The Real Estate sector has seen revolutionary changes in recent past by having Real Estate (Regulation and Development) Act, 2016 (“RERA”), Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (“Insolvency Amendment 2018”), upto hundred percent Foreign Direct Investment, Pradhan Mantri Affordable Housing Schemes etc. To uphold the spirit and objective of such legislations, there are remarkable decisions delivered in 2019, let’s have a look.
1. Pioneer Urban Land and Infrastructure Limited vs. Union of India (Supreme Court Judgment dated August 09, 2019 in Writ Petition Civil No.43/2019).
Background: By way of Insolvency Amendment 2018, in section 5(8)(f) of Insolvency and Bankruptcy Code 2016 (“IBC”), the explanation was inserted, whereby it was clarified that the real estate allottees (“home buyer”) as defined under section 2(d) of RERA were included as financial creditors. This amendment enabled the home buyer to initiate insolvency proceedings against defaulting Promoters under section 7 of the IBC. However, Insolvency Amendment 2018 was challenged by around 200 realtors in the Supreme Court of India.
Supreme Court Observation: In the context of home buyer, the Supreme Court relied upon the recommendation made by the Insolvency Law Committee Report that the amount paid by home buyer is a means of raising finance for the Project. The Supreme Court observed that the amount raised under sale agreement between the home buyer and the developer have the commercial effect of borrowing as the money paid in advance for temporary use so that the flat is given back to the lender.
Supreme Court Decision:
- The Supreme Court held that the Insolvency Amendment 2018 does not infringe Article 14, 19(1) (g) read with Article 19(6) or 300A of the Constitution of India.
- Remedies to the home buyer under various statute such as RERA, Consumer Protection Act, 1986 and IBC are concurrent.
- RERA is to be read harmoniously with the IBC, in the case of conflict, IBC will prevail over RERA and Consumer Protection Act, 1986.
- Home buyer are always subsumed within the definition of section 5(8)(f) and the explanation and the deeming fiction added by the Amendment Act was only clarificatory in nature.
Impact: This Judgment is a boon for home buyer, number of insolvency proceedings were initiated against the real estate companies. However, in several of such cases, projects which were close to successful completion have been dragged into insolvency. To combat such challenges the Insolvency and Bankruptcy (Second Amendment) Bill 2019 is in consideration before the Insolvency Law Committee Report, the amendment specifically seeks to add a proviso to Section 7 which provides minimum thresholds for initiating insolvency proceedings i.e. jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent of the total number of such allottees under the same real estate project, whichever is less..
2. Keystone Realtors Pvt. Ltd. vs. Anil V Tharthare & Ors. (Supreme Court Judgment dated December 3, 2019, in Civil Appeal No.2435 of 2019).
Background: The construction area of the Project was expanded from 32,395.17 square meters to 40,480.88 square meters, the Developer did not comply with the procedure under para 7(ii) of the Environmental Impact Assessment (“EIA”) Notification but rather sought an amendment to the earlier environmental clearance.
Supreme Court Observation: The Amendment did not discuss the potential environment impact of the increase in construction area but merely records the construction area. The procedure set out under para 7(ii) of the EIA Notification exists to ensure that where a project is expanded in size, the environmental impact on the surrounding area is evaluated holistically considering all the relevant factors including air and water availability and pollution, management of solid and wet waste and the urban carrying capacity of the area.
Supreme Court Decision: The Supreme Court upheld the directions of NGT, since the construction was already completed it directed the committee to continue its evaluation to such remedial measures and also suggested the compensatory exaction to be imposed on the Developer.
Impact: This Judgement is a mandate for all the ongoing Projects to file an application for fresh application for environmental clearance, if the project has expanded beyond the limits for which the prior EC was obtained, even if the expansion is within the upper limit prescribed in the EIA Notification.
3. Mumbai Grahak Panchayat, Magicbricks, 99acres.com, Makkan.com, Housing .com and others (MahaRera Order dated October 3, 2019, in the Suo Moto Enquiry No.17/2018)
Background: The application was filed by Mumbai Grahak Panchayat before the MahaRERA informing that the web portals dealing with real estate projects facilitating sale/purchase of real estate plots, apartment act as ‘real estate agent’ under RERA and in order to make them responsible, they should be RERA registered.
MahaRERA Findings on the below issues:
Issue 1: Whether digital portals “introduce” seller with buyer in sale of real estate?
Portals when they collect the details of the viewer and share them with advertiser/seller and also disclose the information of promoters to buyers, they introduce the parties to the sale transaction.
Issue 2: Whether digital portals negotiate in sale of real estate?
If the portal simply provide the information about the real estate project, its offering for sale to the public at large, then they are simply the agencies engaged for advertisement and when an individual is targeted by contacting and persuading him by the portals for sale and purchase of listed properties they come under the legal definition of negotiation.
Issue 3: Whether digital portals “facilitate” sale of real estate sale?
Web Portals introduce the buyer and seller with each other, they provide the information of the project to the buyer, they arrange virtual tour of the project and also provide other information useful for taking an informative decision. Hence, they facilitate the sale of the real estate project.
