Pro-consumer bill aims to regulate builders in India

By Amitabh Chaturvedi and Ekta Sukhramani, Mine & Young
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The Indian government’s Real Estate (Development & Regulation) Bill aims to protect the interests of home buyers by regulating and bringing transparency to real estate transactions. The bill has been greeted with delight and appreciation from consumers and end-users, and criticism from builders and developers.

Amitabh Chaturvedi Managing partner Mine & Young
Amitabh Chaturvedi
Managing partner
Mine & Young

Various statutes are currently available for the redressal of grievances of real estate buyers, including the Indian Penal Code, the Indian Contract Act, the Competition Act and the Consumer Protection Act.

Agreements signed between developers and end-users are covered by the Contract Act, any breach of which may result in severe penalties. Consumers also have the right to file a civil suit or a petition before a district or state consumer disputes redressal commission under the Consumer Protection Act and claim compensation or the allotment of a similar property in an alternative location.

New bodies

The enactment of the bill would lead to the establishment of a state-level authority headed by a chairman and two members and a central appellate tribunal, to regulate, control and promote the development, construction, sale and transfer of residential projects, buildings, apartments and similar properties, as well as to adjudicate on disputes. This is expected to lead to a secure, well-organized and regulated market for both builders and buyers.

Barring the jurisdiction of civil courts on matters to be determined by the regulatory authority or the tribunal, the authority would act as the nodal agency for the development of the real estate sector and would also establish mechanisms for settling disputes between builders and buyers and further ensure that builders comply with the provisions of the bill.

The debate

The Competition Commission of India in a recent judgment highlighted the one-sidedness of real estate buyers’ agreements and the abuse by developers and builders of their dominant position in the market. Some of the bill’s provisions, such as the requirement for registration and disclosure of all projects prior to advertising them, are intended to address this one-sided and abusive situation.

Ekta Sukhramani Associate Mine & Young
Ekta Sukhramani
Associate
Mine & Young

However, realtors are of the opinion that the bill is unfair and puts the onus entirely on the builders. They say that creating another window of clearance and another layer of time-consuming compliances would add to regulatory costs and delays, and setting up the authority would require a huge investment by the government. This, in turn, would result in higher prices.

Moreover, in targeting only developers, the bill fails to regulate other stakeholders, such as financial institutions, brokers and authorities at the central, state and municipal levels. The bill is silent on the responsibility of the authorities and government officials for delaying projects by delaying the grant of regulatory approvals, as different states have different criteria for clearing projects and granting licences.

The bill provides for a financial penalty up to 10% of the estimated cost of a development or imprisonment for up to three years, or both, for selling a project without the required registration. Builders are of the opinion that only financial penalties should be imposed as the threat of imprisonment would deter new entrants from setting up businesses in the real estate sector.

Loopholes

While the bill has many positive aspects, certain other concerns also need to be addressed. For instance, the bill’s impact across India will vary as land laws are different in different states and each state would draft its own policy around the bill.

Further, the bill only covers plot sizes of 4,000 square metres or more, which leaves out a considerable chunk of the real estate market. Also, revocation of registration by the authority as provided under section 7 of the bill should not only be based on the recommendation of the competent authority but should also include substantiated complaints from aggrieved consumers.

Although the bill seeks to safeguard the interests of developers by imposing heavy fines on buyers who default in paying the amount they owe for builder projects, provisions such as those requiring completion of projects in time, speedy adjudication of disputes, developers to keep almost three-fourths of the funds received from the buyers in a separate bank account, so as to ensure timely completion of the project, and keeping track of incidences of malpractice by builders, show that the bill is undoubtedly pro-consumer.

If the bill becomes law, prospective consumers would no longer be at the mercy of the developers and would be able to hold them accountable. Also, the rampant malpractices that are prevalent in the realty sector would be to a large extent checked. The bill, on the whole, is a beneficial piece of legislation which is meant to protect the public and could bring sustainability and investment to the real estate sector.

Amitabh Chaturvedi is the managing partner of Mine & Young, where Ekta Sukhramani is an associate.

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