Corporate Case

Apex Court explained the prevailing contradictions in various provisions of the RERA Act, 2016

A three-judge bench of the Hon’ble Apex Court of India passed a judgment in the matter of M/s. Newtech Promoters and Developers Pvt. Ltd. Vs. State of UP & Ors. 2021 SCC Online SC 1044, dealing with numerous troubling practices of the developers and builders and also explained the prevailing contradictions within various provisions of the Real Estate (Regulation and Development) Act, 2016 (“the Act“).

Issues for the Consideration of Court

• Whether the Act has retroactive or retrospective effect and what will be its legal consequences if tested on the anvil of Constitution of India?

It was opined by the Court that the Act is not retrospective in nature because it affects the existing rights of the persons mentioned in the Act like promoters, allotees etc. The intent of the legislature was to bring all “ongoing projects”² which commenced prior to the Act and for which the completion certificate had not been issued, under the ambit of the Act.

• Whether the Authority has power to pass an order directing the builders to refund the amount to the allotees under Sections 12, 14, 18 and 19 of the Act or does such a power exclusively vest with the adjudicating officer under Section 71 of the Act?

In view of the legislative intent of the Act, the Court observed that the power is vested with the Authority to deal with issues relating to refund of the investment amount or interest on such refund. However, if any complaint pertains to compensation and interest thereon, the adjudicating officer under the Act will have the power to deal with such cases. If adjudication other than compensation as envisaged under Sections 12, 14, 18 and 19 of the Act is extended to the adjudicating officer, it may expand the ambit and scope of powers and functions of the adjudicating officer under Section 71 of the Act, and that would be in contravention of the Act.

• Whether the Authority under Section 81 of the Act has the power to delegate its function of hearing of complaints under Section 31 of the Act to a single member?

If the power under Section 81 of the Act has been delegated by the Authority, then such action, if being exercised by a single member cannot be said to be outside the provisions of the Act.³ However, the same power to delegate under Section 81 shall exclude making regulations under Section 85 of the Act.

• Whether the pre-condition of pre-deposit mentioned under Section 43(5) of the Act for dealing with substantive right of appeal is valid in the eyes of law?

Apex Court explained the prevailing contradictions in various provisions of the RERA Act, 2016

A three-judge bench of the Hon’ble Apex Court of India passed a judgment in the matter of M/s. Newtech Promoters and Developers Pvt. Ltd. Vs. State of UP & Ors. 2021 SCC Online SC 1044, dealing with numerous troubling practices of the developers and builders and also explained the prevailing contradictions within various provisions of the Real Estate (Regulation and Development) Act, 2016 (“the Act“).

Issues for the Consideration of Court

• Whether the Act has retroactive or retrospective effect and what will be its legal consequences if tested on the anvil of Constitution of India?

It was opined by the Court that the Act is not retrospective in nature because it affects the existing rights of the persons mentioned in the Act like promoters, allotees etc. The intent of the legislature was to bring all “ongoing projects”² which commenced prior to the Act and for which the completion certificate had not been issued, under the ambit of the Act.

• Whether the Authority has power to pass an order directing the builders to refund the amount to the allotees under Sections 12, 14, 18 and 19 of the Act or does such a power exclusively vest with the adjudicating officer under Section 71 of the Act?

In view of the legislative intent of the Act, the Court observed that the power is vested with the Authority to deal with issues relating to refund of the investment amount or interest on such refund. However, if any complaint pertains to compensation and interest thereon, the adjudicating officer under the Act will have the power to deal with such cases. If adjudication other than compensation as envisaged under Sections 12, 14, 18 and 19 of the Act is extended to the adjudicating officer, it may expand the ambit and scope of powers and functions of the adjudicating officer under Section 71 of the Act, and that would be in contravention of the Act.

• Whether the Authority under Section 81 of the Act has the power to delegate its function of hearing of complaints under Section 31 of the Act to a single member?

If the power under Section 81 of the Act has been delegated by the Authority, then such action, if being exercised by a single member cannot be said to be outside the provisions of the Act.³ However, the same power to delegate under Section 81 shall exclude making regulations under Section 85 of the Act.

• Whether the pre-condition of pre-deposit mentioned under Section 43(5) of the Act for dealing with substantive right of appeal is valid in the eyes of law?

The Court held that the question of discrimination between allottees and promoters does not arise as they fall under distinct and different categories or classes. The deposit of amount equivalent to 30 percent of penalty by the promoter while preferring an appeal shall avoid uncalled litigation at the appellate stage and shall further safeguard the amount to be recovered for the allottee in case the appeal fails at a later stage. The intention of the legislation is that the promoters ought to show their bona fide intentions by depositing the amount so contemplated and avoid frivolous appeals.

• Whether the Authority has been conferred power under Section 40(1) of the Act to issue recovery certificate for retrieval of the principal amount?

The Court held that there exist visible inconsistencies in the powers of the Authority regarding the refund of the principal amount under Section 18 of the Act and the text of the provision by which such refund can be referred under Section 40(1) of the Act. If Section 40(1) is strictly construed, it would defeat the purpose of the Act. The Court held that there exists ambiguity in Section 40(1) of the Act and the same must be harmonized with the purpose of the Act. It was further clarified that the amount which has been determined and refundable to the allottees is recoverable within the ambit of Section 40(1) of the Act.

• Whether the Authority has been conferred power under Section 40(1) of the Act to issue a recovery certificate for retrieval of the principal amount?

The Court held that there exist visible inconsistencies in the powers of the Authority regarding the refund of the principal amount under Section 18 of the Act and the text of the provision by which such refund can be referred under Section 40(1) of the Act. If Section 40(1) is strictly construed, it would defeat the purpose of the Act. The Court held that there exists ambiguity in Section 40(1) of the Act and the same must be harmonized with the purpose of the Act. It was further clarified that the amount which has been determined and refundable to the allottees is recoverable within the ambit of Section 40(1) of the Act.