Maharashtra breaks ground with housing regulation bill

By Deepti Mohan, Vidhii Partners
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In a bid to bring transparency and accountability to the housing sector and put an end to multiple malpractices faced by flat purchasers, the Maharashtra state cabinet recently approved the Maharashtra Housing (Regulation and Promotion of Construction, Sale, Management and Transfer) Bill, 2011. The bill is intended to repeal the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA), the current law regulating housing projects, and will be placed before the state legislature this month.

The bill seeks to enter uncharted territory and, if passed, Maharashtra would become the first state to establish a Housing Regulatory Authority and Housing Appellate Tribunal to handle all flat transaction disputes. Such disputes are presently handled by consumer and civil courts.

Central model

The bill, in its present form, has been modelled on the Real Estate (Regulation & Development) Bill, 2011, proposed by the Union Ministry of Housing and Urban Poverty Alleviation (central bill), which also seeks to establish a real estate regulator.

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Vidhii Partners

The state bill requires promoters to register their projects with the Housing Regulatory Authority and display specified details of the project on the website hosted by the authority for public viewing. No promoter would be entitled to sell or market a flat in a project without such registration except in cases where the area of land under development does not exceed 250 square metres or where the total number of flats to be developed is less than five.

The bill further makes the promoter liable for any wilful untrue statements made in a prospectus.

All flat transaction disputes, except matters relating to monopolistic or restrictive trade practices, would be adjudicated by the Housing Regulatory Authority and the Housing Appellate Tribunal, which also have the power to cancel the registration of a promoter and prohibit him or her from marketing and selling flats in an unregistered project.

Non-compliance with an order of the regulatory or appellate authority could attract a penalty of up to ₹1 million (US$20,000). Additionally, the Housing Regulatory Authority is to perform other functions, such as establishing a framework for speedy grant of planning permissions, and encouraging the rating of projects and promoters.

Some departures

The state bill, however, is less stringent than the central bill and departs from it on several counts. The state bill does not require the promoter to deposit 70% of the amount realized from the flat purchasers in a separate account to be used only for meeting the cost of the real estate project. Instead, the promoter is only required to maintain a separate account of the money received and to use the money for its intended purpose.

Both MOFA and the central bill provide for imprisonment for violations by promoters. The state bill provides for only a penalty in such cases and the monetary penalty prescribed is lower than that in the central bill. The state bill, however, authorizes the Housing Regulatory Authority to direct that criminal proceedings be initiated in cases of criminal breach or violation of the provisions of the Indian Penal Code by the promoter.

Unlike the central bill, appeals from the orders of the Housing Appellate Tribunal lie before the high court and not the Supreme Court. Further, the state bill also does not expressly oust the jurisdiction of the civil court, which could lead to issues of conflict of jurisdiction at a later stage.

MOFA provisions

The state bill substantially includes all the provisions of MOFA, albeit with certain modifications, including those mentioned above. The bill introduces the concept of development of a layout consisting of more than one building or development of land with an area of 1,000 square metres or more.

The bill also redefines carpet area, to bring this concept in line with its meaning under the Development Control Regulations, and allows a promoter to allot parking spaces (except in compulsory open areas) and sell independent and utility areas to a flat purchaser, which was not expressly provided for under MOFA. The bill further imposes conditions for the formation of a cooperative society, linking the society’s formation with the promoter having received the full purchase price and other amounts due from the flat purchasers.

Measuring success

It would take eight to nine months after the passage of the state bill to establish the Housing Regulatory Authority and Appellate Tribunal. Once they are set up, the success of the new act will depend on how effective the regulatory and appellate bodies are in monitoring and regulating the housing sector and implementing the provisions of the law. Without successful implementation, bringing in the new act would be reduced to just another unproductive exercise.

Deepti Mohan is a partner of Vidhii Partners and can be reached at [email protected]

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