The Real Estate (Regulation and Development) Act, 2016- An Analysis

The Real Estate (Regulation and
Development) Act, 2016
– An Analysis
INTRODUCTION
The Real Estate (Regulation and Development) Act, 2016 (Act 16 of 2016) came into effect on
1st May, 2016 after the Bill was modified based on the recommendations of the Select
Committee in the Rajya Sabha, and was passed by both houses of the Parliament.1
The Act as a whole aims to protect real estate buyers (who include home buyers) from the
developers who do not deliver the property to them on time. The object of the Central
Government of coming up with this Act is to bring about reforms in the Real Estate sector so as
to ensure efficient and transparent transactions between the buyers and the sellers. For fulfillment
of the said objectives, The Government seeks to establish the Real Estate Regulatory Authority
(RERA) to protect the interests of the consumers in the real estate sector,2 and also to establish
an Appellate Tribunal to hear appeals from decisions and orders passed by the Regulatory
Authority and the adjudicating authority.
This Act regulates all residential as well as commercial property related transactions, which in a
way will attract more investments due to increased transparency and accountability.3 This law
makes registration of all residential and commercial projects, with the Regulator, mandatory.
This applies to both new and ongoing projects. The Act also provides strict guidelines to be
followed failing which, in a few cases, imprisonment of upto three years (in case of promoters)
1 “Government Notifies Real Estate Rules”, Indo-Asian News Service, NDTV, November 01, 2016. <last accessed
on November 17, 2016>
2 “Real Estate Act comes into force on Sunday”, Navadha Pandey, The Hindu-Business Line, April 30, 2016. <last
accessed on November 17, 2016>
3 “Real Estate Regulatory Bill: 10 things you should know about it”, The Economic Times, March 10, 2016. <last

and upto one year (in case of real estate agents and buyers), or a monetary penalty or both, has
been provided for.4
FEATURES OF THE ACT
1. The real estate projects must be registered with the Real Estate Regulatory Authority, before
the Promoter can make any advertisement or any kind of transaction with respect to the projects.5
If the project(s) are ongoing, then the promoter of the same shall make an application to get them
registered within a period of three months from the date this Act came into force.
Registration is not required in cases6:
i) Where the area of land is not more than 500 square metres or the number of apartments does
not exceed eight. (The appropriate Government may however make changes to the threshold
limit if it deems it necessary)
ii) Where the promoter has received the completion certificate
iii) Where the work done is for the purpose of repair or re-development
Registration ensures that there will be no fraud or misrepresentation involved.7
2. Creation of a separate escrow account by the Promoter, in which the Promoter shall deposit
seventy percent of the amounts realized for the project from the allottees, time to time.8 This
account is to be maintained in a scheduled bank (a bank included in the Second Schedule to the
Reserve Bank of India Act, 1934) to cover the cost of construction and the land cost. Withdrawal
from this account will be allowed in proportion to the percentage of completion of the project.
Withdrawals will be allowed after the percentage of completion of the project is certified by an
engineer, an architect and a chartered accountant in practice.9
Such a provision will discourage the misappropriation or diversion of funds.
4 Ibid.
5 The Real Estate (Regulation and Development) Act, 2016, S 3.
6 The Real Estate (Regulation and Development) Act, 2016, S 3(2).
7 Sudip Mullick and Amit Wadhwani, “Salient features of the Real Estate (Regulation and Development) Bill,
2016”, Khaitan & Co, Mondaq,March 21, 2016. <last accessed on November 17, 2016>
8 The Real Estate (Regulation and Development) Act, 2016, S 4(2)(l)(D).
9 “State notifies rules under RERA Act”, The Times of India, Ahmedabad, Oct 30, 2016. <last accessed on
November 17, 2016>

3. Registration granted under Section 5 of the Act will be extended only due to ‘force
majeure’. However, the Authority, under reasonable circumstances without any default of the
Promoter, may extend the registration by a period not exceeding one year.10
4. A specific limit has been fixed on the payment of advance. The provision lays down the rule
that a promoter shall not accept as advance or application fees, a sum of more than 10% of the
total cost, without first entering into an agreement for sale and registering it under any law for
the time being in force.11
This provision will ensure that the buyers/allottees are not harassed for payment of huge
amounts. This will also ensure accountability, and lesser scope for embezzlement.
5. The Promoter is not allowed to make changes to the sanctioned plans. Alterations or
additions to the sanctioned plans will not be allowed without the prior consent of the allottee, or
in cases regarding apartments without the prior consent of at least two-thirds of the allottes
(excluding the promoter).12
This will ensure that the promoters stick to the project plan, and not act against the allottee’s
interest.
6. Provisions for payment of compensation.
i) Any structural defect or any defect in workmanship or any obligation of the promoter as per
the agreement for sale, if brought to the notice of the promoter within five years from the date of
handing over of possession, must be rectified by the promoter within 30 days, without any
further charge. In case of default by the promoter, the allottee will be entitled to appropriate
compensation.13
ii) In cases where the promoter fails to complete or is unable to give possession of the said
property, the promoter shall be liable on demand to the allottees. The allottee has two options.
Firstly, if the allottee wants to withdraw from the project while preserving the right to other

