1. BRIEF OVERVIEW OF RERA, 2016
The Indian real estate sector is a major economic pillar with significant forward and backward correlations, accounting for an estimated 50% of the country’s GDP.[1] To govern the real estate industry and safeguard the interests of home buyers, the Parliament passed the Real Estate (Regulation and Development) Act, 2016 (RERA). It seeks to bring responsibility, efficiency, and transparency to the real estate sector. The Act specifies the rights and responsibilities of developers and home buyers, requires projects and real estate brokers to register, and offers standards for the buying and selling of real estate. Additionally, it creates state-level Real Estate Regulatory Authorities and imposes sanctions for noncompliance. Both residential and commercial real estate projects are subject to RERA. It provides that all parties involved are safeguarded by the law and covers both new and continuing initiatives.[2]
1.1 TYPES OF PROJECTS ARE COVERED UNDER RERA
The following types of projects are likely to fall within the RERA:
> Commercial and residential projects, including plotted development
> Projects larger than 8 units or 500 square meters;[3]
> Before the Act’s inception, projects lacked a certificate of completion.[4]
> If the project is just for upkeep, repairs, or redevelopment and not for the re-allocation, marketing, advertising, selling, or new allocation of any apartments, plots, or buildings in the real estate project, it will not be subject to RERA.
1.2 WHAT CONSTITUTES REAL ESTATE PROJECT?
As per Section 2(zn) of the RERA, 2016; real estate project means as follows:
> Constructing a new building consisting of apartments;
> Converting an existing building or part of it into apartments;
> Transforming land into plots or apartments for sale;
> The project is undertaken to sell all or some of the apartments, plots, or buildings;
> Covers common areas (e.g., lobbies, corridors, gardens);
> Involves development works (e.g., roads, drainage, electricity);
> Encompasses all improvements and structures within the project;
> Incorporates easement rights and appurtenances (i.e., rights attached to the property, such as access roads, water supply, and utilities).[5]
1.3 ESCROW ACCOUNT
To safeguard home buyers and regulate the real estate industry, the parliament passed the RERA Act. The Act’s mandated usage of ESCROW real estate accounts is one of its key components. According to the RERA, a separate escrow account must hold 70% of the money collected from purchasers for housing developments. For example, the developers must form an escrow account and deposit 70 crore in it if the project is valued 100 crore. As co-signatories, the builders and the RERA will both keep an eye on this. This prevents customers from being misled by developers or the funds being diverted to other projects by limiting the use of the money in the escrow account to certain project development-related reasons. All things considered, this account lowers the chance of financial loss and may result in more efficient project execution for both developers and purchasers.[6]
1.4 REMEDIES UNDER RERA, 2016
According to the conditions of the agreement, allottees are entitled to prompt possession of the property. The allottee may request a reimbursement of the whole amount paid, interest, and compensation if the promoter is unable to provide possession on schedule. This Act gives allottees the right to timely possession of the property and the right to a return in the event possession is delayed. According to Section 18, the promoter must follow the authorized plans and project specifications and finish the project within the predetermined deadline.[7] According to Section 19, the promoter must have a distinct account for every project and only spend the money received from allottees for that particular project.[8]
2. PRE-RERA ERA
Home buyers were constantly afraid of builders and developers prior to the RERA Act of 2016 because they would either fail to deliver the property on time to ensure its quality, fail to provide the necessary original documents, or alter the layout plans by adding a common area to extract money or charging additional amounts in the name of various taxes without informing the customers, which resulted in loss and unfair practices. One of the main causes of real estate gambling is the sale of properties on contested or unapproved land, which can result in legal disputes and investment losses. Funds are frequently diverted in the real estate market, ultimately leaving the initial initiatives unfulfilled. It is essential to understand that before to RERA, the real estate sector was unreliable and inefficient.
Prior to the RERA’s passage, buyers could often resolve conflicts and complaints by going to consumer forums. According to the ruling in Fortune Infrastructure v. Trevor D’Lima,[9] purchasers are entitled to complain under the Consumer Protection Act (hereinafter, CPA) about service issues or delays in property possession that result from the use of inferior materials and goods. Home buyers had the right to request an order requiring the developer to return the money, plus interest and other compensation, in such cases.
