Analyzing the Role of Consumer Laws in RERA

Introduction

Real Estate is one of the most important sectors of our country. Many people work hard for their entire lives, just to buy a dream property of their own. Improving economic status of the people leads to some sort of investment, with purchasing their own property being one of the most sought after. Real Estate consists of properties as land or constructed buildings. Buying a house is still a dream for many individuals, however, purchasing a property can also arise a lot of problems, especially for the buyer, who already invests a lot of his money in furtherance of purchasing the property. These issues, violate the basic consumer laws that a consumer (buyer) possess, and hence, it is really important that the buyer is aware of his consumer rights, while purchasing a property. Proper legal assistance and law acts as a guardian of the consumers, and ensures speedy trial and ensuring justice for the consumers/buyers.

Is the Buyer covered under the ambit of the Consumer Protection Act?

A lot of the builders have mischievously labelled customers as non-consumers under the Consumer Protection Act, 2019, intentionally, to save them from liability and to ensure that the buyer is not protected under the customer protection act. However, in the case of Aloke Anand V Ireo Pvt Ltd and Ors[1], the Hon’ble NCDRC held that a home-buyer comes under the definition and ambit of a ‘consumer’ as per the Section 2(1)(d) of the Consumer Protection Act, 2019 and can sue the builder under the provisions of the Consumer Protection Act, 2019. However, the Commission had also stated that the buyer should not be indulged in the trading of companies, and should have bought the property as an end user.

Problems Buyers face while buying Properties

Real Estate sector has never been hassle free, and given the huge growth in the sale and purchase of properties in the past few decades, the issues in this sector has multiplied. A lot of greedy builders, lure in unsuspecting buyers in malicious purchase offers or trouble them in different ways by providing deficiency in services. Following are the issues that a consumer willing to purchase a property might face whilst buying a property:

  • Unfair Clauses in the Flat Buyer Agreement

An FBA, i.e., a Flat Buyer’s Agreement is the agreement signed between the builder and the purchaser, which contains all the relevant clauses, terms and conditions that both the parties agree upon, and will be relevant during the course of the completion and handling over of the property to the purchaser. This contains the dates of payment of the due amount, penalty in cases of delayed payment etc.

Many a times, the builder however draft and include unreasonable clauses in the FBA, like high rates of penalty on the buyer for delayed payment, unreasonably long time periods for the completion of the construction, and other clauses favoring the builder. These one-sided clauses can often cause mental agony to the purchaser. Even the Hon’ble Apex Court in the case of Pioneer Urban Land & Infrastructure Limited V Govindam Raghavan[2] held that these one-sided agreements, containing bias clauses totally favoring one party are a clear case of deficiency of service, under Section 2(11) of the Consumer Protection Act, 2019, and such agreement would not be final and binding, if a buyer is compelled to sign a biased one-sided agreement.

  • False Assurances and Claims by the Builders

Many a times, the builders use fake adverts and misleading advertisements to lure in more potential buyers of the property. Flat builders have many a times used deceptive means of advertising and have given false hopes to the buyers. They claim to provide world-class facilities, high-end services, high-rise buildings etc. in their projects, while it doesn’t even exist nor the builder has any intention to provide the same to the buyers.

The Hon’ble Supreme Court in the case of DLF Universal V The Director General (Investigation and Registration)[3] had held that these false adverts, and misleading advertisements, made specially to induce potential customers, and showcasing facilities and amenities which does not exist or will not exist amounts to a form a unfair trade practice, defined as per the Section 2(47) of the Consumer Protection Act, 2019.

  • Delays in handing over the Possession

Delayed Possession is nothing but handing over the possession of the respected property after the stipulated date of handing over the possession, even after the buyer has timely paid all of his dues. Most of the times, it is due to the ill-intention of the builder, who tries to redirect the money for his own selfish interests.

This has an adverse effect on the home buyers, who have already duly paid in accordance to the clauses of the Flat Buyers Agreement (FBA), and have many a times take home loans at high interest rates, despite legally being the purchaser of the property.

In the case of Emaar MGF Land Ltd V Karnail Singh[4], it was held that delays in possession is a type of deficiency in services, and not in accordance with the Consumer Protection Act, 2019.

  • Sale of disputed Properties

A lot of times, the builders/seller sell one property to two separate individuals, or sell a property in a legal dispute or allot property that is in litigation. Such properties have no clean title and cannot be allotted to any individual, yet the builders have often practiced this. In the case of  B.N. Venkatesh Murthy V Bangalore Development Authority[5] the respondent had made a sale of plots which were in litigation, and had no clean title. The court had stated, upon the appellants complaint that the sale was arbitrary and amounted to deficiency in services, under the Consumer Protection Act, 2019.

  • Usage of Substandard Materials in the Construction of the Property

Builders have often used substandard and cheap materials for the construction of the property, to increase his profits. This offers a low quality as expected, and has an adverse effect on the buyers, who spends extra money to purchase high-quality products for the construction of his property. The builder has also many a times engaged in poor quality of workmanship, leading to poor and low-quality properties.

In the case of Kailash Malpanu V Kishore Kumar Khatri[6] the court had decided that in cases of usage of substandard materials by the builder, the builder was held guilty of deficiency in services as per the Consumer Protection Act, 2019 and the buyer was awarded compensation along with 18% interest.

Real Estate (Regulation and Development) Act, 2016

The demand for a regulation concerning real estate sector in India is not a new one. The 21st century saw a huge spurt in transactions involving the real estate sector in India, which of course led to an increase in the need of a real estate regulation in India. Urbanization and the growing economy also played an important role in the need of the regulation.

