The Supreme Court recently held that homebuyers cannot be treated differently from other "financial creditors" under the Insolvency and Bankruptcy Code (IBC) 2016 just because they have secured orders from the authority under the Real Estate (Regulation and Development) Act 2016.
About Real Estate (Regulation and Development) Act, 2016:
- It is an act passed by the Indian Parliament in 2016 for the regulation and promotion of the real estate sector in the country.
- This Act establishes a Real Estate Regulatory Authority (RERA) in every state to regulate the real estate sector and serve as the adjudication body to enable quick resolutions.
- It makes it mandatory to register a real estate project with RERA, where the land area is more than 500 square meters or the number of apartments exceeds 8.
- It applies to both residential and commercial real estate, whether undertaken by a private or public body.
- Salient Provisions:
- At least 70% of the buyer's and investor's money will be deposited in a special account.
- The remaining 30% will then be allocated to the builders for construction and land-related expenses only.
- Developers and builders are not allowed to claim more than 10% as an advance payment on the property before the sale contract is signed.
- Transparency: Builders are required to provide the original plans for all projects they carry out. They are not allowed to alter the plans without the buyer's permission.
- RERA has mandated that developers sell properties on the basis of carpet area rather than high-density area.
- If the project is delayed, buyers have the right to recover the full amount of their investment, or they can opt for an investment and receive a monthly return on their investment.
- Quality: The builder must rectify any issue faced by the buyer within 5 years of purchase. This issue must be rectified within 30 days of the complaint.
- Other Features:
- Establishment of a fast-track mechanism for the settlement of disputes. This will be done via an appellate tribunal and dedicated adjudicating officers.
- Each state/UT has to establish its own RERA and Appellate Tribunal and also appoint adjudicating officers.
- In case a promoter wishes to transfer or assign a majority of your rights and liabilities in a real estate project to a third party, written consent from two-thirds of the allottees will be needed in addition to the written approval of RERA.
- If a person has any problems regarding a violation of the provisions or rules of this Act by a promoter, buyer, or agent, they can file a complaint with RERA.
- While an enquiry is taking place, RERA can stop an agent, promoter, or buyer from continuing any activity against which a complaint has been raised.
- If any of RERA’s decisions regarding a complaint is not satisfactory, the aggrieved party can submit an appeal before the Appellate Tribunal.
- If the promoter fails to follow RERA’s orders, they will have to pay a penalty. This amount could be up to 5% of the evaluated cost of the property.
- If the Appellate Tribunal’s orders are not complied with, a penalty will have to be paid. This can either be imprisonment for up to 3 years, or a fine (up to 10% of the approximate cost of the project), or both.
- If a company commits an offence under this act, any person who was in charge of the business at the time of the offence being committed by the company will be held guilty and punished.
- No civil court will have any jurisdiction with respect to any matter that comes under RERA or the Appellate Tribunal’s jurisdiction. As such, no court can grant an injunction with regard to any action taken by RERA or the Tribunal.
Q1) What is the Insolvency and Bankruptcy Code (IBC)?
The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. IBC provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor and creditor both can start 'recovery' proceedings against each other.