11/13/2018 Rera vs Insolvency Code vs Consumer Forum: Home Buyers/Flat Purchasers Remedy

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Rera vs Insolvency Code vs Consumer Forum: Home Buyers/Flat Purchasers Remedy

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Real Estate (Regulation and Development) Act, 2016 (RERA):

A recently promulgated legislation, RERA seeks tocurb the shortcomingsof respective Ownership Acts
prevailing in each state. A centre enacted legislation, RERA seeks to provide uniform laws throughout the
states, for protecting the interest of home buyers and seeks to increase transparency in functioning of
construction companies and reduce the chances of default or misappropriation of funds by Builders.

RERA provides for establishment of following authorities/Tribunals:

1.Real Estate Regulation Authority ("RERA Authority") in each state;
2.Real Estate Appellate Tribunal in each state.
It seeks to provide for establishment of authorities/tribunals for providing mechanisms to at
purchasers/home buyers for expeditious Redressal of complaints under the Act.
It basically and broadly provides for remedy for following breaches/contraventions by Promoter/Real Estate
Agent:
1.Inviting/O ering for sale etc. without registration of project by Promoter/Developer;
2.Acting as agent or inducing/facilitating purchase by Home Buyer without registration as Real Estate agent or
project being registered with Real Estate Authorities;
3.Any unfair practice being adopted by Promoter/Developer/Real Estate Agent;
4.Violation of terms and conditions by Promoter/Developer subject to which approval granted by Competent
Authority;
5.Adoption of fraudulent practice by Promoter/Developer;
6.Violation of any provisions of the Act/Rules/Regulation.

Consumer Protection Act, 1986 (CPA):

CPA enacted to provide speedyRedressal mechanismto"CONSUMERS"under the CPA by establishments of
Forums at District, State and National level. CPA only applies in case ofCONSUMERalleges Unfair Trade
Practice or De ciencywith respect toGoods or Services. Each of the terms are well and broadly de ned under
the Act. The home buyers were also included within the purview of the Act by interpreting the word "Services"
under the Act to include construction, sinceconstruction is also a service.Otherwise transactions in Immovable
Properties are outside the ambit of CPAsince they are not goods within the meaning of the Act. Hence
transaction relating to sale /exchange of Immovable Properties, speci c performance of the same, claim for
damages for non-performance of agreement of sale is outside the purview of CPA since Immovable Properties
arenot "goods" within the meaning of the CPA.

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Insolvency and Bankruptcy Code, 2016 (IBC):

IBC was one of the most successful piece of legislation promulgated by the Parliament to provide a uniform
code for Insolvency Resolution of all persons whether Individual, Partnership Firm or Corporate entity. It
contains di erent chapters for Insolvency of di erent types of persons. For Corporate Entities it provides
forCorporate Insolvency Resolution Process (CIRP)for 6 months to provide an opportunity to revive the
Corporate Entity if Financial Creditors of the Company by requisite majority so agree by approvingResolution
Planand toprevent further erosion of capitaland if possible to appreciate the capital of the Company.If CIRP
fails, the Company goes into liquidationand liquidation in done in the manner provided in the IBC.

By virtue of recent amendment in August 2018, the Allottee's of project are considered and are deemed to be
Financial Creditors within the meaning of the Act. Hence they are entitled to maintain Insolvency Application
and in case of admission of Insolvency Application byother Creditors, Financial or Operational, are entitledto
participate and votein meeting ofCommittee of Creditorsthat is constituted.