According to the ruling in Pioneer Urban Land & Infrastructure Ltd. v. Geetu Gidwani Verma,[10] the CPA has given the authority to the consumer forums to direct the builder/developer to reimburse the customer for the money they paid if the property is as per the initially sanctioned plan. In order to provide restitution to resentful homeowners, the appropriate Commission may issue an order directing the builder or developer to pay back the money plus interest and compensate for any losses or damages brought on by the builder’s or developer’s subpar work. Furthermore, unlike conventional litigation or the implementation of decisions from other Courts or Quasi-Judicial Forums, the Commissions have the authority to execute their orders, which guarantees a speedy execution procedure. This expeditious nature of executing orders adds to the overall efficiency of the redressal process for homebuyers.
3. CASE STUDIES
In India, builders often postpone projects because of a financial issues, which exacerbates the situation for homeowners who must continue to pay off debt and rent while they wait for their dream homes. As a result, there are many delayed and abandoned projects. Compared to other regions of India, Delhi NCR has the highest number of abandoned home construction projects. These vast tracts of land in the cities of Noida, Greater Noida, and Gurgaon, which are on the outskirts of New Delhi, are littered with half-built structures and are empty, resembling ghost towns.[11]
> JAYPEE WISH TOWN, NOIDA
Jaypee Wish Town, located in Noida, was a huge 1,063-acre real estate development designed to provide potential homeowners with gleaming retail malls, spotless golf courses, and state-of-the-art medical facilities. The term ‘global homes with an Indian address’ was used in media reports to describe flats that were expected to be delivered by 2012. The real estate market illustrates the scope of the economy’s issues. Developers of real estate like Wish, including Wish Town’s Jaypee Infratech Ltd., have failed. These projects are heavily indebted, and are unable to secure the funding required to complete projects on time. [12]
> TASHEE HOMES PROJECT/TASHEE CAPITAL GATEWAY, GURGAON
The project began in 2010 in Gurgaon’s Sectors 110A and 111. Up to 475 buyers, including both military personnel and citizens, bought houses here. In 2016, KNS Infracon, the developer, unexpectedly and mysteriously stopped working on the project. In October 2022, the project was later taken over under the SWAMIH plan, but little progress was made. A motion for damages for the delay was filed with the Haryana RERA in 2020. The builder’s insolvency suit was rejected.[13]
> PANACHE LOTUS, NOIDA
Perhaps the only project that gives promise for the future was the Lotus Panache project in Sector 110 in Noida. The project started in May 2010 with the goal of completing the construction of 31 buildings by August 2013. But when the developer failed to deliver, the purchasers said the promoters had stolen their money. The resolution expert has made sure that the business is operating and that at least half of the units have been finished, even if a resolution plan before the NCLT has not yet been established.[14]
For those who have mortgaged or invested their life savings in these initiatives, the abandoned projects become a financial burden. Therefore, the implementation of RERA, 2016 is a good gesture so as to protect the ‘homebuyer’s interest’.
4. RERA & IBC: A BENEFICIAL INTERPLAY?
With the goal of acting as a specialized legislation for effective consumer protection and standardization of business processes and transactions in the real estate industry, the Insolvency & Bankruptcy Code,2016[15] (hereinafter,IBC) went into effect soon after the RERA 2016 was implemented. Three separate pieces of legislation- the Real Estate (Regulation and Development) Act, 2016 (RERA), the IBC, 2016, and the Consumer Protection Act, 2019 (CPA) provide remedies for home buyers and allottees in the event that the promised residence is not delivered. While CPA merely offers compensation or a refund, when applicable, RERA offers the remedies of compensation, refund, and possession of the flat or unit in dispute. If the committee of creditors and adjudicating authority approve the recommended resolution plan, the home buyers/allottees may be able to procure their flat conditional on the terms and conditions set by the resolution plan, and all home buyers will be bound by them. In the case of IBC, the code offers a very limited scope of remedy to the aggrieved home buyers, which includes a refund if the threshold limit provided under section 7 of the code is fulfilled, the CIRP is initiated, and the committee of creditors rejects the resolution plan, or if it itself suggests that the corporate debtor (developer) enters liquidation.[16]
> The issue is whether these reliefs found in various laws are contemporaneous or mutually exclusive. The Supreme Court said in the Pioneer Urban Land and Infrastructure Ltd. case,[17] providing a solution to the same question. The court quoted “RERA is to be read harmoniously with the Code, as amended by the Amendment Act. The Code will only take precedence over RERA in the event of a disagreement. Therefore, the remedies provided to those who are allotted apartments or flats are contemporaneous, and they are able to take use of remedies under the Consumer Protection Act of 1986, RERA, and the Code.”
