The Real Estate (Regulation and Development) Act, 2016 (for short RERA) was passed by the Indian parliament to protect the home buyer’s interests, the Act brought regulations in the real estate sector. After the enactment of the said Act, the states including Haryana also implemented their version of the law about real estate known as HRERA keeping the basics laid in the Union version. The Haryana Real Estate (Regulation and Development) Rules, 2017, were brought into force on 28th July 2017.
Property sales based on super area shall be null and void: Haryana RERA
On 27th April 2021, the HRERA has ruled that if any property is sold based on super area, it shall be treated as ‘unfair trade practice’ on behalf of the promoter. Conveyance deeds executed for a project will also have to be based on the carpet area only. Due to several complaints from buyers that builders/home developers have been selling properties on super area rates and not carpet area rates HRERA brought in the said rule. The regulation will be applicable on all real estate projects, irrespective of whether they are registered or yet to be registered or exempted from registration.
It was stated by HRERA that “No conveyance deed of a real estate unit shall be registered, except based on carpet area. In cases where the real estate unit was allotted to the allottee before the Act came into force, the promoter shall, at the time of registration of the conveyance deed, disclose all the components constituting the super area. However, the conveyance deed shall be registered only on carpet area basis”. It aims to protect the allottees from fraud when the unit is sold on a super area basis[i].
What have assured return schemes?
This scheme is a way to address the issues and the problems relating to the growing trust deficit among customers due to inordinate delays in the construction of the projects. It offered a fixed percentage of return to the buyers on investment without providing any collateral, till the possession of the premises is handed over and in certain cases even after possession.
Assured return schemes are usually favored by developers as it provides them with access to money at interest rates lower than ordinary loans from scheduled banks. The subscribers of this scheme can now seek redressal under RERA[ii].
Assured Return Scheme: Judgment Analysis
The question of the legality of the assured return schemes was put to test in the case of Viswas Real Estates and Infrastructure India Limited case[iii]. In the instant matter, a complaint was filed with the Securities and Exchange Board of India (SEBI) regarding a scheme of guaranteed assured returns offered by the company to be a Collective Investment Scheme. Such type of a scheme needs registration with SEBI as per the SEBI (Collective Investment Schemes) Regulations, 1999 (CIS Regulations).
In 2015, the SEBI ordered the winding up of such scheme and it instructed the company to refund the money that was collected from its investors along with returns that were due to such investors. It was clarified by the SEBI that assured return schemes without registration under CIS Regulations are not permitted.
Recent judgment: Madhushree Khaitan v. Vatika Limited[iv]
In the said judgment it was held that RERA shall have the power to adjudicate on assured return schemes (at least for agreements before 2016). The customers who had invested in such schemes of various developers were left confused regarding the enforceability of these schemes, especially regarding SEBI restrictions and orders from the Real Estate Regulatory Authorities (RERA) in Maharashtra & Haryana. According to the rules followed in the state of Maharashtra and Haryana it had no jurisdiction over assured return schemes offered by developers. In the said judgment it was indicated that RERA shall have the power to adjudicate on such schemes (at least for agreements before 2016)[v].
In the instant matter, HRERA directed Vatika to pay the dues of the assured returns as agreed between the two parties and stated that the builder cannot avoid paying the assured returns either by taking recourse under the Banning of Unregulated Deposit Act, 2019 (BUDS Act) that says that such amount is banned or by rewriting its contractual obligations.
The facts of the case are that Khaitan had booked a unit in the Vatika Inxt City Centre project in Gurugram and a sum of Rs 20 lakh was paid. There was a builder-buyer agreement signed in 2010 wherein the possession of the said units was promised to be completed and delivered by the end of 2013. In 2011, an addendum agreement between the said parties was signed stating that the builder shall be liable to pay a certain amount as assured return every month to the complainant till the completion of the project.
However, later the builder allotted a different unit to the buyer and it also stopped paying the assured returns without any prior notice. The builder also sought protection under the BUDS Act that provides prevention to the payment of assured return and says that the buyer is merely an ‘investor’ and not an ‘allottee’.
Does the BUDS Act put a bar on the payment of assured returns?
No. The HRERA stated that the BUDS Act was enacted to provide a comprehensive scheme to ban unregulated deposit schemes, apart from the deposits that are taken in the ordinary course of business, and to protect the interest of the depositors.
It clarified that the Act defines the term ‘deposit’ as: “An amount of money received by way of an advance or loan or in any other form by any deposit taker with a promise to return whether after a specified period or otherwise, either in case or in-kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include:
- An amount received in the course of, or for, business and bearing a genuine connection to such business including:
- Advance received in connection with consideration of immovable property under an agreement or arrangement subject to the condition that such advance is adjusted against such immovable property as specified in terms of the agreement or arrangement.”
