Modify RERA, MP Rajeev Chandrashekhar writes to Chief Minister Siddaramaiah

MP Rajeev Chandrashekhar has written to the Chief Minister Siddaramaiah and Housing Minister M Krishnappa urging them to modify the lapses in the Karnataka Real Estate Regulations Act 2017. While applauding the efforts, though belated, of the State Government in regulating the real estate irregularities he has drawn its attention to several lapses in the Act and urged to set them right, reported Kannada Prabha.

Abhay Upadhya, National spokesperson, Fight for RERA, appreciated Rajeev Chandarshekhar’s letter and said the Karnataka Government is attempting to facilitate the developers instead of regulating them. Rajeev Chandrashekhar has aptly pointed out the lapses in the Act and hopes the government will consider it seriously and provide oxygen to the consumers.

RERA State spokesperson M S Shankar also thanked Rajeev Chandrashekhar for intervening and strengthening the fight against the lapses in the Act.

Excerpts of the letter written by Rajeev Chandrashekhar to the Chief Minister:

I congratulate your Government for notifying the Karnataka Real Estate (Regulation and Development) Rules, 2017 (“Rules”), albeit with considerable delay. Whilst I hoped that the Rules would assist in achieving the objectives of the Real Estate (Regulation and Development) Act, 2016 (“RERA”), I cannot help but write to you expressing my concerns regarding the Rules and the anomalies therein.

RERA is a beneficial Central legislation, intended to protect the interests of real estate consumers and the citizenry.  RERA establishes a new regulatory regime to rein in errant real estate developers. It provides for a legal paradigm that ushers in transparency in the real estate industry. RERA contemplates that such a regulatory regime would be implemented by an independent regulator i.e., the Real Estate Regulatory Authority; and the policy implementation would be checked by an independent judicial tribunal i.e., the Real Estate Appellate Tribunal. Unfortunately, by framing the Rules in the manner that it has been, an attempt seems to have been made by your Executive, to dilute the regulatory regime and deprive the benefits of RERA to the consumers and the citizenry.

A bare reading of the Rules demonstrates ex-facie, that the Rules go beyond the ambit of the parent Act and in effect attenuates the provisions of RERA. Whilst a closer scrutiny of the Rules may be required by the Law Department and Law Officers of the State, I am highlighting below, a few glaring illegalities and inadequacies in the Rules.

Attempt to exclude Ongoing Projects from the rigors of RERA:

The Rules have provided a safe harbor to ongoing real estate projects in the State. In effect, the Rules dilute the rigors of RERA. Section 3(1) of RERA categorically stipulates that all projects that are ongoing; and for which the completion certificate has not been issued, must necessarily be registered with the Real Estate Regulatory Authority, thereby bringing it within the rigors of RERA.

However, the Explanation to Rule 4(1) of the Rules, exempts various ongoing projects which fulfill certain artificial criteria stipulated therein, from the requirement of registration. By stipulating such exemptions in the Rules, an attempt has been made to ring fence a number of ongoing projects for which completion certificates have not been issued; and which otherwise would have been subject to the rigors of RERA.

Further, sub-clauses (iii) and (iv) of the Explanation refer to the certification of the projects by the ‘competent agency’.  The said term ‘competent agency’ has not been defined in the Rules. However, by means of a Press Release (http://housing.kar.nic.in/Press_Release_RERA.pdf), an attempt has been made to denote certain local and municipal authorities as ‘competent agency’.  By doing so, the Executive has attempted to exclude a vast majority of the ongoing real estate projects in the State, from the mandates of RERA and bring them back into the jurisdiction of the municipal and other local authorities.

In effect, therefore, the attempt is to continue the jurisdiction of local and municipal authorities on all ongoing projects and thereby prevent the applicability of a beneficial legislation such as RERA to such ongoing projects. In my view, this amounts to a fraud on power, as Executive power cannot be exercised in a manner so as to prevent the applicability of a special beneficial legislation such as RERA. Such exclusion is not only illegal but also demonstrates the mischief of the Executive, to dilute the rigors of RERA and deprive its benefits to consumers and the citizenry.

Attempt to dilute financial discipline:

Section 4(2)(l)(D) of RERA provides that 70% of the amounts realized in each real estate project, from the allottees, must be deposited in a separate account maintained in a scheduled bank to cover the cost of construction and the land cost, for such projects. These amounts are to be used strictly in accordance with the mandates of RERA and withdrawals ought to be in proportion to the percentage of completion of the project.

However, Rule 5 of the Rules expands the definition of cost of construction and cost of land. The Rules include within such costs, all approval costs, taxes, off-site expenses, interest etc. This will enable the mischievous promoters/developers to withdraw large sums of monies and divert them for purposes not germane to the project in question. In effect, the financial discipline induced by RERA is being diluted by the Rules. Clearly, the Rules not only go beyond RERA but also attempt to dilute the parent Act, which is impermissible.

Attempt to dilute the control of allottees and purchasers:

Section 14 of RERA establishes an architecture whereby allottees and purchasers of real estate developments exercise a degree of control over belated modifications to real estate developments by unscrupulous developers. In effect, Section 14 prevents real estate developers from belatedly modifying or altering sanction plans and specifications of buildings, unless they obtain written consent of at least two thirds of allottees/purchasers.

The Executive has, through the Rules, attempted to dilute this safety net and protection afforded to the purchasers/allottees by RERA. Rule 4 creates various exceptions whereby the prior written consent of at least two third of the allottees would not be required in case of additions and alterations in the sanctioned plans, layout plans, etc. This Rule is in the teeth of RERA and attempts to dilute the protection afforded to real estate consumers by Section 14.

Non-stipulation of a format of Agreement for Sale:

Section 13(2) of RERA stipulates that the agreement for sale to be executed by and between the promoter/developer and the allottee, must be in such form as prescribed by the Rules. The intent was for the Rules to prescribe a format which takes care of factors prevalent in the State and which protects the interests of the consumers. The Rules promulgated by your Government, however, does not prescribe any format, thereby grossly diluting the beneficial impact of Section 13(2). I cannot fathom why a format of the agreement for sale was not prescribed by the Rules, despite the draft rules containing a format, which received extensive comments and feedback from the civil society.

Extraneous mechanism for Interpretation of the Rules:

You will agree that formulating laws is the job of Legislature and in the present case, Parliament has enacted RERA. What is delegated to the State Executive is the subordinate exercise of making rules. The Executive cannot confer itself over-arching powers to become the final authority in the interpretation of such rules. Your Executive, by promulgating Rule 46, has attempted to do exactly that. Rule 46 confers upon the Housing Department the authority to be the final interpreter of the Rules and further denotes that such an interpretation would be binding. By doing so, your Executive has attempted to impinge into the judicial domain, which by virtue of separate of powers in our Constitution, is the exclusive prerogative of the judiciary. This manifests the overbearing nature of your Executive and of the Rules generally.

The Executive, when acting as the delegate of the Legislature, should have ensured that the Rules are a result of intelligent care and deliberation. The Executive is expected to undertake a deeper study, prior to formulating rules. At any event, the Rules cannot travel beyond the scope of the parent Act or in any manner create rights and liabilities beyond the mandates of the parent Act. It is inconceivable in our Constitutional scheme for an Executive to attempt to dilute the rigors of the parent enactment.