An article on Obligations or promoters, penalties and compounding of offences under RERA published in CVOCA News and Views July 2017 - by Advocate Bhavya Haria

1. VOL. 21 NO. 1 / JULY 2017 C.V.O. CA’S NEWS & VIEWS
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OBLIGATIONS OF PROMOTER,
PENALTIES, COMPOUNDING OF
OFFENCE & IMPRISONMENT
Contributed by :
CA Bhavya Haria
(a member of the
association
he can be reached at
bhavya@vispipatel.com
REAL ESTATE – AN INDUSTRY ANALYSIS
The real estate sector is one of the most globally
recognised sectors. It plays a pivotal role in fulfilling
the need and demand for housing and infrastructure
in the country. In India, real estate is the second
largest employer after agriculture and is slated to
grow at 30 per cent over the next decade.1
It
comprises of four sub-sectors, viz. housing, retail,
hospitality, and commercial.
Due to rapid urbanization, positive demographics
and rising income levels, the Indian real estate sector
has attracted significant investment over the past
few years. The Indian real estate sector has
witnessed high growth in recent times with the rise in
demand for office as well as residential spaces.
According to data released by Department of
Industrial Policy and Promotion (DIPP), the
construction development sector in India has received
Foreign Direct Investment (FDI) equity inflows to the
tune of US$ 24.28 billion in the period April 2000-
December 2016.
Traditionally, the real estate investment for home
buyers in India has been nothing less than a
nightmare. Some illustrations to name would be the
prominent Supreme Court (SC) verdict on ‘The
Mumbai Campa Cola Society case’2
wherein the SC
confirmed the Bombay High Court decision to
demolish the illegal floors of a residential society in
Mumbai leaving 102 resident families stranded. In a
similar case the Supreme Court upheld the order of
the National Consumers’ Disputes Redressal
Commission imposing a penalty on real estate
developer Unitech Ltd. for delay in handing over flats
to the buyers, thereby granting relief to a large
number of home buyers. Thus, litigation has been an
inevitable feature for a home buyer in Indian real
estate investment dynamics.
With growth and advancement in technology comes
the need of an updated legal framework governing
the said growth. Recently, the law Minister Mr. Ravi
Shankar Prasad has quoted, “Laws need to be
consonant with the times. 1,200 redundant Acts have
been scrapped. 1,824 more have been identified for
repeal”3.
One such initiative is the overhauling of the law
governing the real estate sector. The earlier
framework and regulatory regime was inadequate to
address all the concerns of buyers and developers in
the real estate sector. The lack of an exhaustive legal
framework paved the way for enactment of the Real
Estate (Regulation and Development) Act, 2016
(‘RERA’ / ‘Act’).
On 1 May 2017, the Central Government notified
various provisions of the Act thereby bringing into
force all the 92 provisions of the Act. The various
State Governments shall also notify the RERA rules
upto 31st July 2017. The Government of
Maharashtra vide Notification No. 23 dated 8 March
2017 has notified Maharashtra Real Estate
Regulatory Authority (‘MahaRERA’). The
Government of Maharashtra has also notified
various Rules in this regard.
The Act and Rules are only applicable to new and
ongoing residential and commercial projects, i.e.,
where occupation certificate or a completion
certificate has not been received on or before 1 May
2017. Further, all current projects have been given
time till 31st July 2017 to comply with RERA
regulations.
IMPORTANT OBLIGATIONS OF THE
PROMOTERS AND THEIR RESPECTIVE
CONSEQUENCES OF FAILURE ARE
ENNUMERATED BELOW
The Act casts an obligation on the promoter to ensure
fairness and transparency in their operations, and
also protects the interests of the buyers by providing
stringent penalties as a measure of control and
deterrence.
1 https://www.ibef.org/download/Real-Estate-June-2017.pdf
2 Campa Cola residents association & anr. v/s State of Maharashtra & ors [Writ Petition No. 2465 of 2013]
3. http://indiatoday.intoday.in/story/narendra-modi-law-ministry-ravi-shankar-prasad/1/984539.html

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REGISTRATION OF THE PROJECT
What is a project?
