Dual Safeguards: The Complementary Roles of Consumer Protection Law and RERA in Protection of Homebuyers
Introduction
The homebuyers and allottees[1] have been confronted with a host of challenges, including, inter alia project delays, deficiencies in services rendered by developers, lack of accountability for construction defects, unfair trade practices, prolonged delays in refunding amounts paid by homebuyers, an arbitrary approach towards awarding compensation, diversion of project funds, failure to obtain mandatory completion or occupancy certificates, and misleading representations regarding project specifications or timelines.
The Consumer Protection Act, 2019 [2] (“CP Act”) played a crucial role in protecting the rights of homebuyers even before the enactment of the Real Estate (Regulation and Development) Act, 2016 (“RERA”). Though the Consumer Protection Act, 1986 was not originally framed to address real estate grievances specifically, courts and tribunals interpreted its provisions liberally to safeguard the interests of homebuyers. The Supreme Court [3] held that housing construction by development authorities or builders falls within the scope of “service” under the CP Act. Thus, homebuyers could approach consumer forums for redressal. This article examines how the CP Act and RERA in tandem offer a redressal ecosystem for the homebuyers / allottees, a framework as upheld by courts and tribunals.
Analysis
How RERA bridges gaps in Consumer Protection Act to protect homebuyers
Despite being a Central law, RERA is implemented at the state level by means of State Real Estate Regulatory Authorities and appellate tribunals. Because each State creates its own regulations under the Act [4], there are differences in the processes, methods of enforcement, and efficacy of regulations. Prior to the RERA, the consumer courts had to deal with challenges like real estate projects were not being regulated, there were no disclosure requirements for the developers, and the orders passed by consumer courts were not being implemented effectively. However, after RERA, the real estate projects had to be registered, and the business of real estate became transparent and efficient with the disclosure obligations fulfilled by the builders. The approval of builders’ money was regulated, independent real estate regulatory authorities were set up so that cases could be adjudicated quickly and the orders enforced.
How RERA and Consumer Protection Act complement each other
As per Section 19 of the RERA, allottees have certain rights including the right to know the stage of completion of projects and to claim a refund with interest in case of delay in possession. Additionally, Section 18 of the RERA states that where the developer has failed to carry out or complete the project or deliver possession in accordance with the agreement, homebuyers can choose to withdraw from the project and get a refund with interest or continue with the project and receive interest for every month of delay.
Further, RERA establishes a general regulatory framework that primarily aims at deterring malpractice. Any real estate construction which exceeds five hundred square meters or has eight or more units should be registered at the respective RERA authority [5]. To avoid diversion of funds, developers shall deposit 70% of the funds they receive from the allottees in an outgoing escrow account [6]. Developers also have to give out project documentation on the form of architecturally drawn and approved drawings as well as plans that give a schedule by when various phases of the construction are going to be attained.
Section 88 of RERA provides that its provisions “shall be in addition to and not in derogation of the provisions of any other law.” Section 71(1) of RERA provides that homebuyers who have complaints pending before consumer forums may withdraw the complaint and, subject to permission, file an application with the RERA authorities, providing an additional option rather replacing an existing choice of remedy. Section 100 of the CP Act also provides that its remedies are “in addition to and not in derogation of the provisions of any other law.” These provisions illustrate the intent of the legislations to provide remedies that can coexist rather than be remedies that are mutually exclusive.
Differences in RERA and Consumer Protection Act in resolving real estate disputes
RERA and the CP Act have different mechanisms for regulating the real estate sector and protecting the rights of homebuyers. They differ with respect to their roles and relief mechanisms. RERA deals with sector-specific regulation of the industry by way of directions for refund with interest or delivery of possession in case of delay in a project. It also penalises misleading advertisements, mandates rectification of structural or quality related defects, and can halt unregistered or non-compliant projects.
The CP Act, for its part, addresses real estate issues in the context of consumer rights. The CP Act provides compensation for mental agony and financial loss arising from delays, grants remedies enabling buyers to claim refund and compensation for misleading advertisements and covers deficiency of service relating to quality of the construction. It also enables buyers to obtain relief even in respect of projects not registered under RERA. Such remedies operate concurrently, and therefore homebuyers have multiple avenues of redress depending on the nature and extent of the grievances against the developer.
Case Laws
The judiciary has clarified the interplay between RERA and CP Act through multiple landmark judgments. In Imperia Structures Ltd. v. Anil Patni [7] the developers argued that once a project is registered with RERA, homebuyers could not file complaints before the consumer forums. The Court rejected the developers’ argument, explaining that RERA did not take away the jurisdiction of consumer forums. It observed that RERA and CP Act are two separate laws, and that the homebuyers could proceed to consumer forums with filings pending before RERA. The Supreme Court further explained that Section 79 of RERA, which bars jurisdiction of civil courts, however, does not apply to a consumer forum, which is not a civil court under the Code of Civil Procedure, 1908 (“CPC”).
The Supreme Court in Pioneer Urban Land Infrastructure Ltd. v. Union of India [8], ultimately established the concurrent remedies applicable to homebuyers by stating that RERA must be read with the CPC. Only in the case of conflicting provisions, will the CPC prevail over the provisions of RERA.
Based on earlier decisions, the Supreme Court in Experion Developers Pvt. Ltd. v. Sushma Ashok Shiroor[9] confirmed that “it is abundantly clear that the CP Act and the RERA both do not mutually exclude each other.” In fact, the Hon’ble Court held that they offer concurrent remedies, independent of each other, without either remedy having primacy over the other. Further, the court stressed that this reasonable interpretation follows the constitutional obligation to create effective judicial remedies that promote access to justice.
Conclusion
Together, the CP Act and RERA significantly strengthened homebuyer protection in India, establishing a balanced framework of regulatory oversight and remedial justice, reinforced and clarified through judicial pronouncements. The two legislations provide homebuyers with a broader spectrum of remedial options, and the availability of such concurrent remedies constitutes a significant milestone in promoting fairness and accountability in real estate transactions.
References
[1] “Allottee” in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent.
[2] Consumer Protection Act, 1986 stood repealed upon the enactment of the CP Act.
[3] In Lucknow Development Authority v. M.K. Gupta (1994) 1 SCC 243.
[4] Telangana State Real Estate (Regulation and Development) Rules, 2017.
[5] Section 3(2) of the Real Estate (Regulation and Development) Act, 2016.
[6] section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016.
[7] AIRONLINE 2020 SC 822.
[8] 2019 (5) SCC 725.
[9] 2022 SCC OnLine SC 416.