remedies available, the amount paid along with the interest prescribed, must be returned as
compensation in the prescribed manner. Secondly, if the allottee does not intend to withdraw,
compensation shall be paid by the promoter in the form of interest for every month of delay, at
the prescribed rate, till the handing over of the possession.14
iii) Compensation shall be paid by the promoter for any loss caused due to defect in title of the
land.15
iv) Compensation shall also be paid if the promoter fails to discharge any other obligations
imposed on him.16
Prior to this Act there was no provision which penalized the promoters or developers for their
activities.
7. There are a few bodies which need to be established for the proper implementation of this
Act. The main bodies which are required to be established are, the Real Estate Regulatory
Authority17, the Central Advisory Council18, the Real Estate Appellate Tribunal19 , and the
constitution of a fund called the ‘Real Estate Regulatory Fund’20.
Other important features which are required to be noted are that, there is a provision for appeal
to the High Court by any person who is aggrieved by the decision or order of the Appellate
Tribunal.21 The appeal must be made within 60 days from the date of communication of the
decision or order of the Appellate Tribunal.
There is also a provision which deals with offences by companies.22
There is a bar of jurisdiction on all other courts, which restricts the courts from taking
cognizance of any offence punishable under this Act, or the rules or regulations made under it.23

DRAWBACKS OF THE ACT
India was in desperate need of such a legislation, which would protect the interests of the people
involved in real estate transactions, which is commonly seen as one of the most disputed and
unreliable sectors in India. Though the Act is a welcome legislation, there exist certain lacunae
which will ultimately show as drawbacks of the Act.
The deadline for all states to establish the Real Estate Regulatory Authority and the Appellate
Tribunal has been fixed to be 30th April, 2017. This is a long duration, which will allow
discrepancies to come in, and will give enough time to the defaulters to look for an alternate way
to escape from the clutches of law.
The Act has provisions which deal with the selling of units by builders on the basis of carpet
area. This should not be applicable for buildings which are already sold or are under construction
(where a substantial part has already been constructed). This will result in a conflict with law in
case of such sale.
The Act provides for a deposit of 70% of the total amount in a separate escrow account. This will
lead to confusion due to numerous deposits and withdrawals, and manipulation becomes possible
in such cases.
There can also be instances where the cost of land, and the construction cost, might be higher
than the 70% amount deposited in the scheduled bank. This will result in undue strain on both
parties to the transaction.
The requirement of certification of the work completed before each withdrawal will not be very
useful, as the certifying people are not without bias. The engineer, the architect and the chartered
accountant will ultimately be paid by the promoter himself/herself.
India faces and has faced a lot of problems relating to the investment of black money in the real
estate sector. The Act does not deal with this problem which looms large. Though the Act does

not do much about the black money aspect, the recent decision of the Government 24 to
demonetize currency will certainly have a big impact on the real estate sector.25
CONCLUSION
The Act is a much needed piece of legislation, which will help the buyers of real estate in
particular by protecting their rights. The implementation of this Act however, might face a few
issues as has been enumerated above. The implementation of the Act is based on the Rules which
must be brought out by the specific states. Hence, it must be taken care that there is no political
barrier which affects the implementation of the Act in the different states. If we look at the
current scenario, the people and the advocates in court are already not satisfied with the Rules26
that the state of Uttar Pradesh has made. There are allegations that the Rules are the “watered
down” version of the Act, which aren’t very useful.27
However, the Central Act in all other aspects is well drafted and will definitely help in reducing
the backlog of cases in the other courts. It will also ensure speedy justice to the aggrieved parties,
while also enabling them to get compensated for all the loss caused to them.
24 Vinod Behl, “Demonitisation brings cheer for realty buyers”, The HANS INDIA, November 16, 2016. <last
25 Vinod Behl, “Currency demonitisation to shake up real estate for sustainable growth”, The Economic Times,
November 14, 2016. <last accessed on November 17, 2016>
26 The UP Real Estate (Regulation and Development) Rules, 2016.
27 “Did homebuyers in UP get a ‘diluted’ real estate regulatory law?”, Hindustan Times, November 05, 2016. <last

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