Abstract

The Indian Real Estate Market has been a volatile market that has seen ups and downs for one or the other reason. At times, it has seen situations where either the developer of a project is unable to  complete the project on time or where even after completion, buyers are facing issues on account of quality of construction, enhancement in prices, construction beyond sanctions etc.

This write up focuses on the issues that are faced by the buyers/ investors of a real estate project and how the legislation has come forward to safeguard them by implementing various stringent laws.

Forces driving the Indian Real Estate Market

Any market in a country is always driven by certain forces that have a huge impact on the segment on various counts. The Indian Real Estate Market is also one such market that has seen the trend/ impact of such forces on its functioning. The same can be categorized as:

• Infrastructure development: The Government, with the aim to boost infrastructure development of the country, had called upon entrepreneurs, businessmen, investors, MNCs to invest in the sustainable development of the country. Such investments will not only aim developing infrastructure but also at the creation of more jobs in the market. As a result, with the need to cater the enhanced habitation requirement, the same has been seen as a golden opportunity among developers.

• Delays by developers: Real estate projects have seen inordinate delay in completion by their promoters/ developers resulting in outrage and dissatisfaction among the buyers. As a result of this, investors are compelled to either wait for indefinite period for possession, move to court for redressal of their grievances or move out from the deal either by surrendering or selling to a 3rd party.

• Government policies: Policies governing construction of any real estate project has played a major role in driving the market. While in past States implemented policies with the aim of generating revenue, with the passage of time, the aim is now to address the grievances of investors.

• Stringent laws: Being a volatile market, implementation of laws that are not only stringent but also increase the liabilities and responsibilities of a developer, and whose failure to comply with such laws results in harsh punishments, was the need of the hour.

Laws and acts that govern a dispute between a developer and buyer

Legislation has enacted various acts not only to safeguard the rights and interests of buyers but also of the developer. These are:

Real Estate (Regulation and Development) Act, 2016:

The aim of enacting the Real Estate (Regulation and Development) Act (in short “RERA”) was to safeguard the interests of the buyers in the real estate market and to ensure that there is parity between them and the developer. RERA sets out certain guidelines for a developer that are required to be followed before starting the promotional activities of its project that includes registration of the developer, its agents and project with RERA.

RERA also casts upon certain duties, responsibilities, obligations, and remedies to safeguard interests, not only upon the developer but also upon buyers to maintain harmony in the market.

RERA provides remedies to an allottee to seek refund, delayed interest, compensation, possession, or direction for execution of a sub-lease/ sale deed against the developer for the default committed but at the same time, it also empowers a developer to seek payment of balance consideration, interest on the outstanding and also a direction for taking possession and executing a sub-lease/ sale deed.

Insolvency and Bankruptcy Code, 2016:

The Insolvency and Bankruptcy Code (in short “IBC”) under the definition of “Financial Creditor” initially had not recognized an allottee/buyer as a  Financial Creditor. However, vide The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 dated 17.08.2018, allottees/ buyers of a Real Estate Project were also recognized as  Financial Creditor.

With this 2018¹ amendment, a single allottee/buyer was empowered to initiate corporate insolvency and resolution process (“IRP Process”) againts a developer who had failed to deliver its promise within the agreed time period. This resulted in initiation of IRP Process for several developers across the country, creating chaos as with such initiation, the board and management of the developer ceased to have any power to carry out its day-to-day functions and activities.

With almost every developer seeing initiation of IRP Process against it, in order to curb the misuse of the IBC Code, vide The Insolvency And Bankruptcy Code (Amendment) Act, 2020 dated 13.03.2020, for initiating IRP Process, an application was required to be made by a minimum of 10% of total allottees/ buyers of same Real Estate Project or 100 allottees/ buyers of the same Real Estate Project, whichever is less.

Consumer Protection Act, 2019:

Consumer Protection Act (in short “CPA”) has played a crucial role in safeguarding the interests of consumers who feel cheated, deceived or harassed on account of faulty services or defective goods being sold. CPA while differentiating between an investor and a consumer, grants protection to buyers who are genuinely consumers and are aggrieved by the dilatory tactics of developers on one pretext or the other.

In addition to the above, Arbitration and Conciliation Act, 1996 (in short “A&C”) and The Recovery of Debts and Bankruptcy Act, 1993 (in short “RDB”) are also applicable to the issues involving an allottee and developer. While A&C provides a mechanism ofor resolving a dispute through arbitration, RDB deals in with issues where in order to purchase an under-construction property, allottee has availed financial assistance from the financial institutions. In such a case, a tripartite agreement is executed between an allottee, financial institution and the developer to enforce and protect the rights of each party and to fix liabilities and responsibilities as well.

Judicial Intervention and its impact

Time and again, Indian judiciary has played a crucial role in safeguarding the rights and interests of allottees/ buyers of a Real Estate Project. While protection to allottees/ buyers of a Real Estate Project has been given by the Indian Judiciary, at the same time, protection to the developers is also granted in cases where it is proved that the developer was at no fault at all and the proceedings against it were malafide.

There are cases where Indian Judiciary has taken stringent actions against the ill-deeds of developers, the best example of which is Supertech Limited vs Emerald Court Owner Resident Welfare Association & Ors. dated 31.08.2021 more particularly known as “Twin-Tower Case” wherein the Hon’ble Supreme Court directed demolition of the illegal twin towers constructed by the developer by flouting the rules, codes, acts, by-laws and other applicable construction guidelines.

The formation of Real Estate Regulatory Authority (in short “Authority”) has resulted in the speedy disposal and addressal of all grievances of allottees/ buyers of a Real Estate Project.

Consumer Forums through their various judgments have made it amply clear that irrespective of any arbitration clause or having alternative remedy before the Authority, the same cannot outcast the jurisdiction of Consumer Forums.

The above approach has not only empowered the allottees/ buyers to take appropriate measures but also has widened the scope of protection granted to them under the Indian Laws.

While Judicial Intervention has made a great impact in resolving issues between a developer and an allottee, in many  cases, the same has been used as a tool by the allottees to make the developer bend against their absurd, vague, and usurious demands thereby enriching themselves by adopting arm twisting techniques. In many cases, the developer in order to save its market reputation has fallen prey to the techniques and surrendered itself, thereby settling the dispute at such terms and conditions of the allottee, for no fault at all. Thus, on one hand where it can be said that Judicial Intervention has created a positive impact on the Society, at the same time on the other hand the same is being used as a tool of extortion.

Conclusion

From above discussions, it can be concluded that over the passage of time, the Real Estate Market has evolved and has seen huge changes in terms of demand and supply, applicability of laws. A comparison of the status of an allottee/ buyer in the previous times with the status as on date, it can be easily inferred that with the evolvement of laws and Real Estate Sector, the position of allottees/ buyers has not only gained strength but has also emerged as a force that can drive the market at its whims.

Note from the author: This write up is entirely based on the experience and legal knowledge gained. Author disclaims all responsibility and accepts no liability for consequences of any person acting or refraining from acting on the basis of any information contained herein.