> However, the Supreme Court noted in Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna[18] that “a homebuyer who simultaneously files a complaint with RERA and requests a refund of his money forfeits his ability to use this remedy under the Consumer Protection Act of 2019” in accordance with the Doctrine of Election.
> In the case of Union Bank of India v. Rajasthan Real Estate Regulatory Authority,[19]court ruled that RERA’s requirements will take precedence over the SARFAESI Act in the case of a disagreement. Unless and until the transaction is determined to be fraudulent or collusive, RERA would not apply to transactions between the borrower and banks or other financial institutions in which a security interest has been established by mortgaging the property before the Act’s implementation. If the bank uses Section 13(4) or any ancillary provisions under the SARFAESI Act, RERA will have the authority to consider a complaint filed under the RERA Act by any individual who feels wronged by the bank as a secured creditor.
> “Continuing experimentation in the economic field is a great responsibility and deprivation of the right to experiment would have serious consequences for the country,” the hon’ble Supreme Court said in the historic case of Swiss Ribbons Private Limited v. Union of India.[20] Motivated by this, the NCLT authorised the use of the reverse insolvency resolution method to resolve several real estate projects in India.
4.1 WHAT IS REVERSE CIRP?
In a reverse CIRP, the project’s promoter against whom the CIRP has been filed serves as the project’s external lender, providing funding to finish the project’s remaining construction. The fundamental justification for implementing the Reverse CIRP idea was that, the allottees (being the financial creditor) cannot take a haircut (a reduction in the amount owed to them) which is what happens in the general practice of CIRP.[21]
In contrast to traditional CIRP, wherein creditors usually initiate proceedings, Reverse CIRP permits a corporate debtor to proactively propose a resolution plan prior to the initiation of any insolvency proceedings. This offers a chance to address financial distress early on and may prevent the need for formal insolvency proceedings. Additionally, a key element of Reverse CIRP is the emphasis on cooperation and negotiation between the corporate debtor and its creditors, where the debtor engages in constructive dialogue to develop a resolution plan that is acceptable to all parties. This cooperative approach aims to minimise conflict and encourage amicable solutions.Unlike traditional insolvency proceedings, Reverse CIRP places an emphasis on keeping the firm entity above liquidation or asset sales. The resolution plan is designed to maintain the corporate debtor’s activities, which contributes to the viability of the business, in addition to taking care of the outstanding obligations. It provides flexibility in the creation of resolution plans, allowing the corporate debtor to engage with creditors and then provide a comprehensive plan tailored to the specific needs of the troubled company. A more sophisticated and individualised approach to financial restructuring is made feasible by this flexibility.[22]
4.2 RECENT DEVELOPMENT
According to the IBC (Amendment) Act, 2020, a homebuyer who made up 100 or 10% of all home buyers, whichever is less, can file an insolvency petition. It might be difficult to meet this demand, especially for smaller initiatives.[23]
The Insolvency and Bankruptcy Board of India (IBBI) has broadened the scope of measures being implemented to tackle these problems. On February 15, 2024, the IBBI announced the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024.[24] The Amendment seeks to streamline and eliminate any CIRP loopholes for real estate enterprises under the IBC, 2016. The Amendment precludes a project default from putting the company’s solvent projects on hold. Because there may be many projects at different phases of construction. This amendment allows the Committee of Creditors (CoC) to invite and accept Resolution Plans.
As courts work to strike a balance between the interests of developers and homeowners, the relationship between RERA and IBC keeps changing. Pioneer Urban Land v. Union of India and other seminal rulings have influenced the legal system and guaranteed that purchasers receive sufficient safeguards. The judiciary’s dedication to creative solutions that put the completion of real estate projects first and offer redress to resentful homeowners is demonstrated by the implementation of procedures like Reverse CIRP.
5. SUGGESTIONS & CONCLUSIONS
The protection of home buyer’s interest is a domain which cannot be sidelined and in order to strengthen these provisions, an action plan is required so as for better protections of home buyers and ultimately the economy. Below are few suggestions enumerated for the same:
> Ensuring that states do not weaken key provisions through amendments that favor developers.
> Imposing stricter penalties on builders who avoid RERA registration.
> Ensuring stricter auditing of the 70% escrow fund to prevent fund diversion.
> Implementing digital tracking of project progress to prevent fund misuse and provide real-time updates.
> Development of a government-backed portal where buyers can verify project details, register complaints, and track progress.
