A. Introduction:

In what could be touted as a significant ruling, Maharashtra Real Estate Regulatory Authority (“MahaRERA”) has paved the way for a pragmatic perspective by interpreting that be it a purchase for investment or for personal usage, the lawful rights of a buyer of an apartment shall be upheld under the Real Estate (Regulation & Development) Act, 2016 (“RERA Act”).

B. Brief Facts of the Case:

In this case, the complainants – Mr. Kamal Agrawal and Ms. Babita Agarwal (“Complainants”) filed a complaint against M/s. Sakla Enterprises (“Respondent”) in relation to the Respondent’s registered real estate project “Sagar Complex” at Kurgaon, Boisar, Palghar District, Maharashtra . The facts of the case were that the Complainants had booked five flats in Sagar Complex for a total consideration of INR 15,00,000/- for each flat. The Complainants had duly paid the entire consideration for the five flats. Consequently, the Respondent had signed and notarized allotment letters all dated October 9, 2017 in favour of the Complainants in respect of the five flats. In accordance with the contents of the said allotment letters, the Respondent agreed to handover the possession of the said flats to the Complainants within a period of two years from the date of the allotment letters and if there was a delay in handing over possession on the part of the Respondent, the Respondent would buy back the flats in question.

Thereafter, the Respondent failed to fulfil either of the promised actions and hence the Complainants filed the complaint seeking relief under Section 13 of the RERA Act for execution of the agreement for sale, in this case the agreements for sale being the impugned allotment letters and praying for hand-over of possession of the five flats.
Section 13(1) of the RERA Act states that “a promoter shall not accept a sum more than ten per cent of the cost of the apartment, plot, or building as the case may be, as an advance payment or an application fee, from a person without first entering into a written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force”.

Further, a Promoter defined under Section (zk) of the RERA Act includes a builder / developer. The Respondent in this case falls within the envisaged definition. Further, an “agreement for sale” is defined under the RERA Act to simply mean an agreement entered into between the promoter and the allottee, hence the allotment letters in this transaction fall within the purview of the definition of “agreement for sale”.

To counter the allegations made by the Complainants, two issues were raised by the Respondent as detailed below:

a. Issue of Maintainability: The Respondent contended that the impugned transaction had taken place in the year 2014 i.e. before the commencement of the RERA Act and pursuant to the judgement passed by Hon’ble High Court of Judicature at Bombay in M/s. Neelkamal Realtors Pvt. Ltd. v/s Union of India and Ors., the stated legal position was that the RERA Act had no retrospective effect and hence this complaint was not maintainable.
On the above issue MahaRERA had noted that the notarised allotment letters cum agreements were dated October 9, 2017, and hence it is prima facie of the view that the said flats are allegedly booked and allotted to the Complainants on October 9, 2017, i.e., after commencement of RERA Act (May 1, 2016) and therefore there was no question of retrospective application.

b. Suppression of Facts as Investors: The Respondent alleged that the Complainants are not genuine allottees but are “investors” and therefore, the complaint is liable to be dismissed. It further stated that it had undertaken the said project in the year 2014 by executing a registered development agreement dated March 31, 2014, with the original owner whereby the Complainants approached the Respondent for investment purpose in the said project. The Respondent had in turn handed over blank allotment letters to the Complainants only as a security.

C. Ruling:

Disregarding the argument with respect to the intention of the Complainants behind buying the apartments and their positions as investors or homebuyers, MahaRERA held that the Respondent should not have accepted the money from the Complainants without first registering the agreements for sale. Further, the payment made by the Complainants had not been denied by the Respondent. Hence, the Respondent had violated the provision of Section 13 (1) of the RERA Act.
The quasi-judicial authority additionally noted that the Respondent cannot deny the claims of the Complainants merely by saying that they are investors and not allottees, since the Complainants have in any case invested their money in the Respondent’s real estate project which was also registered under MahaRERA.

It is interesting to note that, RERA Act does not distinguish between a homebuyer or an investor, the RERA Act simply contemplates an “allotee”, the definition of which is reproduced below:

“allottee” in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent;

Additionally, the rights and duties under Section 19 of the RERA Act are prescribed for an “allottee”. Hence, the ruling substantiates that the RERA legislation contemplates no purpose-based distinction. The RERA legislation is in effect neutral regarding the intent and confers unqualified rights to safeguard the bona fide interests of the “allottees” against the dereliction of duty by the builder / developer. MahaRERA has rightly upheld the legitimate interests of the aggrieved Complainants without looking into the actual purpose of buying the estate in question.

D. Investors under IBC

When it comes to the rights of the buyers, the interplay of the Consumer Protection Act, 1986, Insolvency and Bankruptcy Code, 2016 (“IBC”) and RERA Act are acknowledged as concurrent remedies and not in derogation of each other. It is only in the event of conflict that the IBC will prevail over RERA as held by the Supreme Court in Pioneer Urban Land and Infrastructure Ltd & Anr v. Union of India (“Pioneer Judgement”).

At present, under IBC any amount raised from an allottee under a real estate project is deemed to be an amount having the commercial effect of a borrowing and is recognized as a ‘financial debt’ meaning that the “allottee” is designated as a “financial creditor”.
Additionally, under Section 7 of the IBC, a financial creditor may file an application for initiating corporate insolvency resolution process (“CIRP”) against a corporate debtor before the National Company Law Tribunal (“NCLT”) when a default has occurred. A default shall mean non-payment of debt when whole or any part of debt has become due and payable and is not paid by the debtor.

Specifically in the real estate context it has also been provided under proviso to Section 7(1) of IBC that for financial creditors who are allottees under a real estate project, an application for initiating CIRP against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less.

It is important to once again focus on the neutrality of the term “allottee” as opposed to homebuyer or an investor.

Hence, homeowners who have provided funds to builders/promoters to buy a home or an investment property, are considered to be financial creditors and, as such, can file an application for initiating the CIRP against defaulting builders under Section 7 of the IBC.

On harmonious construction of the two prominent legislations being RERA Act and IBC for the rights of the real estate owners, it is clear that the legislative intent is not to differentiate between homeowners and investors and in effect the regulatory machinery is enforced to uphold the values enshrined under the RERA Act which was promulgated “to protect the interest of consumers in the real estate sector”.

E. Conclusion:

We can only hope that this enthusiasm and activism continues to proactively safeguard the interest of the aggrieved parties who are distressed due to the malpractices and delays generally prevalent in the real estate sector and such Real Estate Regulatory Authorities continue to be the beacon of hope by providing a meaningful and a fast-track avenue of dispute resolution. In the backdrop of the Covid-19 pandemic, the real estate sector has been adversely impacted and such rulings shall be instrumental in promoting good practices and governance amidst the involved stakeholders.

If you have any queries or would like more information regarding this alert, please feel free to reach out to one of the authors:

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