Comparing Remedy Under Rera Vs Cpa Vs Ibc On Certain Parameters From Home Buyers Perspective:
Sr.No.Basis RERA
RERA has been formed recently
and it takes on an average couple Grievance or
Time
of years for Redressal of
Grievances.
A Purchaser/Home Buyer or
prospective purchaser/Home
Buyer o ered at can le
Who can le
Complaintirrespective of the fact
that such person is Corporate
Entity or Individual.
CPA IBC
It takes about 5-6 It takes about 6 Months
Years for Redressal of for adjudication of
Insolvency Application
adjudication of and to admit the same
dispute by Consumer by Adjudicating
Forum. Authority.
Since by recent
amendment in August
A Consumer i.e. a 2018, the Allottee of
person who satis es Project is considered a
the requirement Financial Creditor,any
under Section 2(d) of person whether an
CPA can le Individual or Corporate
complaint. Thereby Entity can le an
only a person, Insolvency
typicallyIndividualwho Applicationunder
enters into Section 7 of IBC. Also
agreement for allottee who is
purchase of Flat can competent to le
le complaint whenhe Application in my view
purchases the same can be both purchaser
for his individual under Redevelopment
useand residence. or existing
tenant/owner/occupant
of Flat/Apartment.

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Insolvency Application
is to be led before
Adjudicating Authority
i.e.
a)National Company
Law Tribunalhaving
Complaint is to be territorial jurisdiction
Complaint is to be led beforeReal led beforeConsumer over the place where
Application/Complaint Estate Regulatory Forum having registered o ce of
to be led before Authorityestablished in each state territorial and Corporate entity is
whom by respective State government pecuniary situated in case of
where the project is situated. Jurisdictionto hear Corporate Entities;
Complaint. b)Debt Recovery
Tribunalin the
territorial jurisdiction of
which individual
resides, carries on
business or personally
works for gain.
a.National Company
a)District Forum; Law Tribunal;
b)State Forum; b.National Company
c)National Forum; Law Appellate Tribunal;
d)Supreme Court. c.Supreme Court.
Real Estate Regulatory Authority;
*A writ petition under *A writ petition under
Appellate Structure B.Real Estate Appellate Tribunal;
Article 226 & 227 can Article 226 & 227 can
under the Act. C.High Court;
be preferred in be preferred in
D.Supreme Court.
exceptional exceptional
circumstances against circumstance's against
the decisions of the the decisions of the
Forums. Company Law
Tribunals.
District Forums are
established inevery
district of the State.
Furthermore State
NCLT is typically
Commission presides
constituted for each
Thereare typically as of now, one in capital of each
state andpresides at
or two Real Estate Regulatory state and sometimes
one place in the stateor
Accessibility Authority o ces in each state has benches in other
one NCLT is commonly
which has constituted the parts of the State.
empowered and is
Authority under the Act. National Commission
having jurisdiction over
presides at Delhi and
two states.
has circuit benches in
various parts of the
Country which are
rotating.

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Real Estate Regulatory Authority

typically exercise its power by way
of an order toimpose ne,
deregister the project, include the
promoter in list of defaulters,
direct completion of project in Once, NCLT admits the
manner provided in consultation The Consumer Forum Insolvency
with State Governmentand pass has thepower to Application,IRPcomes
appropriate orders incidental execute its own into the picture
thereto. orders. This makes tomanage the a airs of
*Since Home Buyers are execution of orders the Companyand in
particularly interested in also anexpeditious case o ailure of
completion and handing over a air in comparison Corporate Insolvency
possession of their ats, RERA to regular suits or Resolution Process
Authority provides for stages wise execution of orders ("CIRP") (In case of
Execution/Reliefs
utilisation of moneys paid by them passed by various Developer being a
provided
and a separate account to be Courts/Quasi-Judicial Corporate Entity),
maintained for the purpose. In Forums. Also since Liquidation would be
case of default to complete project scope of Consumer commenced. NCLT
or other non-compliances, RERA Act is limited, the monitors the entire
provides for various measures to relief and process and time to
complete the project and consequently is time, various reports
empowers the authority for the execution is are required to be led
same for that home buyers are comparatively an with NCLT.In other
not kept in lurch. Also it tries to expeditious a air. cases liquidation would
penalise builders by aforesaid be commenced by DRT.
measures so that they are
prevented and discouraged from
undertaking further projects when
they do not have requisite
resources.
Analysis Of Provisions Relating To Granting Of Reliefs Under The Acts:
A.*By virtue of provisions ofProviso to Section 71(1)of RERA it is explicitly clear that aperson can avail one of
the two remedies, either le Complaint with RERA Authority or before appropriate Consumer Forum. This is
due to the fact that in both the remedies one is seeking or can seek recovery of money along with interest,
compensation and costs. It proceeds onprinciple of constitution under Article 20(2)of Indian Constitution
provides for equitable principle "that nobody can be prosecuted and punished for the same o ence twice or
more times".

