Revocation of Developer’s Registration Why Rera Could Lead to More Difficulties by Abhijit Swaroop, Principal Associate, Ankur Khandelwal, Senior Associate and Susanah Naushad, Associate

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New Delhi, August 27, 2017: Construction contracts, unlike other civil contracts, involve intricate and minute details, which makes the execution of such contracts difficult. Mostly construction projects are technically complex and could only be undertaken by specialised contractors for different stages of construction.  Therefore, construction contracts require constant involvement of and supervision by well qualified and trained professionals.

Various judicial pronouncements have held that construction contracts, being more technical, cannot be equated with other civil contracts and cannot be specifically enforced since they involve minute details and require an experienced and qualifiedprofessional to supervise the same.

How Rera Could Pose New Challenges

The Real Estate (Regulation and Development) Act, 2016 (“RERA”) mandates compulsory registration of a real estate project, if the same is intended to be advertised, marketed, booked or sold. The RERA also provides for revocation of such registration, in cases of default or violation or any unfair practice by the developer. Section 7 of RERA prescribes that post revocation of registration, the remaining development work may be carried out by the competent authority or by the association of allot tees or in such a manner as the authority may determine in consultation with the appropriate Government. Further, the right to first refusal has been provided to the association of allot tees. However, RERA fails in setting out any procedure for carrying outof the remaining development work.

Therefore, post revocation of registration, it appears that RERA ousts the developer and envisages the execution of the remaining construction either by the competent authority or the association of allot tees who may not have the requisite training or experience.  It is quite possible that some of the members of the association of allot tees may not necessarily agree firstly with the exercise of carrying out the construction itself and secondly with the manner in which such construction is to be carried out, thereby leading to a possible situation of deadlock. Having regard to the nature of construction contracts, as aforesaid, a complete absence of guidance, under RERA, in executing the balance construction and that too by authorities / associations who may not possess the requisite technical expertise, would only compound the difficulties of the buyers and further delay the handing over of possession. Therefore, it is not clear whether RERA would yield desired results in execution of the balance construction work.

Apart from the above, the following could potentially create more issues:

  • RERA does not provide any guidance for refund of part payment made to the developer for carrying out the construction of the remaining project, once the developer’s registration is revoked. The absence of such a provision could in fact result in an unintended benefit to the developer, post revocation of registration;
  • RERA and the state rules also do not provide any guidance as to whether the buyers will have to infuse additional funds for carrying out the balance construction, particularly when there is no requirement for the developer to either refund the amount or restore the amount collected.
  • RERA and the state rules framed the re under do not provide the procedure for the construction of the remaining project and therefore, there is no guidance regarding the transfer of the necessary approvals from the developer to the body that may be entrusted with the completion of the project. In the absence of a procedure prescribing a seamless transfer of necessary approvals, execution of balance construction may invite technical regulatory objections;
  • In cases of financing the project, the financial institutions generally execute a tripartite agreement to which the developer is also a party. Once the developer is ousted, such agreement may require an amendment, however, RERA does not envisage such a possibility and therefore does not deal with the situation. Also post revocation of registration, coordination with the developer may lead to further practical hurdles in the necessary documentation;
  • Construction of a project necessarily entails the understanding of construction and the safety requirements. Though the competent authority /association of allot tees could very well appoint an external consultant, the responsibility would be directly of the competent authority / association since under RERA, they will be seen as having replaced the developer;
  • It is not clear whether some allot tees, dissatisfied with the construction of the project carried out by the competent authority / association, can approach the Real Estate Regulatory Authority for redressal of their grievances.
  • Legally, courts have uniformly held that in view of the complexities involved, construction contracts could not be specifically performed, in view of Section 14 of the Specific Relief Act, 1963. RERA does not address the said issue in any of its
  • Above all, the entire process, including transition and recommencement of construction could entail heavy time and monetary cost, which could potentially dissuade at least some of the allot tees from participating in the construction of the remaining

Therefore it appears that in the absence of a thorough step-by-step procedure for execution of the remaining construction of a real estate project, RERA may create more issues than provide solutions.Also debarring the developer from carrying out the balance construction may not yield the result, which the Act intends to achieve qua the consumer. Therefore, instead of providing for revocation of a developer’s registration, in cases of breach or default, RERA may be amended to incorporate penalties which could deter the developer from breaching the provisions of RERA and the agreements with the buyer. In the alternative, the state rules could introduce a well detailed procedure for the completion of the remaining real estate project and indemnifying the consumer for the loss, if any.

Corporate Comm India(CCI Newswire)