In 2016, the Real Estate (Regulation and Development) Act was finally passed. The act does not regulate real estate or real estate development, since both of these are covered under the authority of the State, as per the State List given in the 7th Schedule of the Indian Constitution. Rather, the act covers authority only over the sale and transaction of real estate, including properties, plots, apartments etc.

The preamble of the act has states that the act has been prepared to establish a regulatory authority and appellate tribunal to regulate, control and promote planned and healthy development and construction, sale, transfer and management of colonies, residential building and other similar properties.

The introduction of this act was a much-needed step, as it had provisions for proper regulation of real estate industry, and would ensure that the consumers and homebuyers are protected from the mala fide intentions of the greedy builders.

Legal Provisions under RERA

Under Section 31 of the Real Estate (Regulation and Development) Act, 2016, the aggrieved party can file a complaint against any builder, seller or any agent of the concerned property.

Section 3 of the Act makes it mandatory for prior registration of the real estate property/project with the concerned Real Estate Regulatory Authority, and if the seller/builder is unable to register such property with the concerned authority, the builder shall be liable to a penalty which can be up to 10% of the total cost of the concerned property/project, as per the section 59 of the act. The aggrieved party can file a complaint with the authority or the adjudicating officer as per the section 31 of the act.

For the registration of the property/project, the builder has to provide certain information like the brief details of his venture, the project details, genuine copies of various governmental approvals etc., as per the section 4 of the RERA, 2016. If the builder is unable to do so, he won’t be able to register the property and in case the builder provides any false or fabricated information, and is unable to meet the conditions set out in Section 4, then he would be liable to a penalty of up to 5% of the concerned property, as per the section 60 of the RERA which provides for the Penalty.

Landmark Cases

  • Emaar MGF Land Ltd CO V Aftab Singh[7]

This was a case of delayed possession, where the respondent was unable to get the possession even after paying all the dues on time. The respondent had filed a complaint as per the provisions of the Consumer Protection Act. However, the builder claimed that due to an arbitration clause mentioned in the agreement signed between the two parties, it was arbitrary of the buyer to file a consumer complaint. However, the Hon’ble Apex court had decided that the buyers of any property are defined as consumers as per the Aloke Anand V Ireo Pvt Ltd and Ors[8], and hence the buyer has the right to seek redressal as per the Consumer Protection Act.

  • Ireo Grace Realtech Pvt Ltd V Abhishek Khanna and Ors[9]

In this landmark judgment of the Supreme Court, it was decided that the buyer cannot be compelled by the developers and the sellers to be bound by one-sided clauses and agreements present in the Flat Buyers Agreement (FBA). Many times, the builders compel the buyers to be bound by unreasonable clauses like high penalty in cases of delayed payments, no provisions for penalty in cases of delay by the builder etc. However, this judgement set out a precedent that the clauses in the agreement cannot be one sided.

  • Kolkata West International City V Devasis Rudra[10]

In this case, the buyer was unable to get possession of the property, despite paying all the dues in time due to the delay by the builder. The buyer was made to wait for an extended period of time to get the possession, yet he was never given possession of the property, nor was he provided any refund along with an interest rate and other charges, including mental agony and litigation costs. However, the Hon’ble Court held that the buyer is liable to pay the entire amount deposited along with a percentage rate of interest to cover up the financial hardships faced by the appellant while paying for the property.

  • Newtech Promoters and Developers Pvt Ltd V State of UP[11]

The Hon’ble court had decided that the buyer has the absolute right whether he wants a refund or the possession of the property, in cases of delayed possession of the property. The buyer is entitled for a refund in cases of delayed possession; however, the buyer would still have the option to opt for the possession of the property, which the builder is bound to construct in, during the grave period.

Conclusion

Real Estate industry has become an important part of the Indian Economy now. With such high number of transactions, both in terms of quantity and amount, it is natural that a number of legal disputes/grey areas will arise, both for the builders and the consumers. Protection of the consumers, and ensuring that the real estate industry is properly regulated is an important challenge for the authorities and the governments, however acts like RERA, 2016 have significantly assisted in ensuring a proper regulation of the real estate industry in the nation.

The act adjudicates the complaints and appoints adjudicating officers. Both the allottees and the purchasers/buyers and sellers of the property are covered under the act, and the act provides for provisions of penalty/punishment in cases of any violation of any of the provisions of the act.

The act has given the consumers, to some extent, more liberty in terms of buying properties, as they have a regulatory authority backing them up, and is a very important step in the way of real estate industry development.


[1]Aloke Anand V Ireo Pvt Ltd Consumer Case No. 1277 of 2017

[2]Pioneer Urban Land & Infrastructure Limited V Govindam Raghavan C.A. No. 12238 of 2018

[3]DLF Universal V The Director General (investigation and Registration) Civil Appeal No. 5680 of 2006

[4]Emaar MGF Land Ltd V Karnail Singh 2014 SCC OnLine NCDRC 332

[5]B.N. Venkatesh Murthy V Bangalore Development Authority III (1994) CPJ 96 (98) (NC)

[6]Kailash Malpanu V Kishore Kumar Khatri 1997 (1) CPC 238

[7]M/S Emaar Mgf Land Ltd V Aftab Singh CA No. 23512-23513 of 2017

[8]Supra note 1

[9]Ireo Grace Realtech Pvt Ltd V Abhishek Khanna and Ors AIR 2021 SC 437

[10]Kolkata West International City V Devasis Rudra First Appeal 958 of 2016

[11]Newtech Promoters and Developers Pvt Ltd V State of UP Civil Appeal No (S). 6745-6749 of 2021

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