Is the builder holds liability to pay assured returns that form a part of the agreement?
Yes. It was held by the HRERA that in a case where the payment of assured return is a part of the builder buyer’s agreement or there is a clause in a memorandum of understanding (MOU) or a clause in the addendum, then in that case the builder is barred to take a plea that it is not liable to pay the assured return.
A comparison of the status of homebuyers as per the RERA Act and before the RERA Act
In Pioneer Urban Land Infrastructure and Anr. Case[vi]–It was held that before the enactment of the RERA Act, the amounts raised by the developers/builders under assured return scheme had the commercial effect of borrowing and hence the allottees must be treated as financial creditors as per Section 5(7) of the Insolvency and Bankruptcy Code (IBC code).
In Neelkamal Realtors Pvt Ltd and Anr. v. Union of India and Ors.[vii]– It was held by the Bombay High Court that the RERA Act does not contain any provision for re-writing of contractual obligations between the parties. Hence, the builder cannot take a plea that there existed no contractual obligation of paying the amount of assured return to the allottee after the enactment of the RERA Act or that a new agreement is being executed. It was further clarified that if there is a contractual obligation of the builder to pay the amount of assured return, then he is barred to take a plea of enforcement of the RERA Act or BUDS Act.
Different views taken by HRERA
In Jogat Devi & Ors. v. Venetian LDF Projects LLP & Ors.[viii]– The HRERA held that the assured return is not a formal clause regarding giving or taking possession of a unit for which, the buyer is not within the purview of the RERA Act. It further clarified that a mere MOU to pay the assured return cannot be treated as a contractual agreement between the parties. It stated that in the assured return schemes, the authority cannot exercise its jurisdiction; as such the complainant is at liberty to approach the appropriate forum to seek remedy.
Applicability of the Doctrine of Prospective Overruling
The doctrine of prospective overruling says that a law declared by the court applies to the cases arising in the future only and its applicability to the cases which have attained finality is saved because the repeal would otherwise work hardship to those who had trusted to its existence.
As we have seen above that in the Jogat Devi Case (supra) it was held by the HRERA that the authority does not have jurisdiction over matters that assured return schemes. However, in the HRERA in the matter of Madhushree Khaitan (Supra) it has stated that there is no bar in taking a different view from the earlier one if new facts have been brought and according to the doctrine of Prospective Overruling.
Hence, it can be said that an agreement for sale defines a builder-buyer relationship. The agreement for assured returns between the promoter and allottee bears the same relationship and is marked by the original agreement for sale. The authority has complete jurisdiction over such matters[ix].
Relief to home buyers stuck in assured return schemes
The home buyers whose hard-earned money is stuck in such assured return schemes now can approach RERA. However, the judgment given in the recent case of Madhushree Khaitan does not specifically cover the issue of assured return schemes as it dealt with the issue of agreements executed before the enactment of RERA.
The homebuyers must keep in mind that assured return schemes are now regulated. If your money is stuck in such a scheme then it may be difficult to get it back[x]. The buyers need to be aware as the assured returns scheme is a risky proposition as it exposes up to a large extent the investment of allottees. It is advisable that the allottees must invest in the construction-linked plans only. For eg. The allottees must invest in a plan where they pay for their properties on its completion of every phase of construction of the project.
[i] https://housing.com/news/everything-you-need-to-know-about-haryana-rera/
[ii] https://economictimes.indiatimes.com/wealth/real-estate/why-stuck-home-buyers-should-know-about-haryana-reras-order-on-assured-return-schemes/articleshow/89497240.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
[iii] https://economictimes.indiatimes.com/wealth/real-estate/why-stuck-home-buyers-should-know-about-haryana-reras-order-on-assured-return-schemes/articleshow/89497240.cms?from=mdr
[iv] Dated: 10th Nov. 2021
[v] https://economictimes.indiatimes.com/wealth/real-estate/why-stuck-home-buyers-should-know-about-haryana-reras-order-on-assured-return-schemes/articleshow/89497240.cms
[vi] Pioneer Urban Land and Infrastructure Ltd. and Anr. V. Union of India and Ors. (SC).
[vii] 2017 SCC OnLine Bom 9302
[viii] https://www.casemine.com/judgement/in/60082bdb092c2738c5aa9074
[ix] https://www.moneycontrol.com/news/business/real-estate/all-you-need-to-know-about-the-hrera-order-on-assured-returns-schemes-7755401.html
[x] https://economictimes.indiatimes.com/wealth/real-estate/why-stuck-home-buyers-should-know-about-haryana-reras-order-on-assured-return-schemes/articleshow/89497240.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
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