Can homebuyers be deprived of a refund under RERA?

On January 9, MahaRERA set aside the plea of over 10 flat buyers who had wanted to exit from a project in Mumbai, stating that bulk withdrawal from the project may mean ‘jeopardising completion of the project’ and impact the remaining 500 home buyers.

The 13-odd buyers had booked units worth Rs 7.5 crore each in the 65-storey Island City Centre project in Dadar constructed Bombay Realty, an arm of The Bombay Dyeing & Manufacturing Company, way back in 2012. They had alleged that the builder had made ‘false assurances regarding amenities and made changes to the carpet area and overall layout of the project’.

“Keeping in mind the larger interest of approximately 520 allottees of the said project, allowing bulk withdrawal from the MahaRERA registered project to so many complainants at this stage would mean jeopardising the project completion. Money for the refund will have to be taken out from the separate account, which is meant specially for the completion of the project and would eventually slow down the progress of the project work especially at a stage where the project is nearing completion with more than 800 of the super structure work completed,” the order said.

In October last year, the Haryana Real Estate Regulatory Authority (HRERA) had directed Supertech to refund the amount taken from the buyers of a housing project for cheating the buyers by accepting pre-launch booking before obtaining licences and not handing over the possession of the units on time.

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The HRERA bench had ordered that the funds received by the respondent from the complainant by way of advance be refunded along with interest at the rate 10.45 percent per annum as ‘he has cheated/defrauded the innocent buyers’.

Interestingly, Chairman of Gurugram Haryana Real Estate Regulatory Authority (HARERA) KK Khandelwal had also made it clear at a later date that in projects where construction is 40 percent complete, refund may not be allowed to ensure that the project is completed.

The purpose of RERA is to balance the interests and protect the rights of the key stakeholders: builders, buyers and agents. “But our first priority is to ensure that home buyers get possession of their homes.”

While homebuyers are of the view that they are not responsible for pledging their money with the developer ‘indefinitely’ and that they have every right to seek a refund if the project has been ‘unreasonably’ delayed, builders are of the opinion that refund should not be ‘allowed’ to a few buyers, especially if construction is on, as that would harm the interests of other buyers and make the project ‘unviable’.

Is refund allowed under RERA?

Section 18 of The Real Estate (Regulation and Development) Act, 2016 clearly lays down that if the promoter fails to complete or is unable to grant possession of an apartment, plot or building,— (a) in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or (b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason, he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act: provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed.

The promoter should compensate allottees in case of any loss caused to him due to defective title of the land on which the project is being developed or has been developed, in the manner as provided under this Act, and the claim for compensation under this subsection shall not be barred by limitation provided under any law for the time being in force.

Section 12 of the Act also states that if a buyer has made an advance or a deposit on the basis of the information contained in the notice advertisement or prospectus, or on the basis of any model apartment, plot or building, as the case may be, and sustains any loss or damage by reason of any incorrect, false statement included therein, he shall be compensated by the promoter in the manner as provided under this Act: Provided that if the person affected by such incorrect, false statement contained in the notice, advertisement or prospectus, or the model apartment, plot or building, as the case may be, intends to withdraw from the proposed project, he shall be returned his entire investment along with interest at such rate as may be prescribed and the compensation in the manner provided under this Act.

‘Buyers have not committed money to a project indefinitely’

“If a builder has promised a house within three years and does not deliver even after more than five years, I have every right to seek a refund as I cannot guarantee funds to a builder for eternity. The timeline of a project should be ‘reasonable’ and should be met,” said Abhay Upadhyay, President, Forum for People’s Collective Efforts and member, Central Advisory Council, RERA, Ministry of Housing & Urban Affairs.

“A buyer cannot be forced to wait until 2021 for a project that was to be delivered in 2012 nor can he forced to accept the extended deadlines. A buyer cannot be responsible for ensuring sufficient funds in an escrow account to complete the project,” he added.

Some legal experts are of the view that the MahaRERA order is a ‘blatant violation of Section 18 that empowers the consumers to seek a refund in case of undue delay in completion of a project’.

“If these buyers do not get relief from the appellate authority, they can again go in appeal to high court but they cannot approach a consumer court and a high court at the same time. That would amount to forum hunting and is not a fair practice,” a lawyer explained.

Legal experts said authorities cannot pass any order which is against the express provisions of the Act and based on the ‘internal’ guidelines framed by the authorities themselves.

Investors versus buyers

While the law does not differentiate between a buyer and an investor, some legal experts are of the view that it is often the investors who have not been able to book profits on their investments, queuing up for refund.

“These are property hoarders who were expecting an appreciation and because the market has not improved, they want their monies with interest. Their request for refund can sabotage the entire project and strangulate the genuine buyer,” Anand Patwardhan, a Mumbai-based lawyer, said.

Having said that, it is best such matters are decided on a case-by-case basis as it is often seen that the biggest challenge is getting commencement certificates by the authorities on time and that is the main reason for delays, he added.

Niranjan Hiranandani, CMD, Hiranandani Communities and President (National), NAREDCO, is of the view that there are two aspects to the argument.

“If there is a reasonable delay, then compensation will be given to a buyer but if there is an undue delay, buyers can ask for refund. Also, if only 20 people ask for refund, then the building will not be completed. If a building is 95 percent complete and 25 percent people want a refund, what will happen to the building and what will happen to the rest of the buyers? Undue delay depends from building-to-building – for a two-floor building it may mean over a year’s delay and for a 30-60-storey building, it could be entirely different,” he said.

A year ago, Madhya Pradesh Real Estate Regulatory Authority (MP RERA) did not allow a group of 40 buyers to walk out a project in which over 300 buyers had invested in on grounds of delay. “The project was going ahead and there were hundreds of workers on site. We granted buyers compensation for delay but did not allow them to exit, lest the project became unviable. The builder actually completed the project within three months. Therefore, walking out of the project, should be the last resort,” said Anthony de Sa, Chairman of MP RERA.

“RERA has to reconcile various problems and see that the primary objective which is to complete the project is met. And if the project is much delayed, compensation should be provided for the period of delay. In case the project is at a standstill and not moving forward, buyers should be allowed to walk out of the project and get their money back. The primary concern is not if it there are more end-users or investors as one assumes that everybody is an end-user. For a handful of buyers, the majority should not be turned into a scapegoat,” he said.

The refund mechanism

Can a builder dig into reserves of the escrow account to pay refund to buyers? Certainly not. “We will never allow that to happen,” de Sa said, adding that’s only reserved for construction. “The builder will have to pay refund from his share of 30 percent profit.”

However, homebuyers are of the view that for providing refund, the source of funds is of no consequence. “The Act does not bar a builder from utilising reserves from other projects, past profits or even by monetising personal assets,” a buyer said.