Labourers work at a real estate construction site in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Revolutionary In Nature: How State Real Estate Authorities Enjoy Powers Akin to Civil Courts

BloombergQuintOpinion

The Indian Real Estate industry is experiencing a major overhaul on account of the strict implementation of the Real Estate (Regulation and Development), Act, 2016, the Prohibition of Benami Property Transactions Act, 2016 and the Insolvency and Bankruptcy Code, 2016.

While implementation of RERA is gaining momentum across the country with each passing day, the State Real Estate Authorities established under the RERA have emerged as a powerful tool for ensuring proper and effective implementation of RERA by the states across India.

This article aims to provide an overview of the powers and functions of the regulator and how it is using these powers to protect the interests of property buyers in India. Section 20(1) of RERA requires each state to set up the regulator within a period of one year from RERA coming into force. The RERA casts a duty on the regulator to ‘protect the interest of consumers in the real estate sector’.

Hence, Section 21 of RERA mandates that the regulator should comprise a chairperson and not less than two whole time members, appointed by the appropriate government.

In order to enable the Regulator to fulfil its fundamental duty of protecting the interests of consumers in the real estate sector, the RERA has bestowed the regulator with extensive powers that are more in the nature of those enjoyed by the civil courts in India and less like powers traditionally enjoyed by quasi-judicial authorities like that of the regulator.

Section 35 of the RERA empowers the regulator to initiate an inquiry and investigation. Section 35(1) of RERA enables the Regulator to initiate any inquiry and investigate into allegations against a real estate developer either suo-moto or on the basis of complaints from consumers. To ensure that the Regulator can effectively utilise this power, the regulator has been vested with the powers of a civil court to call for information and summon attendance. Therefore, pursuant to such inquiry and investigation conducted under Section 35(1) of the RERA, if the regulator so desires, it can call for information and summon attendance of concerned persons in order to conduct the inquiry and investigation in a comprehensive manner.

Further, under Section 35(2) of the RERA, the regulator has been given certain powers that only a civil court, while trying a suit, enjoys under the Code of Civil Procedure, 1908. This section empowers the regulator to, amongst others:

  1. Order the discovery and production of books of account.
  2. Summon and enforce the attendance of persons.
  3. Examine them on oath, issuing commissions for examination of witnesses or documents.

Here it would not be out of place to touch briefly upon the above three powers granted to the Regulator by RERA.

Discovery And Production Of Books Of Account

RERA empowers the regulator to direct real estate developers to produce their books of accounts. If the developers do not comply with these orders, the regulator can appoint commissioners for conducting searches and discovery of books of account pertaining to their real estate project. The books of account are helpful for determining financial irregularity of the developer concerned – i.e., whether the developer has utilised monies received from the consumers for the same project for which the consumers have made the payment.

Examining The Witnesses On Oath

RERA empowers the regulator to summon any person and examine them on oath. Since the majority of transactions between a real estate developer and home buyers are recorded through documents, the regulators more often ask the concerned person to submit his or her affidavit on oath. This expedites the inquiry and evidence collection process.

However, since RERA has empowered the regulator to conduct oral examination of the witness, the same can also be resorted to by the regulator in certain circumstances.

Issuing Commissions For The Examination Of Witnesses Or Documents

Section 35(2)(iii) of RERA empowers the regulator, like a civil court, to issue commissions for the examination of witnesses or documents. This would enable the Regulator to examine all aspects of a complaint against a developer by appointing a commission or by examining witnesses or documents. Here it would be pertinent to mention that apart from Section 35(2)(iii) of RERA, in Haryana, the Haryana Real Estate (Regulation and Development) Rules, 2017 vide its Rule 21 enables the regulator to appoint industry experts in assisting the Authority in conducting the inquiry proceedings.

Instances Of Regulators Utilising Powers

An example of how the Regulator has used these powers comes from the Real Estate Authority of Haryana, which recently put to use the power to initiate inquiry and investigation. The realtors in NCR witnessed the Haryana regulator ordering investigation against two developers, who have not completed their projects in Gurugram (Haryana) allegedly after receiving more than 80 percent of the sale price from customers. The action was initiated against these developers based on the complaints from affected homebuyers of the stalled ‘Greenopolis’ housing projects in Gurugram, Haryana.

While hearing the complaints against these developers, Haryana regulator passed restraining orders against the developer of ‘Greenopolis’ housing project preventing it from selling, transferring or creating encumbrance over the land earmarked for common area purposes, unsold units and from withdrawing money from the bank accounts of the developer entity, except for project development purposes. During these proceedings, the Haryana regulator, acting under Rule 21 of Haryana Real Estate (Regulation and Development) Rules, 2017, also appointed a quantity surveyor for assessing the work completed so far. Additionally, the Haryana Regulator also ordered financial audits of these projects.

Another state worth mentioning here is that of Maharashtra. The regulator appointed in the state of Maharashtra, popularly known as MahaRERA, has consistently been implementing the RERA as well as its rules to secure the safety of the buyers.

Apart from the above, RERA, vide its Section 36, also empowers the regulator to pass interim orders to restrain a real estate developer or its promoter from committing any act in contravention of RERA.

In order to protect the sanctity of the orders/directions passed by the regulator, Section 63 of RERA provides that non-compliance with the directions of the regulator is a continuing offence attracting penalty for every day of default, which can be cumulatively up to 5 percent of the developer’s estimated project cost.

Undoubtedly, RERA along with the set-up of the regulators under it, is a welcome initiative to regulate the real estate sector, which for eons remained the dominant playing field of the developers.

With the RERA and the regulators coming into force, property buyers who, to date, had no exclusive avenue for redressal of their grievances, have found an effective mechanism, which is not only consumer friendly but also cost and time-efficient.

However, what still remains in question is whether the RERA can uniformly and effectively be implemented across all states in India in its true letter and spirit so as to establish a regulated industry and safeguard the interests of the buyers/allottees of real properties.

This note was authored by Abhilash Pillai - Partner in the real estate practice at the Delhi office of Cyril Amarchand Mangaldas, and was originally published on the Cyril Amarchand Mangaldas blog.

The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.