Issue 4: Whether digital portals collect charges/fees/renumerations/commission?
Once any monitory gain is derived for the purpose of performing any act of the real estate agent by whichever name it amounts the receipt of the fees under the RERA.
Issue 5: Whether digital portals can be exempted from the definition of real estate agent, they being intermediary under the IT Act.
The Parliament has not carved out any exceptions to the applicability of the provisions of RERA, Hence, we hold that RERA overrides section 79 of the IT Act.
- Portals whose activities are simply confined to advertisement defined by section 2 (b) of RERA, need not register themselves as real estate agent, provided in disclaimer they declare that they are simply advertising agencies and advise the viewers to cross check the information from other sources including RERA website.
- Other portals which carry the function of real estate agent as explained above need registration. Such portals are directed to register with MahaRera within two months, if their activities are spread within the territorial jurisdiction of it.
- Portals will have to register themselves with real estate regulatory authority of a state where their activities are going on until the registration at national level is made permissible.
Impact: RERA authorities in other states like Karnataka has also issued guidelines on the similar lines to the web portals to register as real estate agent under RERA, if there are activities are more than a mere advertisement.
4. Ravinder Kaur Grewal Manjit Kaur and others [Civil Appeal No. 7764 of 2014, Judgment dated 07/08/2019]
Question of Law:
- Whether a person claiming the title by virtue of adverse possession can maintain a suit under Article 65 of Limitation Act for declaration and permanent injunction.
- Whether Article 65 of the Limitation Act only enables a person to set up a plea of adverse possession as a defendant and cannot protect possession as a plaintiff?
Supreme Court observed and held that:
- A person in possession cannot be ousted by another person except by due procedure of law and once 12 years’ period of adverse possession is over, even owner’s right to eject him is lost and the possessory owner acquires right, title and interest possessed by the outgoing person/owner as the case may be against whom he has prescribed.
- Once the right, title or interest is acquired it can be used as a sword by the plaintiff as well as a shield by the defendant within ken of Article 65 of the Act and any person who has perfected title by way of adverse possession, can file a suit for restoration of possession in case of dispossession.
Impact: Any person who has perfected title by way of adverse possession, can file a suit for restoration of possession in case of dispossession.
5. Bikram Chatterji & Ors. vs. Union of India & Ors. (Judgment dated July 23, 2019 in Writ Petition Civil No.940/2017).
Background: Amrapali Group of Companies proposed to construct 42,000 flats by assuring delivery of possession in 36 months to the home buyers on the land which was given on lease by Noida/Greater NOIDA Authority (“Authorities”). Later, Amarpali group were found in serious breach of their obligation to deliver the projects and the payment due to the Authorities and the Banks.
Supreme Court Observation: The Supreme Court ordered a forensic audit to look into the affairs of the Amrapali Group. The forensic report confirmed that (i) there had been diversion of funds by the Group by incorporating shell/dummy companies; (ii) the promoters had created a web of more than 150 companies for routing of funds and creating assets; (iii) the homebuyer’s funds along with the loans from the banks were diverted to other companies/directors, such funds were used by the promoters to acquire personal assets, properties and applied towards other business ventures.
The Supreme Court also observed that the mortgage created in favour of the lenders required an NOC from the Authorities which was issued subject to certain conditions such as full/ timely payment of the lease rents/premiums to the Authorities. The Court held that in the eyes of law, no valid mortgage had been created in favour of the banks on account of the conditional NOC which had not been fulfilled.
Supreme Court Decision: In light of the observations made and the findings of the forensic report, the Apex Court issued the following orders:
- The RERA registrations of the various projects of the Group were cancelled and the National Building Construction Corporation (NBCC) was assigned the task of completing the projects.
- The Court Receiver has been given the right of the lessee and is authorised to execute the tripartite agreement and ensure that the title is passed on to the home buyers, free from any encumbrances.
- The Supreme Court further directed that the Authorities and the banks will have to recover their dues from other properties and assets of the Group which have been attached.
- The homebuyers have been directed to deposit the outstanding amount as per the payment schedule under the builder buyer agreement with the promoters/developers in a court administered bank account within three months. The amount deposited by the homebuyers will be disbursed by the Court order as per the stage-wise completion by NBCC.
- Further, the Court advised appropriate action to be taken against the leaseholders of similar projects not only in Noida and Greater Noida but in other cities as well. Central Govt. Ministries and State Govt. Agencies have been further directed to ensure completion of other projects in a time-bound manner as contemplated in RERA and ensure that the home buyers are not defrauded.
- Lastly, the Noida and Greater Noida Authorities were further directed to issue completion certificate and registered conveyance deed to be executed within one month concerning the projects where the homebuyers were already residing.
Impact: This is the landmark judgment in protecting the right of the home buyers. The bank and the Authorities were made equally responsible for gross negligence on the progress and monitoring money utilization on the Project. Lenders now need to be vigilant and to ensure that the security given against loans is clear beyond any reasonable doubts as the responsibility of the lender does not come to an end upon funding; the lender is required to monitor regularly the end use of such monies.