The Real Estate (Regulation and Development) Act, 2016: A Paradigm Shift in the Indian Real Estate Sector –A Boon or a Bane

Abstract

The enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA) heralded a transformative era in the Indian real estate sector. Conceived to safeguard the interests of homebuyers and ensure the accountability of developers, RERA addresses issues such as project delays, opaque practices, and inadequate grievance redressal mechanisms. This research paper delves into the origins, objectives, and impacts of RERA, analyzing its statutory provisions, judicial pronouncements, and challenges in implementation. The paper concludes with recommendations to enhance the efficacy of RERA, thereby fostering a more transparent and collaborative ecosystem within the real estate sector.

Introduction

A house is considered one of the most fundamental securities that a person aspires to acquire during their lifetime. In India, this aspiration is often fraught with challenges, owing to the historically unregulated nature of the real estate sector. Recognizing the need for a robust legal framework to regulate the sector, the Parliament enacted the Real Estate (Regulation and Development) Act, 2016 (RERA). The Act seeks to restore faith among homebuyers by ensuring transparency, accountability, and timely delivery of real estate projects.

This article seeks to explore the legislative framework of RERA, its integration with other laws, and its role in addressing systemic issues in the real estate sector. The discussion further examines the challenges impeding its full implementation and proposes measures to enhance its effectiveness.

Recognizing the problems faced by most consumers/allottees who would have otherwise mortgaged their to-be-allotted apartments or flats to a bank or financial institution or had subvention agreements with banks or invested their hard-earned money in a real estate project, Parliament, in view of some orders passed by the Hon’ble Supreme Court, particularly in cases such as Nikhil Mehta & Sons (HUF) & Ors. v. M/s AMR Infrastructure Ltd., 2017 SCC OnLine NCLAT 859; Chitra Sharma v. Union of India, (2018) 18 SCC 611; and Bikram Chatterji v. Union of India, (2019) 8 SCC 527 and on recommendations of the insolvency committee, issued directions treating homebuyers as equivalent to financial creditors under the Insolvency and Bankruptcy Code, 2016 (popularly known as the IBC). This led to the Insolvency Law Committee bringing about changes in the Insolvency Code by including homebuyers under Section 5(8) under the heading of “financial debt” (Section 5(8)(f)) and other provisions.

The amendments to the IBC, in spite of the RERA being brought into force, became the subject of challenge before the Hon’ble Supreme Court by various promoters. This led to the Hon’ble Supreme Court delivering a judgment namely Pioneer Urban Land & Infrastructure Ltd. v. Union of India 2019 (8) SCC 416, reported on August 9, 2019. The Hon’ble Supreme Court, while noting the width and amplitude of the amendments brought about by the IBC vis-à-vis the area in operation of RERA, upheld the said amendments and held that the RERA is to be read harmoniously with the IBC in contradiction to the provisions of RERA. The Hon’ble Supreme Court, while upholding the amendments, also opined that the provisions of IBC, the RERA and the Consumer Protection Act could co-exist.

In the said judgment, the Supreme Court also directed every State to make the enactment (RERA) more effective by appointing more officers to the adjudicating/appellate authorities. In short, RERA, being a welfare legislation, was acknowledged to be a very effective mechanism for the redressal of grievances of homebuyers/allottees of housing/real-estate projects.

Genesis and Objectives of RERA

The enactment of RERA was necessitated by the burgeoning issues in the real estate sector, particularly post-2000 when a surge in housing projects led to a boom in investments. This growth, however, was marred by the collapse of the housing sector in 2008–09, attributed to the global subprime crisis. The absence of a regulatory authority resulted in widespread grievances among homebuyers, compelling many to seek recourse under the Consumer Protection Act, 1986 (and subsequently, the 2019 Act).

Parliament responded by introducing RERA, designed as a complete code to address the grievances of homebuyers. The primary objectives of RERA are as follows:

1. To ensure transparency in project execution and financial management.

2. To protect the rights and interests of consumers in the real estate sector.

3. To regulate and professionalize the activities of real estate developers and agents.

4. To establish mechanisms for timely completion of projects.

5. To provide a comprehensive grievance redressal system for all stakeholders.

Key Provisions of RERA

RERA encompasses several provisions aimed at establishing a regulatory framework for the real estate sector. These include:

1. Mandatory Registration of Projects (Section 3): All real estate projects exceeding 500 square meters or eight apartments must be registered with the Real Estate Regulatory Authority. This ensures that only authorized and compliant projects are marketed to the public.

2. Financial Safeguards (Section 4): Developers are required to deposit 70% of the funds collected for a project into a separate bank account. This ensures that the funds are utilized solely for the project’s development.

3. Timely Project Delivery (Sections 12–16): Developers are mandated to adhere to project timelines. Failure to deliver within the specified timeframe attracts penalties, including interest payments to allottees.

4. Protection Against Unilateral Changes (Section 14): Developers cannot alter sanctioned plans or project layouts without obtaining the consent of two-thirds of the allottees.

5. Grievance Redressal Mechanism (Section 31): Buyers, developers, and agents can file complaints with RERA authorities for the resolution of disputes arising from real estate transactions.

   
   

Judicial Interpretations and Their Impact on RERA

The jurisprudence surrounding RERA has significantly shaped its implementation and interpretation. Some landmark judgments include:

1. Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan: 

   The Hon’ble Supreme Court, in a case arising under the Consumer Protection Act while dealing with one-sided clauses in agreements entered into by the parties, approved of the National Commission deviating from the terms of the agreement to dilute the one-sided nature of the agreement by awarding a higher rate of interest as mandated or provided by the Haryana Real Estate (Regulation and Development) Rules, 2017 framed under the RERA.

