BOMBAY HIGH COURT REPELS BUILDERS’ CHALLENGE TO REAL ESTATE

REGULATION ACT

The new judgement by the Bombay High Court upholding the constitutional validity
of the RERA Act or Real Estate (Regulation and Development) Act, 2016 has brought
cheer to the thousands of homebuyers staring at uncertainty due to unfinished and
delayed building projects all over India. The parliament had enacted the Act after
nearly a decade of deliberations at different levels, but after it became effective on 1
May 2017, several builders filed petitions challenging its various provisions as
unconstitutional. These petitions were heard by a division bench of the Bombay
High Court which repelled the developers’ challenge and upheld the constitutional
validity of the Act. The Real Estate (Regulation and Development) Act, 2016, seeks to
protect home buyers as well as help boost investments in the real estate industry.
The Act establishes a Real Estate Regulatory Authority (RERA) in each state for
regulation of the real estate sector and also to act as an adjudicating body for speedy
disputes redressal. The Act mandates that all developers register themselves under a
common regulatory authority. It also allows buyers to claim compensation for delay
in possession and provides for cancellation of a developer’s registration in case the
developer fails to complete the project within the stipulated deadline.
The Bill was passed by the Rajya Sabha on 10 March 2016 and by the Lok Sabha on
15 March 2016. The Act came into force on 1 May 2016 with 59 of 92 sections
notified, with the remaining provisions coming into force on 1 May 2017.
LEGAL CHALLENGE
Several petitions were filed in high courts by builders and developers challenging the
constitutional validity of the new real estate legislation. The Centre had argued to
defend, justify and explain the reasons why the law enacted was valid and a vital
statute to rein in rogue builders. Multiple litigations were going on in different states
and in order to avoid multiple litigations on the same issue, the Centre sought
transfer of all RERA-related matters from different high courts either to the apex
court or to one of the high courts.
SC INTERVENES
By an order dated 4 September 2017, the Supreme Court, in Transfer Petition (Civil)
Nos. 1456 of 2017, passed the order that it would be appropriate to direct the High
Court of Judicature at Bombay to take up the matter in a number of writ petitions
along with other connected matters, if any, pending in the High Court, together.
CONSTITUTIONAL QUESTIONS
In the batch of writ petitions, the builders had challenged the legality and
constitutional validity of certain provisions of RERA as being violative of their
fundamental rights, citing the provisions of articles 14, 19 (1) (g), 20 and 300-A of the
Constitution of India. The petitioners prayed for the declaration that the first proviso
of Section 3 (1), Section 3 (2) (a) and (c), explanation to Section 3, sections 4 (2) (c), 4
(2) (d) (e) (f) (g) (k), sections 4 (2) (I) (C) and 4 (2) (I) (D), sections 5 (1) (b) and 5(3),
and the first proviso to Section 6 of RERA are unconstitutional, illegal, ultra vires,
without jurisdiction and without authority of law.
The petitioners also challenged the validity of provisions of Sections 4, 5, 7, 8, 11 (h),
14 (3), 15, 16, 18 and 22, proviso to Section 27 (1) (a), Section 40, proviso to Section
43 (5), proviso to Section 50 (1) (a), Sections 53 (1) and 53 (3), 46, 59, 60, 61, 63 and
64, and Section 82 of RERA, as well as rules 3 (f), 4, 5, 6, 7, 8, 18, 19, 20 and 21 of the
Maharashtra Rules of 2017. During the course of hearing, the learned counsel for the
petitioners did not pursue their challenge to the Maharashtra RERA Rules of 2017.
BOMBAY HIGH COURT TO THE RESCUE
A bench of Justice Naresh Patil and Justice RG Ketkar passed the concurring 330-page
judgement on 6 December 2017 after hearing all parties in the matter, and upheld
the provisions of the new Act that came into effect on 1 May 2017.