A project means a real estate project including the
development of a building / apartments, or the
development of land into plots or apartment for the
purpose of selling and also includes the common
areas, improvements and structures thereon, and all
easement, rights and appurtenances belonging
thereto.
Who is a promoter?
A ‘promoter’ under the Act is defined, inter alia, as a
person who constructs or causes to be constructed an
independent building, a person who develops land
into a project, etc., i.e. to sum up, a builder or a
developer. It would be interesting to see, whether a
real estate trust (e.g. Parsi Community Trusts) or a
condominium shall be treated as a promoter under
RERA.
What is registration process?
The promoters are required to make an application to
get registered with RERA within three months of
applicability of RERA for commercial as well as
residential projects.
All the projects where land is more than 500 sq. m. or
having at least eight apartments, including the one
without completion or occupancy certificate must be
registered. Where the project is to be developed in
phases, every such phase shall be considered a
standalone project, and the promoter shall obtain
registration under the Act for each phase separately.
The application for registration shall contain certain
crucial information about the project, date of launch,
period of completion, status of various regulatory
approvals, etc. The promoter is also required to
provide additional personal information, including
promoter’s photograph. The data / documents
supplied by the promoter would be like an official
record open to public for verification.
The Act also mandates submission of a declaration by
the promoter, supported by an affidavit, inter alia,
stating that he has legal title over the land proposed
to be developed, that the land is free from all
encumbrances and the time period within which he
undertakes to complete the project.
WEB-DISPLAY OF THE PROJECT
Once the registration process is completed, the
promoter would be given a login ID to update the
details of the projects for the awareness of the general
public. The promoter would also have access to the
authority’s website, wherein he can create a webpage
for the project. The promoter shall display to the
public complete details i.e. status of projects,
compliance regulatory approvals, past projects of the
builder, etc., This webpage would be freely available
to the general public. Additionally, even the list of
defaults or non-compliance, etc. committed by the
promoters will be uploaded on this website, thus,
bringing complete transparency.
Further, RERA provides that the advertisement or
prospectus issued or published by the promoter shall
mention the website address of the Authority. This
website needs to be updated regularly on quarterly
intervals. The promoter is also required to upload the
details of apartments and plots booked, garages
booked, list of approvals taken and the approvals
which are pending subsequent to commencement
certificate. Further, there is a prohibition on the
promoter to advertise, promote, market, or invite
public for selling the project, without registering the
project with RERA.
INFORMATION TO ALLOTTEES
Section 11(3) of the RERA provides that the promoter
shall be responsible to make available the following
information to the allottee, at the time of booking and
issue of allotment letter:
a. sanctioned plans, layout plans, along with
specifications, approved by the competent
authority, by display at the site or such other
place as may be specified by the regulations
made by the Authority;
b. the stage-wise time schedule of completion of the
project, including the provisions for civil
infrastructure like water, sanitation and
electricity.
ASSISTANCE TO ALLOTTEES FOR
MAINTENANCE / DOCUMENTATION
The promoter shall be responsible for providing and
maintaining the essential services, on reasonable
charges, till the completion of the project. It shall also
assist in the formation of association or society or co-
operative society of the allottees under the applicable
laws. The promoter is responsible to bear all costs

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until he transfers the physical possession of the real
estate project to the allottee including land cost,
ground rent, municipal or other taxes etc.
The promoter shall be responsible for conveyancing
of the property, by executing a registered conveyance
deed in favour of the allottee alongwith the
undivided proportionate title in common areas to the
society. Further, after executing an agreement for
sale for any apartment, plot, etc., the promoter shall
ensure that no mortgage or charge is created on such
apartment, plot and even if mortgage is done, it
should be ensured that it shall not affect the rights
and interest of the allottee.
No promoter shall transfer majority rights and
liabilities of a project to any third party, without
taking a prior written consent of atleast 2/3rd
majority of allottees and after taking approval of the
Regulatory Authority. Further, the incoming
promoter would be required to comply with all the
terms, conditions and obligations applicable to the
original promoter, thus, leaving the rights of allottee
unhampered.