B.However wheredi erent reliefs are to be sought from RERA Authority and Consumer Forum,
di erentcomplaint in both the institutions is maintainable. However onlytwo remedies which RERA can
provide, apart from slightly more expeditious disposal of caseswhich the consumer forums are not competent
are:-

i.Power to issue directions for completion of project in consultation with State Government by appointment of
suitable agency;
ii.Power to include Builder/Developer in the list of defaulter and/or to prohibit it from undertaking new
projects.

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C.HoweverSection 71(1) read with 72(2) of RERA makes it abundantly clearthat thebar is only in respect of
remediesthat can be commonly obtained underboth the Authorities. Hence one it always at liberty to
approach RERA or Consumer Forum for remedies not availed from before in other Forum.

D.Also proviso to Section 17(2) of RERA provides for handing over possession within 30 days of obtaining
occupancy certi cate and execution of conveyance within 3 months of obtaining occupancy certi cate.
However it does not provide for deemed conveyance unlike Maharashtra Ownership of Flats Act, 1963. InRERA
provisions of Section 17 read with Section 34 and Section 38 in my view, one cannot seek reliefas to directions
to be issued to Developer/Builder for complying with conditions forgranting Occupation Certi cateand
obtaining grant of the same. Even in case of failure of Developer/Builder to hand over possession or grant
conveyance,the RERA can only impose monetary penaltyand relief in the nature of monetary interest. This is in
my view due to the fact also that RERA is an "Authority" formed for limited purpose. A statute cannot be
interpreted so liberally so confer power on an authority which the Act does not explicitly provide.RERA in my
view is administrative authority, having regard to the scheme of the Act, though it may perform quasi-judicial
or quasi legislative functions incidentally. However most decisions of RERA are administrative decisions for
enabling it to carrying out its functions as administrative authority under the Act.

E.HoweverConsumer Forums have the powerto grant reliefs in the nature of directions tothe Developer to
provide Occupation Certi cate, handover possession and grant Conveyancein favour of ultimate entity formed
of at/apartment purchasers. SinceSection 14(1)(e) of CPAprovides for power of Consumer Forum to issue
directions "to remove the e ects or de ciencies in the services in question, the word"removal of de ciency in
service" would also include power to grant reliefs as aforesaid as stated previously, since construction is also
"Service" within the meaning of CPA.

F.However since Home Buyer/Flat Purchaser are deemed to Financial Creditors under IBC, they can le an
Insolvency Application under section 7 of IBC. However aninteresting question would arise as to when would
there be "Default"on the part of Developer. One has to always keep in mind that construction activity or Real
Estate Projects are complex in nature, hencea holistic and equitable view of the transactionhas to be taken. A
number of transactions and agreements are entered intobetween Developer, Flat Purchaser, Owner and/or
Planning Authorities. Every delay in possession than delivery date or non-observance of agreement or
statutory possession cannot be construed harshly against the Developer. On admission of Insolvency
Application, in case against Developer being a Company,moratorium would come into force for a period of 6
monthswhich would leadto stay of all proceedingsbefore every court. However same doesnot apply to
criminal proceedings and writ proceedingsas held by Hon'ble NCLAT in case ofCanara Bank vs Deccan
Chronicles Holdings Limited.

G.A company or corporate entity would sought to be revived in case eligible person submits a Resolution Plan
and the same is approved by requisite majority of Creditors in the Committee of Creditors. On failure of the
same the Company would go in liquidation. Hence after company goes under liquidation, the assets/liabilities
would be liquidated in the manner provided in IBC. Flat Purchasers would have priority in discharge of its
debts over other creditors and would also have a charge on the property/ at allotted to them at whatever
stage of construction it might be under. In case of builder/developer being Individual or partnership rm, then
same would straight away go in liquidation.