LAW IS NOT RETROSPECTIVE
It was argued on behalf of the developers that penalties under Sections 18, 38, 59,
60, 61, 63 and 64 of RERA were violative of Articles 14, 19 (1) (g) and 20 (1) of the
Constitution of India and amounted to unreasonable restrictions. This argument was
rejected by Justice Naresh Patil and in this regard he said that the provisions of RERA
were prospective in nature. The penalty under Sections 18, 38, 59, 60, 61, 63 and 64
was to be levied on account of contravention of provisions of RERA, prospectively
and not retrospectively. These provisions, therefore, could not be said to be violative
of Articles 14, 19 (1) (g), 20 (1) and 300-A of the Constitution of India.
LAW IS CONSTITUTIONAL
The court further said that the challenge to constitutional validity of the first proviso
to Section 3 (1), Section 3 (2) (a), explanation to Section 3, Section 4 (2) (l) (C),
Section 4 (2) (l) (D), Section 5 (3), and the first proviso to Section 6, sections 8, 18, 22,
38, 40, 59, 60, 61, 63 and 64 of the Real Estate (Regulation and Development) Act,
2016, did not hold up. These provisions are held to be constitutional, valid and legal.
EXTENSION OF TIME
As per the provisions of RERA under Section 6, the law restricts any extension
beyond a year for completion of the project that could not be completed within
the deadline mentioned by the builder while registering it, except in case of force
majeure. This was another key issue based on which developers challenged the
law.
The High Court said that justifiable delays were acceptable. It said that the state
Real Estate Regulatory Authority (RERA) and the appellate tribunal should consider
project delays on a case-to-case basis. In case delays were caused due to
‘exceptional and compelling circumstances’, authorities must not cancel the
projects or developers’ registration. In case the authority was satisfied that there
were exceptional and compelling circumstances due to which a developer could not
complete the project in spite of the one-year extension granted, the authority would
be entitled to let the developers’ registration continue. The court had clarified that
such powers shall be exercised on a case-to-case basis, and the authority shall
consult with the state in such cases if needed.
REFUNDS AND COMPENSATION
The developers had challenged Section 18 which deals with the return of amount
and compensation. Here the High Court rejected the plea that developers should not
be liable to pay interest or compensation if a project was delayed owing to valid
reasons.
The court said that Section 18 was compensatory in nature and not penal. It found
nothing unconstitutional about Section 18, which makes a builder liable to
compensate a buyer for delay in possession even if he withdraws from a project.
The court stated that its purpose was to ameliorate the condition of buyers in the
real estate sector and thereby to balance the rights of all stakeholders. It sought to
protect the allottees and simplify the remedying of wrongs committed by a
promoter. It ensured that a buyer’s money was not misused or unreasonably
retained by the promoter. It was, therefore, not unreasonable to require the
promoter to pay interest to the allottees when the project was delayed beyond the
contractual agreed period.
APPOINTMENTS TO TRIBUNAL
The developers had opposed the composition of the state-level authority and the
appellate tribunal. Challenging Section 43 (3) of the Act, developers contended that
the term ‘judicial member’ must mean judges and not bureaucrats from the Indian
Legal Service. This section provided for the appointment of Indian Legal Service
officials as judicial members of the appellate tribunal. Considering that the tribunal
has the power to impose imprisonment, its members must be judicial officers. This
was the only challenge to the law that was successful. After the announcement of
the judgement, the court rejected the plea of the Attorney General representing
the Union of India to stay this part of the judgement.    
The HC did not interfere with the composition of the state-level authority, but it
ruled that the tribunal must be headed by a judicial officer and that the majority of
the members of such a tribunal must be officers or members of the judiciary.
APPOINTMENT CRITERIA SET ASIDE
Further, the High Court set aside Section 46 (b) of the Act as per which any officer
who had held the post of additional secretary was eligible for membership of the
two-member tribunal. The court held that the majority of the total members of the
tribunal and the chairman should always be judicial members.
Finally, it’s worth noting the court’s observation that the actual implementation of
RERA needs to be closely monitored in the years to come. RERA is not a law relating
to only regulatory concerns over the promoter – its larger objective is to develop the
real estate sector, particularly to complete the incomplete projects across the
country.