OBTAIN NECESSARY APPROVALS
According to section 11(4) of the Act, it is the
responsibility of the promoter:
a. to obtain the completion certificate or the
occupancy certificate from the relevant
competent authority and make it available to the
allottees individually or to the association of
allottees;
b. to obtain the lease certificate specifying the
period of lease and certify that all dues and
charges in regard to the leasehold has been paid
and to make the lease certificate to the
association of allottees;
These regulatory approvals need to be obtained by
the promoter and has to be made available to the
prospective buyers and allottees. Additionally, status
of sanctioning of these approvals would be required
to be updated on the web-portal for public display. It
would be unlawful on the part of the promoter to
grant possession without obtaining the necessary
approvals, i.e. completion and occupancy certificate.
NO FALSE PROMISES
No buyer should be misled with false hopes and
hypothetical promises. The promoter shall diligently
make an attempt that no advertisement, brochure,
etc. contains any misleading or false information
about the projects. Further, the Act provides that if
any buyer acts on such false information and
sustains any damage or loss due to such an action,
then the promoter shall be responsible to grant
compensation to such bonafide buyer. Additionally,
the buyer has been given an option to withdraw from
such subject and that the Adjudicating Authority
shall assist in such withdrawal.
CONSIDERATION
Section 13(1) of the Act provides that a promoter shall
not accept a sum more than 10% of the cost of the
apartment, plot, etc., as an advance payment or an
application fee from a person without first entering
into a written agreement for sale with such person
and register the said agreement for sale, under any
law for the time being in force.
It is provided that the promoter must deposit 70% of
the payment received from the allottees in an escrow
account and ensure that the amount is solely used for
the development of the project for which it was taken.
Further, for ongoing projects, 70% of money collected
from allottees after deduction of land and
construction cost needs to be deposited in separate
bank accounts. However, MahaRERA rules have
diluted the proposition to state that the developer is
expected to deposit 70% of the only future receivables
from the projects and does not account for money
already received from home buyers.
This may prevent the diversion of the funds from the
project for which funds were collected, towards
accumulation of other assets like land, plots, etc. This
prevention of diversion of funds should ensure
smooth and speedy development of the projects which
are delayed due to reasons best known to the
builders.
COMPENSATION
Section 18 provides that if the promoter fails to
complete or is unable to give possession of an
apartment etc., in accordance with the terms of the
agreement for sale on account of suspension or
revocation of the registration, he shall be liable to
return the amount received by him in respect of that
apartment, etc., with interest including compensation
in the manner provided under the Act, to the allottees
on demand.

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The promoter is also required to compensate the allottees in case of any loss caused to him due to defective title
of the land, on which the project is developed in the manner as provided under the Act and the claim for
compensation shall not be barred by limitation provided under any law for the time being in force.
Further, the promoter is required to obtain all insurances as notified by the Government, including:
a. title of the land and building as a part of the real estate project; and
b. construction of the real estate project.
The promoter is responsible for the timely payment of insurance premiums and the said insurance would be for
the benefit of the allottees and associations, society, etc. While handing over the possession to the allottee, the
promoter shall also hand over all the documents in relation to such insurance.