A positive development was brought about by the IBC’s identification of home buyers, or ‘allottees,’ under real estate projects. Their designation as financial creditors has allowed them to fairly participate in the process of insolvency resolution. Home buyers now have the ability to participate in the CoC, vote through their designated representative, and take part in asset distribution, giving them a chance to recoup their investment in the project. However, the RERA Act is still in the development stage even though it was established in 2016. A key step in the right direction for raising awareness among consumers, promoters, builders, etc. is the implementation of legislation such as RERA. In the future, the modernisation of land records, land acquisition, and GST could be given priority in accordance with RERA in order to facilitate the growth of the real estate sector. All stakeholders, including builders, promoters, agents, and allottees, are required to adhere to the project specifications, agreements, and legal frameworks, otherwise the efforts will be in vain.
KEYWORDS: RERA, Home-Buyers, IBC, Consumer Protection, Escrow Account.
[1] Hari Movva ‘How the Indian real estate sector drives the nation’s Economy’ Financial Express (Mar. 21, 2023) https://www.financialexpress.com/money/ how-the-indian-real-estate-sector-drives-the-nations-economy-3017285/.
[2] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, Preamble to the Act (Ind.).
[3] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, , §3(2)(a) (Ind.).
[4] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, , §3(2)(b) (Ind.).
[5] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, , §3(2)(zn) (Ind.).
[6] Raghavi Kasa, ‘All about RERA Escrow Account’, Razorpay (Oct., 26, 2023) https://razorpay.com/learn/business-banking/rera-escrow-account/.
[7] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, §18 (Ind.).
[8] Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, §19 (Ind.).
[9] Fortune Infrastructure v. Trevor D’Lima, (2018) 5 SCC 442.
[10] Pioneer Urban Land & Infrastructure Ltd. v. Geetu Gidwani Verma, Civ App No. 12238/2018.
[11] Parul Bhardwaj, ‘Stalled Construction Projects: the Real Wastage of Money, Resources and Time’, 4.4 JCLJ (2024) 776.
[12] Aditya Dev, ‘Cabinet note on Suraksha’s Wish Town plan likely soon’ Times of India (Feb. 17, 2024), https://timesofindia.indiatimes.com/city/noida/revival-of-jaypee-infratech-ltds-wish-town-project-in-noida/articleshow/107767756.cms.
[13] ‘100% dues cleared, 13 yrs gone, no handover of homes yet: Buyers’ Times of India (Feb., 12, 2024), https://timesofindia.indiatimes.com/city/gurgaon/100-dues-cleared-homebuyers-protest-delay-in-tashee-capital-gateway-housing-project/articleshow/107611675.cms.
[14] ‘There’s light at the end of the tunnel for over 4,000 buyers of the Lotus Panache project in Noida who have waited for their homes for almost a decade’, Money Control, (Aug., 04, 2022), https://www.moneycontrol.com/news/business/real-estate /theres-light-at-the-end-of-the-tunnel-for-over-4000-buyers-of-the-lotus-panache-project-in-noida-who- have-waited-for-their-homes-for-almost-a-decade-8937181.html.
[15] The Insolvency & Bankruptcy Code,2016, No. 31 of 2016, § 7 (Ind.).
[16] The Insolvency & Bankruptcy Code,2016, No. 31 of 2016, (Ind.).
[17] Pioneer Urban Land and Infrastructure Ltd. v. Union of India, SCC OnLine SC 1005.
[18] Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna, (2021) 3 SCC 241.
[19] Union Bank of India v. Rajasthan Real Estate Regulatory Authority, SLP (C) Nos. 1861-1871 of 2022, order dated 14-2-2022 (SC).
[20] Swiss Ribbons Private Limited v. Union of India, (2019) 4 SCC 17.
[21] Varnit Vashishta, ‘A Brief Note on Reverse Insolvency’, IBC Laws (Dec., 08, 2023), https://ibclaw.in/a-brief-note-on-reverse-insolvency-in-real-estate-industry-by-varnit-vashistha/.
[22] Mohanish Shukla, ‘Navigating Corporate Distress: AN In-depth analysis of Reverse Corporate Insolvency Resolution Process (CIRP) under IBC, 2016’, Mondaq (Jan. 19, 2024), https://www.mondaq.com/india/insolvencybankruptcy/1414362/navigating-corporate-distress-an-in-depth-analysis-of-reverse-corporate-insolvency-resolution-process-cirp-under-ibc-2016.
[23] Insolvency and Bankruptcy Code (Amendment) Act, 2020, Act No. 1 of 2020 (Ind.).
[24] IBBI announced the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2024.
