The Bombay High Court has upheld the constitutional validity of the recently enacted Real Estate (Regulation & Development) Act, 2016 (“RERA/Act”).
Several builders had challenged the legal validity of the Act and its various provisions in the High Courts of Bombay, Nagpur, Aurangabad, Bangalore, Jabalpur. Subsequently, the Government of India filed a transfer petition in the Supreme Court to club all the cases to be heard by the Apex Court, however, the Supreme Court directed the High Court of Bombay to hear the cases and further stayed all proceedings in other High Courts until High Court of Bombay pronounces it’s judgment.
The main legal challenge from builders to RERA was against Section 3 of the Act, which required registration of not just new but even ongoing construction projects that were yet to get completion certificates. The builders contended that they were arbitrarily being made retrospectively liable for delays and default on schedules set in the past. The builders also sought quashing of certain provisions, one which requires builders to deposit 70% of funds paid by buyers. The hon’ble High Court rejected these contentions and held that the provisions were regulatory or compensatory, not penal and therefore stand valid.
The High Court also upheld the validity of Section 7 and Section 8 which deals with the revocation of registration. The hon’ble court opined that the provisions were meant to push timely completion and that revocation does not necessarily take away the project from the developer. Similarly, Section 18 that makes builders liable to refund with interest to a buyer in case of revocation of registration, was also declared constitutionally valid.
While the court dismissed most of the builders’ pleadings, it allowed two pleas by them. The court allowed the RERA authority to grant extension of time, more than the statutory prescribed extension limit of one year, for project completion to developers in exceptional cases. The additional time, the court said is meant to be granted in compelling circumstances on a case-by-case basis. The court also struck down a provision that provided for appointment of bureaucrats as members of an appellate tribunal. In the constitution of a tribunal, majority members must be judges or judicial officers, the court added.
Following this ruling, home buyers in several states like Telangana, UP, Haryana, Maharashtra, Karnataka, Andhra Pradesh and Madhya Pradesh will be able to challenge the rules that had been diluted by the state governments to keep most delayed and “ongoing projects” out of RERA’s ambit.
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