H.However, if builder is complying with provisions of RERA as to separate bank account opened for money
received with respect to at under construction, and has been unable to complete construction due to

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nancial paucity or any other reason, he will be nancial creditor only with respect to interest on amount paid
from date of default till completing project or till RERA taking action to complete the project if at purchaser
does not choose to terminate the agreement.

I.However if at purchaser chooses toterminate the agreement, then he becomesFinancial Creditorto the
extent ofpayments made to Developer plus interest duefrom the date of default. DATE OF DEFAULTin my view
would be of critical importance and it should be date on which there has beenfailure on part of builder to
provide possession as per the agreement or date for completion of projectdisclosed to RERA,whichever is
earlier. Default can also meanvalid termination of agreementas per clauses of the binding agreement or
under the provisions of any Act andDATE OF DEFAULT would mean the date from which termination is
e ective.

J.Insolvencywould beoptional remedy, which would be onlyfeasible if company does not have sound nancial
positionand the same is deteriorating. As to the Applicant would have better prospects at recovering his
money along with interest. It will befruitful remedy when the Applicant only seeks to recover money
investedalong with interest predominantly.

K.If the Developer has sound nancial positionand at purchaser seeks to obtain speci c performanceas to
completion of the project,then ling an Insolvency Application may not be feasible option.

L.If at purchaser is Consumer, Consumer Forum would bea great alternative remedy to obtain speci c
performance. However if at purchaser is not competent to obtain relief under CPA, then Civil Courts are the
only remedy he has for speci c performance and compensation etc.

M.Also RERA is more e ective remedy when the project is purely development project or there are large
numbers of sale ats which have been sold. This is because in a pure Redevelopment Project, there are less
number of tenements available for Developer to be sold and hence less moneys raised and kept in a separate
escrow account to be utilized for the purpose of completion of project. Also if more number of charges or
mortgages are created on the sale component , then the matter would be only more complex as banks/FI
would also put forth their claim on the moneys in the Escrow Account.

Conclusion Of Above Observations And Analysis:-

a.If person is aconsumer and seeks performance of statutory obligationor compensation in respect thereof,
thenConsumer Forum is a better and e ectiveremedy especially in case where Developer has nancial ability
to pay. Also he may le a complaint with RERA to blacklist Developer and other reliefs which RERA can provide
but consumer forum cannot.

b.If a person is not a consumer,then RERA would be more appropriate remedy.

c.If a person is not a consumer and seeks speci c performance of statutory obligations from Developer, his
only remedy would be to le a regular suit. However, for compensation and other reliefs he may approach
RERA.

d.If Person, whether consumer or not, is seeking only return of his money, especially whenDevelopers
nancial position is deteriorating, then Insolvency Applicationbefore NCLT would be appropriate remedy more
so when its redevelopment of property that doesnot involve many at in sale component.

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e.Also themore the project is closer to the verge of completion, RERA would be a more e ective remedy
especially if Flat Purchaser/Home Buyer desires to obtain a Flat and vice-versa coupled with the consideration
that RERA can also provide compensatory reliefs.

f.Insolvency can always be availed as an alternative remedy when a Flat Purchaser feels that nancial position
of Developer is deteriorating and Developer will not be able to complete the project and return the money
with interest to be able to prevent further deterioration. It will help toobtain recovery of maximum amount of
money invested along with Interest.Completion of project may take several years due to various practical
di culties that may arise in the completion of project. Alsoexecution of order for payment of moneywill not
have any fruitful result if Developer does not have nancial ability to pay it.

g.In terms of execution, Insolvency since being process to liquidate the assets of entity or person willbe a
more lucrative remedy in case there is high probability that Developer may not be in position to return the
money invested.Consumer Forumsince having power to enforce their own orders also providegreat remedy in
case where builder has completed construction but delayed possession or not complied with statutory
obligationto obtain reliefs in respect of both.

h.The Flat Purchaser/Home Buyer can always initiate criminal proceedings against Developer against fraud or
other criminal o ences or acts committed by it.

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