A summary of the obligations cast on the promoters and the responsibilities imposed alongwith the penal
consequences for failure to fulfil such obligations, are given below:
Obligation of promoters Penal consequences Impact to Buyer
Register on the RERA website Penalty extending up to Full disclosure of the facts and record
within prescribed time 5% of estimated cost of of past projects is available
the project
Promoter shall not advertise, - Penalty extending up to The defaulters’ list to be uploaded
promote, market, invite public 10% of estimated cost of on the RERA website
to purchase the property the project
without registration - Continued violation of this
offence can lead to a penalty
extending up to 10% of
estimated cost of the project, or
imprisonment for a term
extending up to 3 years; or both
Comply with orders and Everyday cumulative penalty as Additional redressal mechanism,
directions given by the determined, extending up to rather than going before Consumer
Regulatory Authority 5% of estimated cost of the project Redressal Forum
Comply with orders and Everyday cumulative penalty Enforceability and speedy redressal
directions of Appellate as determined, extending up to of disputes
Tribunal 10% of estimated cost of the project,
or imprisonment for a term
extending up to 3 years; or both
Obligation of Agents Penal consequences
Register on the RERA Everyday cumulative penalty of INR 10,000 till default continues,
website within prescribed time extended up to 5% of the cost of property
Comply with orders and directions Everyday cumulative penalty as determined, extending up to
given by the Regulatory Authority 5% of estimated cost of the project
Comply with orders and directions Everyday cumulative penalty as determined, extending
of Appellate Tribunal up to 10% of estimated cost of the project, or imprisonment
for a term extending up to 1 year; or both
Apart from the above, the Act also provides for revocation of registration, if the Regulatory Authority is of the
opinion that the promoter has committed any default under the Act or is involved in any kind of unfair practice
or irregularities. Additional discretionary powers have been conferred upon the adjudicating authority to

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implement such revocation. The Act provides that post revocation of registration, the promoter shall be debarred
inter alia from carrying out further construction of the project.
FILING OF COMPLAINTS / DISPUTE RESOLUTION
The Government of Maharashtra, under MahaRERA, has provided for a speedy redressal mechanism for the
buyers. The Rules provide that any aggrieved person may file a complaint with MahaRERA or the adjudicating
officer with respect to any registered real estate project, for any violation or contravention of the provisions of
this Act or the rules and regulations made there under.
The Authority has been instructed to facilitate an early hearing and a speedy redressal mechanism for
adjudicating such complaints. Any person aggrieved by any decision of MahaRERA or by an adjudicating officer
may file an appeal before the Appellate Tribunal and subsequently to the High Court.
COMPOUNDING OF OFFENCE
At the discretion of the court, if a promoter/ real estate agent/ allottee is punished with imprisonment under this
Act, the punishment may, either before or after the institution of the prosecution, be compounded on such terms
and conditions and on payment of such sums as may be prescribed under the Rules. The Rules prescribe for
compounding of offences committed by which are as follows:
Promoter: On account of failure to comply with order of the Regulatory / Appellate Authority
in relation to non-registration of project then instead of an imprisonment term
extending up to 3 years, such offence can be compounded by paying a fee
amounting to 5% (extendable up to 10%) of the estimated cost of project
Real Estate Agent/ Allottee On Account of failure to comply with the order of the Appellate Authority then
instead of an imprisonment term extending up to 1 year, such offence can be
compounded by paying a fee amounting to 5% (extendable up to 10%) of the
estimated cost of the property
ROLE OF CHARTERED ACCOUNTANTS
RERA envisages various primary and secondary roles for chartered accountants, viz. assistance in registration
of projects, registration of agents, etc. RERA has provided for a ‘right to legal representation’, wherein the
appellant may either appear in person or authorise one or more chartered accountants or other professionals
to present his case before the Appellate Tribunal.
The funds from the escrow account designated for the project whether utilised for completing the project only,
shall be under the verification and certification of chartered accountants. The promoter shall need to get his
accounts audited within six months after the end of every financial year by a chartered accountant in practice.
Additionally, a chartered accountant can also be appointed as a Technical Member of Real Estate Appellate
Tribunal.
A RAY OF HOPE FOR HOME BUYERS
The expectation of the buyers with the advent of RERA is that the real estate sector will be more organised and
trustworthy which can make buyers and investors confident to buy in under construction and new projects and
bring back smiles in real estate sector. Further, the agents / brokers would need to undertake additional
responsibility of educating the buyers, verifying the fulfilment of regulations in projects, etc., thereby
organising the broker’s lobby.
The home buyers in India have seen litigation been dragged up to 20-30 years, and justice has been delayed
to them. The implementation of RERA has raised a hope to usher a new era of transparency in real estate sector
which can bring relief for home buyers and can bring back confidence in the real estate sector all over the
country. However, what needs to be looked upon is the strict implementation of the law in the respective states
and thus, Central Government may be required to intervene so as to ensure that the otherwise strict mandate
of the legislation is not lost in the State Legislation.