People look at out at the construction site of Lodha The Park. (Photographer: Dhiraj Singh/Bloomberg)

Balancing Act: Bombay High Court Upholds RERA But Grants Partial Relief To Builders

The new real estate law has passed its first existential challenge. This week, the Bombay High Court upheld the constitutional validity of the Real Estate (Regulation and Development) Act or RERA. But in doing so, it also granted some relief to developers in the event of project delays.

Developers’ Grievances Against RERA

Broadly, the principal complaint of the developers was that RERA only protects the interest of homebuyers and the interests of the promoters have been given a go-bye.

Developers had raised the following key objections against the Act:

  1. The Act has retrospective application and imposes harsh penalties on developers for failing to complete a project within the stipulated time, even if this failure occurs in a project that was started before RERA was enforced.
  2. Some provisions, like those imposing excessive interest, place unreasonable restrictions on builders. RERA imposes interest on developers if projects are not delivered on time. This, the developers argued, is against constitutional principles that guarantee developers the right to equality and to practice trade.
  3. The regulatory authority, constituted under RERA, lacks judicial members. This, the developers had argued, leads to regulatory orders devoid of sound legal principles.

The Court’s Verdict

The Bombay High Court negated most of the arguments raised by builders and concluded that RERA has adequate mechanisms to balance the rights and obligations of promoters, real estate agents and homebuyers.

The Bombay High Court held:

  • Provisions of RERA, contested by the developers, are constitutionally valid and cannot be struck down.
  • RERA provisions cannot be held to be retrospective in nature as they don’t apply to projects that have already been completed. The court pointed out that the Act only applies to projects that have been initiated before RERA but are yet to be completed, that is, ongoing projects.
  • The court also dismissed the excessive interest argument by developers in the event of project delays. It held that the excessive interest was fair as it’s in the nature of a penalty. It held that this interest was meant to compensate homebuyers, and was an important step to fulfil the objective of the Act.

While the Bombay High Court dismissed most of the arguments by developers, it granted them relief on two fronts:

  1. It held that in exceptional and compelling circumstances, if the builder fails to complete a project within the stipulated time, the authority has the power to grant further extension for completion without penalising the builder. This assessment will be done by the RERA authority on a case-to-case basis.
  2. Additionally, the court partially struck down the provision relating to constitution of members of the Real Estate Appellate Tribunal. It directed that the two-member bench of the tribunal should always consist of a judicial member and majority of the members should be judicial members.
Laborers work at a construction site. (Photographer: Dhiraj Singh/Bloomberg)
Laborers work at a construction site. (Photographer: Dhiraj Singh/Bloomberg)

RERA’s Validity Upheld: Impact?

It’s a realistic decision by the Bombay High Court as it recognises that there can be genuine impediments in the completion of a project, which would render builders liable to penal actions for such delays, Niranjan Hiranandani, national president of National Real Estate Development Council said. The directive on inclusion of judicial members in the appellate authority augurs well for fair and just implementation of the Act, he added.

The impact of this order will depend on how different states interpret the concept of ‘exceptional and compelling circumstances’, Anuj Puri, chairman of ANAROCK Property Consultants said.

There are certainly circumstances which are beyond the developer’s control, such as failure of the relevant government authority to furnish timely permits without good reason, but the absence of what qualifies as ‘exceptional and compelling circumstances’ can lead to delays in possession.
Anuj Puri, Chairman, ANAROCK Property Consultants

But not everyone is pessimistic. The high court’s judgement will only strengthen the real estate fraternity further, Dharmesh Jain, chairman and managing director at real estate company Nirmal said.

By upholding the constitutional validity of the Act, the Bombay High Court has eliminated any ambiguity and scope for misconceptions with regards to legal aspects and provisions. This will have a positive impact on the industry, by bringing in transparency and making it easier for us to work in tandem.
Dharmesh Jain, CMD, Nirmal

The decision reinforces the ‘power of customer’ by giving homebuyers a protective shield, Rohit Poddar, managing director of Poddar Housing and Development pointed out. On one hand, the decision will boost customer confidence while closing a real estate deal, on the other, it will ensure stringent compliance by developers, he added.