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Bombay HC upholds RERA but gives breather on project completion

07 December, 2017

The Bombay High Court quashed the hopes of a slew of developers when it upheld key norms such as registration of ongoing projects and maintenance of 70% of the sales proceeds in an escrow account as mandated under Real Estate (Regulation and Development) Act.

RERA, which aims to bring the much-needed transparency and accountability in the real estate sector, was implemented in May this year. The act mandates all the developers to share project-related details, register ongoing and upcoming projects, keep 70% of the sales proceeds in an escrow account and get prior approval of two-thirds of allottees before making any changes in the layout of the project, among other things.

Following the implementation of the act, several developers filed petitions, challenging the constitutional validity of the act and questioning some of its key norms. The Bombay High Court has now upheld the validity of the act though it has given flexibility to developers in certain cases to complete projects. According to RERA guidelines, developers are allowed extension up to one year in cases of force majeure which is an unforeseen event or calamity.

According to a PTI report, the bench, headed by Justice Patil has now allowed a significant leeway for developers in Wednesday’s judgment by permitting the state-level RERA authority and the Appellate Tribunal to consider delays on a case-to-case basis, and not to cancel projects or developers’ registration in cases where the delay was caused due to “exceptional and compelling circumstances.”

Ankur Srivastava, managing director of real estate consultancy firm GenReal, said these are time-buying tactics of developers to meet the stipulated guidelines. “While court ruling has given exemption in exceptional circumstances, my fear is a lot of developers are going to misuse it to suit their requirements. They are already coming up with various reasons as to why the projects are delayed under the force majeure clause. The current ruling will further aggravate the problem,” Srivastava said.

He said ‘exceptional circumstances’ should be further explained by the court so that it is used and not abused by developers.

Strong consolidation wave
While RERA is very important for streamlining the real estate segment, it has added to the troubles of the sector, according to analysts. Amit Goenka, founder and managing director of real estate private equity firm NiFCO, said a bunch of policy changes such as GST, Demonetisation and RERA has pushed developers to the edge. “Going forward, we will see a strong wave of consolidation in the favour of big players. As the existence of developers becomes difficult, big players will absorb most peers and the situation is evident from the number of cases where developers are on the block,” he said.

Ajay Jain of Sun Capital Advisory said issues are raised by developers who are not willing to play by the rule. “We have a number of cases of ongoing projects where developers have manipulated FSI (floor space index), project layout and design and siphoned off capital. Those are the people who are now contesting the registration of ongoing projects,” he said.

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Bombay HC upholds RERA but gives breather on project completion

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