taking effect from a date in the past) in nature and covers all ongoing projects for which completion certificate has not been issued.
  • Court said that the legislative intent is to make the Act applicable not only to the projects which were yet to commence after the Act became operational but also to bring under its fold the ongoing projects and to protect the rights of the stakeholders, including allottees/home buyers, promoters and real estate agents while imposing certain duties and responsibilities on each of them and to regulate, administer and supervise the unregulated real estate sector within the fold of the real estate authority.
  • Court made it clear that RERA Act does not apply to the projects already completed or to which the completion certificate has been granted at the commencement of the Act.
  • Parliament is always competent to enact any law affecting the antecedent events: Court held that merely because enactment is made retroactive in its operation, it cannot be said to be either violative of Articles 14 or 19(1)(g) of the Constitution of India. To the contrary, the Parliament indeed has the power to legislate even retrospectively to take into its fold the preexisting contract and rights executed between the parties in the larger public interest.
    • Thus, it is clear that the statute is not retrospective merely because it affects existing rights or its retrospection because a part of the requisites for its action is drawn from a time antecedent to its passing. At the same time, retroactive statute means a statute which creates a new obligation on transactions or considerations already passed or destroy or impair vested rights.
  • Court also held that the RERA, 2016 empowers the RER authority to delegate its power and functions to any of its member, by general or special order. The regulatory authority has exclusive jurisdiction to direct refund of the amount, and interest on the refund amount, or directing payment of interest for delayed delivery of possession, or penalty and interest thereon, to the allottee.
  • The Court also observed that in cases of default, both the home buyers and promoters are equally protected by the statute.

Real Estate Regulation and Development Act (RERA), 2016

  • Need:
    • Securing the Largest Investment Sector: Regulation of the real estate sector was under discussion since 2013, and the RERA Act eventually came into being in 2016. Data show that more than 77% of the total assets of an average Indian household are held in real estate, and it’s the single largest investment of an individual in his lifetime.
    • Creating Accountability: Prior to the law, the real estate and housing sector was largely unregulated, with the consequence that consumers were unable to hold builders and developers accountable.
      • The Consumer Protection Act, 1986 was inadequate to address the needs of homebuyers.
      • RERA was introduced with the objective of ensuring greater accountability towards consumers, to reduce frauds and delays, and to set up a fast ­track dispute resolution mechanism.

  • Major Provisions:
    • Establishment of state level regulatory authorities- Real Estate Regulatory Authority (RERA): The Act provides for State governments to establish more than one regulatory authority with the following mandate:
      • Register and maintain a database of real estate projects; publish it on its website for public viewing,
      • Protection of interest of promoters, buyers and real estate agents
      • Development of sustainable and affordable housing,
      • Render advice to the government and ensure compliance with its Regulations and the Act.
    • Establishment of Real Estate Appellate Tribunal- Decisions of RERAs can be appealed in these tribunals.
    • Mandatory Registration: All projects with plot size of minimum 500 or eight apartments need to be registered with Regulatory Authorities.
    • Deposits: Depositing 70% of the funds collected from buyers in a separate escrow bank account for construction of that project only.
    • Liability: Developer’s liability to repair structural defects for five years.
    • Penal interest in case of default: Both promoter and buyer are liable to pay an equal rate of interest in case of any default from either side.
    • Cap on Advance Payments: A promoter cannot accept more than 10% of the cost of the plot, apartment or building as an advance payment or an application fee from a person without first entering into an agreement for sale.
    • Carpet Area: Defines Carpet Area as net usable floor area of flat. Buyers will be charged for the carpet area and not the super built-up area.
    • Punishment: Imprisonment of up to three years for developers and up to one year in case of agents and buyers for violation of orders of Appellate Tribunals and Regulatory Authorities.

Implementation of the Act:

  • 34 states/Union Territories have notified rules under RERA, while its implementation in Nagaland is under process.
  • West Bengal has enacted its own legislation — West Bengal Housing Industry Regulation Act, 2017 (HIRA) — instead of notifying rules under RERA.
  • 30 States/UTs have set up Real Estate Regulatory Authorities, and 26 have set up Real Estate Appellate Tribunals, as per the latest data available with the Ministry of Housing and Urban Affairs.

Source: IE

To read more about RERA: click here…

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