Real Estate Regulatory Act and PPP Projects

[Deepak K. Thakur is a projects partner at a law firm and is based in Mumbai]

The Real Estate (Regulation and Development Act 2016) (“RERA Act”) that took effect from May 1, 2017 seeks to provide a solution to many of the practical issues faced by the concerned stakeholders in the real estate industry. The RERA Act also contains consumer oriented provisions to protect their interests, with consumers having been continuously subjected to abuse by the real estate project developers till date. In effect, the RERA Act seeks to provide a balanced approach towards the regulatory development of real estate industry in India.

Real estate developmental activities are also undertaken by the Government and its instrumentalities (“Authorities”) in its social welfare-centric capacity like slum redevelopment and affordable housing projects (“Welfare Projects”). As the undertaking of the Welfare Projects require significant capital investment, with almost no monetary returns for the Authorities, the Authorities are not so forthcoming in implementing the Welfare Projects. In order to attract investments, the Government of India is highly inclined towards, and accordingly focusing on, the development of the Welfare Projects on a public private partnership (“PPP”) basis, by adequately apportioning the risk between the concerned stakeholders. However, the RERA Act seems to have completely missed out on this aspect of the development of the Welfare Projects by the Authorities, either on a PPP basis or otherwise.

Typically, in the development of Welfare Projects on PPP basis, the Authorities require the private developer to undertake its development on a grant or premium basis. The development of the Welfare Projects on a PPP basis broadly constitutes the development of two portions of land: first, a part of the land, which shall be solely developed for the purposes of the Welfare Project, while the other portion is offered to the private party for its freehold development, in the manner as it deems fit.

The RERA Act defines the term ‘promoter’ and the ‘real estate project’ in relation to an independent real estate project, wherein the promoter develops the real estate project and sells the apartment or units in such real estate project to various allottees. In respect of the Welfare Projects, it is mainly the Authorities that undertake the development of ‘real estate project’, but they cannot effectuate the ‘sale’ of the apartments or units therein to the allottees. Thus, it is not clear if the development of a Welfare Project (either on contractual basis or through PPP) would be considered a ‘real estate project’ for the purposes of the RERA Act; assuming it is considered as a ‘real estate project’, then it is not clear as to who would be a ‘promoter’ in respect of such Welfare Project.

In respect of the contracts[1] awarded (on a PPP basis) for the development of the Welfare Projects lately, it is seen that the Authorities seek to identify the respective Welfare Project as a ‘real estate project’ and the private parties as ‘promoter’ for the purposes of the RERA Act. However, upon a review of the definition of the term ‘promoter’ under the RERA Act, it is reasonable to take the view that it would not be appropriate to contemplate or assume a private party developing a Welfare Project on PPP basis as a promoter for the purposes of the RERA Act. This is due to the reason that the private party does not develop a Welfare Project for the purposes of selling of the apartments or units therein, and in fact does not have any locus to effect or even propose the sale of any apartments or units thereof. A private party develops a Welfare Project at the direction, instruction or approval of the contracting Authority on the land belonging to such Authority and hands over such constructed Welfare Project back to said Authority. It is ultimately then decision of the said Authority to effectuate any sale or allot any apartment/ unit therein, in any form or manner as it may deem fit.

In view of the above, though it may appear that the Authority should be considered as a ‘promoter’ for the development of the Welfare Project, but in reality since the Authority is also not effecting any ‘sale’ of the apartments or units in such Welfare Projects, it is not clear if the Authority can also be considered as a ‘promoter’ for the purposes of the RERA Act. Accordingly, it is critical to have a clarity in such instances of the development of the Welfare Projects on a PPP basis, as to who is the ‘promoter’ for such Welfare Project.

This clarity is required due to the roles and responsibilities that are required to be played by a ‘promoter’ for the development of a ‘real estate project’ under the RERA Act. In the absence of any such clarity, it may not be fair to expect a ‘private party’ to comply and fulfill all the requirements under the RERA Act, which in the first place it is neither competent nor properly placed to do. Many of the obligations identified in the RERA Act can be performed only by a ‘promoter’. Such obligations include the right of allotment of an apartment or unit, the appropriate person to execute the conveyance deed in respect of the allotment of such apartment or unit (under sections 11(4)) and 17 of the RERA Act), the obligation to pay loss caused to an allottee due to the defective title of the land, etc.

Last, but not the least, the contracts[2] for the development of the Welfare Projects on a PPP basis provide for arbitration as a dispute resolution mechanism between the parties thereto for any dispute arising out of or in relation to any issue arising thereof, which primarily covers the issues concerning the development of the Welfare Project (being a ‘real estate project’). The RERA Act, in almost all aspects concerning the development of a ‘real estate project’, provides for a specific dispute redressal mechanism under it. Therefore, it is not clear that in respect of such contracts,[3] what will prevail as a dispute resolution mechanism. It is trite law that any contractual provision cannot supersede the statutory provision and thus it would remain to be seen as to how a dispute resolution mechanism under such contracts would interact with the dispute resolution mechanism provided under the RERA Act.

The Government of India on September 21, 2017 announced a new PPP policy for affordable housing which allows extending government’s assistance to private builders. However, the said PPP policy also does not provide any clarity regarding any issue that arises due to the development of the Welfare Projects by the Authorities on a PPP basis and the RERA Act.

Thus, before long, it is critical that the Government comes out with necessary amendments or clarifications providing for the ways and means to deal with the interplay between the development of the Welfare Projects on PPP projects basis and the RERA Act.

– Deepak K. Thakur

[1] Reference is taken to the Development Agreements awarded by Bhubaneshwar Development Authority and MHADA recently.

[2] See above.

[3] See above.

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