In a significant win for homebuyers struggling with delayed possession of their flats at the hands of the builders, the Bombay High Court on Wednesday ruled that the Real Estate (Regulation and Development) Act is constitutionally valid and will be applicable to new as well as well as ongoing projects.
Builders had challenged certain provisions under RERA that required them to stipulate a timeframe from completion of a project, setting aside 70 per cent of the amount for a project to a separate account for construction and land costs, among others.
Section 3 of RERA was the most prominent among the challenges put forth by real estate developers. This Section under RERA made registration by May 1 mandatory for ongoing projects that were yet to receive completion certificates from relevant authorities.
The builders had contested the provisions saying it would make them liable for delays on schedules set in the past retrospectively.
Besides this, real estate developers had also sought doing away with provisions that require builders to deposit 70 per cent of funds paid by buyers and another which bars the regulator from granting more than a year's extension even for genuine reasons and made builders liable to compensate buyers even for possession dates agreed to in the past.
However, the HC dismissed the petitions of the builders, upheld the constitutional validity of the Act and held that these provisions were regulatory or compensatory, not penal.
The High Court’s ruling came after the Supreme Court asked the court to set the path on similar challenges in September this year. The SC’s directive came on various petitions moved by builders raising similar challenges in courts which the Centre had sought to be taken up at the top court.
The SC had clubbed these petitions and transferred them to the Bombay HC in order to avoid conflicting decisions.
The order assumes significance as several states, including UP and Haryana, had tweaked the definition of ‘ongoing projects’ that led to several delayed projects to escape falling under the RERA ambit.
Rules were tweaked by state governments in Telangana, UP, Haryana, Maharashtra, Karnataka, Andhra Pradesh and Madhya Pradesh and theyese can now be challenged by the aggrieved homebuyers.
Breather for Builders too
The HC offered a breather to builders too by expanding powers under RERA to grant more time in exceptional cases to a builder to complete a project. The additional time is meant to be granted in compelling circumstances on a case-by-case basis.
The extension would go beyond the statutory one-year extension after the deadline for completion, which the Act requires the project's promoter to mention during registration.
The court, however, warned that a builder or promoter is not entitled to invoke this clause in case of every delay.
In another relief to builders, the HC accepted the builders' plea that "judicial members" must mean "judicial officers" or judges, as the tribunal has powers to order imprisonment up to three years. The Centre sought a stay on the severance of the section, but the bench rejected its plea. The Act had a clause which required judicial members on tribunals to be bureaucrats from the Indian Legal Service.