   It is worthwhile to note that there is a model Rent Control Act which is sought to be implemented across states. Although RERA is a central act, it allows for the framing of rules independently by the appropriate governments. It is common knowledge that a litigant’s problems often begin post the award of a decree or an order in their favour. Although Section 57 of the Act provides for orders passed by the appellate tribunal to be executed as decrees of a civil court, the tedious nature of the provisions of Order XXI of the Civil Procedure Code in getting a decree executed to the satisfaction of the decree-holder is well-known. Summary powers ought to be incorporated in the Act and regulations so that the decree-holder is not saddled with delays in executing the decree passed in their favour.

2. Forum for People’s Collective Efforts v. State of West Bengal:

   The Hon’ble Supreme Court declared the West Bengal Housing Industry Regulation Act, 2017, as repugnant to RERA. The judgment reaffirmed the overriding nature of RERA (a Central legislation) under Article 254 of the Constitution of India while noting that the States had the poiwer ot frame rules and not enact parallel legilations o the subject already covered by the Central statute.

3. Ashok Sayaji Dhatrak v. Rashmi Realty Builders Pvt. Ltd.: The RERA Tribunal ruled that an unregistered Memorandum of Understanding (MoU) could constitute a valid and binding agreement, thereby reinforcing the rights of homebuyers under the Act.

4. Re Ario Grace Realtech Pvt. Ltd. v. Abhishek Khanna: The Hon’ble Supreme Court in a judgment entitled Re Ario Grace Realtech Pvt. Ltd. v. Abhishek Khanna 2021(2021) 3 SCC 241 (three member bench) also noted that the Consumer Protection Act and the RERA gives a consumer or allottee an option to elect either of the remedies subject to the doctrine of an election read with the rule of estoppel and also noted that the Consumer Protection Act, in fact, provided for a ruling of an unfair trade practice. That judgment still holds the field.

Impact on Stakeholders

For Homebuyers:

RERA empowers homebuyers by mandating the disclosure of project details, safeguarding their investments through financial accountability, and ensuring timely delivery of projects. Buyers are further protected from arbitrary changes in project specifications.

For Developers:

RERA fosters professionalism among developers by imposing stringent timelines and quality standards. Compliance with RERA’s provisions enhances the credibility and market reputation of developers.

For Real Estate Agents:

The Act requires agents to register with RERA, ensuring their accountability and professionalism. It prohibits agents from marketing unregistered projects or engaging in misleading practices.

For the Industry:

The implementation of RERA has instilled greater discipline within the real estate sector, thereby improving investor confidence and reducing fraudulent practices.

Challenges in Implementation:

Despite its transformative potential, RERA faces significant challenges:

1. State-Level Disparities: The Act allows states to formulate their rules, leading to inconsistencies in implementation.

2. Adjudicatory Delays: The tribunals established under RERA often face resource constraints, resulting in delays in the disposal of cases.

3. Execution of Orders: Developers frequently fail to comply with RERA’s orders, leaving homebuyers in prolonged distress.

Executability of Orders

It is a matter of record that, though the RERA provides for the setting up of tribunals, the tribunals are woefully ill-manned and cases are not being disposed. While RERA has undoubtedly empowered homebuyers, the challenge often arises in the execution of its orders. In many cases, developers fail to comply with RERA’s orders, leaving homebuyers in a continued state of limbo.

The Act, however, has provided mechanisms to enforce these orders. Under Section 40(1), RERA can recover any dues owed by the developer as arrears of land revenue. This allows authorities to seize assets, freeze bank accounts, and even auction properties to ensure compliance. In Newtech Promoters and Developers Pvt. Ltd. v. State of UP [2021 SCC OnLine SC 1044], the Supreme Court further clarified that amounts due, including the principal amount, are recoverable under Section 40(1).

Moreover, Section 41(2) empowers RERA to enforce its orders in the same manner as civil court decrees, giving it a powerful tool for ensuring compliance. In states like Uttar Pradesh, recent decisions have allowed RERA to appoint receivers and even attach property to ensure developers deliver on their promises. However, as mentioned in the earlier part of the article, executability still remains a challenge due to recalcitrant attitude of developers in most cases.

Recommendations for the Way Forward

To address these challenges and ensure the effective implementation of RERA, the following measures are proposed:

1. Uniform Compliance Across States: States must align their rules with the Central Act to prevent dilution of its objectives.

2. Enhanced Adjudicatory Mechanisms: RERA tribunals should be adequately staffed and equipped to expedite case disposal.

3. Strengthened Enforcement Powers: Authorities must be empowered to enforce orders through mechanisms such as asset seizures and penalties for non-compliance.

4. Consumer Awareness Programs: Public awareness campaigns should be conducted to educate consumers about their rights under RERA.

5. Digital Transformation: Establish centralized online platforms for grievance filing, project monitoring, and compliance reporting.

6. Post-Completion Oversight: Extend RERA’s regulatory framework to include post-completion maintenance and operations to ensure long-term accountability.

Conclusion

RERA has emerged as a cornerstone of regulatory reform in the Indian real estate sector. Its integration with other legislative frameworks, such as the Consumer Protection Act and IBC, underscores its comprehensive approach to safeguarding stakeholder interests. While the Act has achieved significant milestones in addressing systemic issues, its full potential can only be realized through uniform implementation, strengthened enforcement, and active collaboration among stakeholders. By addressing these aspects, RERA can establish itself as a model of transparency, accountability, and trust in the real estate sector.

(The Author is a Senior Advocate at Supreme Court of India)