We live in times where it is acceptable to take something old, repackage it, market it aggressively, extol its virtues and underplay its shortcomings, and voila -- old wine in a new bottle! The same may be said of the Maharashtra Housing (Regulation and Development) Bill, 2012 which was recently passed by the state's legislative council. Once the Bill receives Presidential assent, it is set to replace the Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, and management and transfer) Act, 1963 (MOFA).
So why replace an existing piece of legislation? The preamble to the Bill elucidates some of the reasons, other reasons are left unsaid and are to be inferred. Let’s look at the stated reasons. In addition to regulating and promoting the construction, sale, management and transfer of flats on an ownership basis, the Bill seeks to establish for the first time in India, a two-tier regulatory and appeal mechanism in the realty sector. Further, the Bill acknowledges the need to increase transparency in real estate and augment accountability of developers and promoters which the government hopes to achieve through the establishment of an "effective implementing arm", that is, the Housing Regulatory Authority and the Housing Appellate Tribunal. Ironically, the Bill excludes from its purview Maharashtra Housing Area Development Authority (MHADA) and boards established under the MHADA Act, 1976. The Bill retains a strong semblance of its predecessor, MOFA, indicating that not much has really changed for the buyer.
Competition Commission of India and developers
Before examining the changes introduced by the Bill, it may be instructive to consider whether regulatory actions over the last year could have influenced the creation of the Housing Regulatory Authority and the Housing Appellate Tribunal.
The last year saw developers at the receiving end of persistent regulatory interest. In August 2011, the Competition Commission of India (CCI) issued an order on the information filed by Belaire Owner’s Association against DLF Limited (DLF), Haryana Urban Development Authority, Department of Town and Country Planning which stated that DLF, through imposition of one-sided and unfair conditions contained in the apartment buyers’ agreement, was abusing its dominant position. Amongst other things, the CCI observed that the impunity with which the clauses in the apartment buyers’ agreement were imposed, the complete disregard for consumer’s rights that were displayed in the actions of cancelling allotments and forfeiting deposits and the deliberate strategy of obfuscating the terms of the apartment buyers’ agreement and keeping the buyers in the dark about the eventual shape, size, location etc. of the apartment was unfair and exploitative. Consequently, DLF was penalised Rs 630 crore.
It is noteworthy that Belaire Owner’s Association chose to include the Haryana Urban Development Authority, Department of Town and Country Planning as a party. In the absence of a regulatory authority overseeing real estate developers, buyers were forced to seek relief from either consumer or civil courts, entailing considerable wastage of time, cost and effort. The creation of the CCI presented buyers an opportunity for speedier relief. However, the CCI is a body which concerns itself with competition related issues and cannot possibly provide the regulatory oversight which is required for the realty sector. The Belaire Owner’s Association case and subsequent cases highlighted the need for a dedicated realty regulator.
A missed opportunity?
The Housing Regulatory Authority and the Housing Appellate Tribunal shall each be headed by a chairperson and comprise of two or more members. The Bill details the broad framework within which the Housing Regulatory Authority and the Housing Appellate Tribunal shall function, the process for appeal and the consequences of non-compliance with orders passed by them, with penalties ranging from a few thousand rupees up to one crore rupees and prison sentences extending up to three years for wilful failure to comply with orders.
A developer must now register its projects, unless otherwise so excluded by the Bill, with the Housing Development Authority and display the said project on their website prior to initiating any transaction. Registration may only be cancelled if the court of law declares that the contract, agreement, or power of attorney or instrument or writing from which the promoter derives the right to the land or development of the land, is invalid. The Bill should have also provided for cancellation of registration if a developer persistently violates the terms and conditions of buyers’ agreement.
While the Bill introduces several innovative provisions, the scope of such provisions appears rather limited. For instance, the Bill covers only new projects (projects yet to receive occupation certificates or re-development projects that will market or offer for sale new flats or buildings in the open market). Whereas, the government was presented with an excellent opportunity to introduce a market wide regulator which could oversee all forms of realty transactions, it chose not to do so.
The Bill prohibits developers from altering the plans of the development without prior consent of the buyer once the plans are finalised. In most instances buyers’ agreement tend to contain terms and conditions that are loaded in favour of the developer, thereby almost certainly ensuring that the buyers’ agreement contains a clause that consent for alterations is given at the time of execution of the buyers’ agreement. Another important issue that merits being addressed is the unaccounted wealth which changes hands in such transactions. Developers insist on payment on their own terms and often buyer agreements do not reflect the actual amount of money paid, which means that if a project’s registration is cancelled, a buyer would only be able to recoup the amount stated in the buyer agreement plus a penal interest. In such a scenario the developer would still benefit.
While the effort of the government of Maharashtra to take lead in establishing a regulatory mechanism to oversee the realty sector must be lauded, it also must be accepted that the Bill is just old wine in a new bottle. It remains to be seen whether the Bill actually packs the punch that is expected of it or meets the fate of its predecessor. For now the new packing and marketing will lull buyers into a false sense of security.
Rajesh Pathania, is Senior Associate and Anjan Dasgupta is a Partner at Hemant Sahai Advocates, a law firm. Pooja Chatterjee, Associate at HSA, contributed to this article. Views are personal.