Bombay HC upholds constitutional validity of Real Estate (Regulation and Development) Act, 2016

Bombay High Court: Following the orders of the Supreme Court to hear petitions challenging the constitutional validity of several provisions of the Real Estate (Regulation and Development) Act of 2016, a Division Bench comprising of Naresh Patil and Rajesh Ketkar, JJ. held the provisions to be constitutionally valid and legal after their harmonious construction.

The petitioners challenged the enactment on the following grounds:

1) By making Section 4 of RERA (requirement to deposit 70% of the amount realized from allottess in an escrow account) applicable to ‘ongoing projects’, the legislature has enacted a retrospective legislation without taking into consideration past agreements and contracts entered into between the promoters and the buyers and the rights and liabilities flowing from them.

2) Sections 5 and 6 (provisions for registration and extension) had been challenged on the grounds that only an extension of one year was allowed without considering circumstances other than force majeure that might be beyond the control of the promoter (like genuine dispute resulting in an injunction, shortage of raw materials), thereby making the provision unreasonable and arbitrary.

3) Challenging the obligation of the authority to complete the remaining development work consequent to lapse or revocation of registration provided in Section 8, the petitioners contended that the provision was very vague, lacked clarity and was also against the interest of the allottees in the absence of any guidelines governing such procedure. It was also contended to be in violation of Article 300-A since the authority cannot sell the unsold flats unless the property is vested with the authority along with the right to sell the same.

4) Section 18 was contended to be contrary to Articles 14 and 19(1)(g). In case the registration of promoter is revoked and the allottee doesn’t withdraw from the project, or if the promoter is not able to give possession of an apartment, then till the possession is handed over, a promoter has to pay interest for every month of delay (from the date of agreement of sale) till the handing over of the possession at such rate as may be prescribed. Hailing this provision as a penal provision, it was prayed that such a retro-active mandate should be held to be unreasonable, arbitrary and unconstitutional and also contrary to Article 20.

5) Since RERA doesn’t provide for any mechanism for redressal of the grievances of the promoter or for getting a refund in case the promoter desires to leave the project or his registration gets cancelled, the enactment is unreasonable.

6) The composition of the authority was challenged since there was no mandate to include a judicial member when the dispute resolution process would involve judicial scrutiny. The explanation to Section 46(1) including member of the Indian Legal Service who has held the post of Additional Secretary was also challenged on grounds of it being violative of established case law that “whenever an authority would discharge adjudicatory functions, presence of a Judicial member is mandatory” [Union of India v. R. Gandhi, (2010) 11 SCC 1]

The pleas of the petitioners were dismissed by the Court holding that RERA is not arbitrary and unconstitutional, keeping the objects and reasons of the legislation in mind that the interests of the allottees need to be protected. The Court however stated that “in case the authority is satisfied that there are exceptional and circumstances due to which promoter could not complete the project in spite of extension granted under Section 6, then the authority would be entitled to continue registration for completing the project”.

The Court also struck down the appointment of Additional Secretary as the judicial member in the Tribunal stating that “in the constitution of a tribunal, majority members must be judges or judicial officers.” [Neelkamal Realtors Suburban Pvt. Ltd. v. Union of India,  2017 SCC OnLine Bom 9302, order dated 06-12-2017]

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