Prior to the enactment of the Real Estate (Regulation and Development) Act, 2016 (“RERA”), unhappy home-buyers might file a complaint with the consumer courts or the civil courts. However, with the implementation of RERA and the following change to the Insolvency and Bankruptcy Code, 2016 (“IBC”) in 2018, unhappy home buyers in India now have access to even more remedies.
The purpose of this article is to analyze the numerous provisions under these recognized statutes and to demonstrate the best, or rather, the most accessible forum in such circumstances.
Consumer Protection Act, 1986-
In terms of the relief provided to aggrieved homebuyers, the competent Agency may issue an order requiring the builder or developer to restore the money paid to them, as well as compensation for any loss or damage suffered by the concerned homebuyers as a result of the builders’ or developers’ carelessness. They also have the authority to award punitive damages if necessary. Penalties and imprisonment for a maximum of three years may be imposed on such erring developers.
The complaint filed by the home-buyers must be accompanied by fees prescribed by the Consumer Protection Rules, 1987. Further, there is no specific form in which the complaint must be filed before the Agencies established under the CPA.
Real Estate (Regulation and Development) Act, 2016 (“RERA”)
RERA requires promoters to deposit 70% of receivables into a separate bank account in a scheduled bank, and the amounts from the separate account must be withdrawn by the promoter after an engineer, an architect and a chartered accountant in practice certify that the withdrawal is proportional to the percentage of project completion. This is ideal for homebuyers since it limits the use of homebuyer revenues and prevents funds from being diverted.
Significantly, RERA allows the aggrieved allottee to seek a refund of the amount paid in consideration of a plot, flat or other property, plus interest as prescribed by the states or union territories, in the event that builders or developers fail to deliver possession in accordance with the terms of the agreement for sale, or due to the discontinuance of business or suspension/revocation of registration.
Section 61 states that if a promoter violates any other provisions of RERA, other than those provided in Sections 3 or 4, or the rules or regulations made thereunder, he will face a penalty of up to 5% of the estimated cost of the real estate project as determined by the concerned Real Estate Regulation Authority. The punishment for failing to comply with the Real Estate Appellate Tribunal’s decisions or directions has been increased to 10% of the anticipated cost or three years in prison, or both. However, some states have yet to notify the RERA Rules and Regulations.
Insolvency and Bankruptcy Code, 2016 (“IBC”)
As per the initially envisaged IBC, home-buyers were not considered to be in a definite class of creditors and they were clubbed with unsecured creditors.
The legislature took these events into account and now has provided recognition to home-buyers as financial creditors and amended the IBC vide the IBC (Amendment) Ordinance, 2018 to provide for the same.
As a result, under the IBC, homebuyers are currently recognized as financial creditors and are entitled to a part of the proceeds from the sale of assets during the bankruptcy process. Second, as financial creditors, home buyers are permitted by Section 7 to initiate the bankruptcy resolution process. As financial creditors, homebuyers have the option of joining a committee of creditors and voting throughout the corporate bankruptcy resolution procedure under Section 24.