Penalties under the Real Estate Regulation and Development Act, 2016

Penalties under the Real Estate Regulation and Development Act, 2016
22 June 2020

Penalties under the Real Estate Regulation and Development Act, 2016

With the advent of The Real Estate (Regulation & Development) Act, 2016, which came into effect from May 1, 2017, there began a norm for strict compliances that have to be adhered to by each and every developer, builder, and construction giant in different parts of the country. Most of the states have established their own RERA offices where they work under the established rules and regulations. Though the act is not retrospective in nature it mandates every project to be registered with the respective State RERA offices by the promoters of the company within 3 months of the commencement of the Act.

The Real Estate Regulation and Development (RERA) Act, 2016 is regarded as one of the landmark legislation passed by the Government of India. The aim of this act is a reformation of the real estate sector in India, encouraging transparency, accountability, and financial discipline. As India has a vast and growing economy this act would be very beneficial as in the future many people will be investing in the real estate sector. Implementation of the RERA Act, it is expected to boost the demand in the real estate sector.

The Government of India passed the Real Estate Regulatory Bill in March 2016. The Act came into force from 1 may, 2016 (with 69 sections notified). Remaining provisions came into force on 1 May 2017. As per the rating agency ICRA, though the RERA came into effect on 1st May 2016 the delay in issuing notification may dilute the proper implementation of this Act.

RERA is a regulatory body with the sole motive of protecting the interests of consumers. As there has been an increasing number of complaints against the builders/ developers, mostly related to delay in possession to homebuyers, faults in the society, and irresponsible behavior of promoters after the signing of the agreement.

The RERA aims to establish the Real Estate Regulatory Authority that would regulate and promote the real estate sector. The main aim of the Act is to protect the interest of homebuyers and promote timely delivery of properties or projects.

RERA was also enacted to boost investment in the sector. The provisions like timely completion and delivery of projects to the buyers and making the information of the project plan, layout, government approvals, land title status, and sub-contractors available, consent of two-thirds of the allottees on any alteration or addition in the project, and other such provisions, would bring in more transparency and accountability in the real estate sector.

Applicability of RERA and RERA Registration

RERA has been enacted and implemented in all the states as well as Union Territories except the States of Jammu and Kashmir and West Bengal. The State of West Bengal has followed a different path altogether. Instead of RERA, the State of West Bengal has implemented, West Bengal Housing Industry Regulation Act. Separately, the State Advisory Council of Jammu and Kashmir has approved Real Estate (Regulation and Development) Bill, 2018.

RERA makes it mandatory for all commercial and residential real estate projects where the land under development is over 500 square meters or no. of units to be constructed exceeds 8 apartments will have to register with the RERA authority before launching the real estate project. Every promoter shall make an application to the authority for registration of the real estate project. The projects that are ongoing on the date of commencement of this act and for which completion certificate has not been issued have to get registered with RERA. If the real estate project fails to register a property, it will attract penalties.

However, renovation, repair, or redevelopment projects not involving marketing, advertising, selling, and new allotment are not required to get registered.

Compliance under RERA

RERA registration is just a start of RERA compliances of various provisions of RERA regulations. It gives complete details of the project to RERA authority and the public at large which would try to ensure that all compliances are met. Some of the compliance for builders are as under:

  1. Uploading of Agreement/Plan/Approval etc. – RERA regulation has mandated to publish the details along with a copy of agreements, approvals, etc., on the website of RERA Authority for general public viewing purposes.
  2. Quarterly updating with RERA – Every registered project shall update the prescribed details regarding the project on the website of the respective State RERA authority. Failure to do so may attract heavy penalties and penal proceedings from RERA authority.
  3. Separate bank accounts for 70% of receipts – As per the RERA law, every developer is required to deposit 70% of the receipts from the customers in a separate RERA designated account which shall be used only for cost the project.
  4. Comply with Prescribed process of booking and allotment– RERA regulations have prescribed certain obligations and responsibilities on the developers while booking the new flat or allotment, some of them are:
  5. Ensure that transaction is done through RERA registered agent
  6. Making available the approved plan to the buyer
  7. Non-acceptance of advance more than 10% of unit cost
  8. Taking necessary approval and insurance – As per RERA regulation, the builder or developer is required to take all the necessary approvals and insurance, as required by state laws. RERA regulations relating to insurance are very confusing and shall require detailed research.
  9. Formation of allottee’s association – As per RERA regulations, every builder or developer shall form the society/association or co-operative society as prescribed by the respective State Government. If nothing is specifically provided by the State Government, then society shall be constituted within 3 months from the month in which majority flats are sold.
  10. Timely completion and delivery including common areas – Every builder/association is required to complete the project on a given time and give possession within 3 months. All the common areas shall be transferred to the association of the allottees.
  11. Review of building quality – The developer needs to review the quality of the building. As per RERA law, any defects in the structure shall be rectified by the builder within 30 days of intimation without any additional cost.
Project Account (70:30 rule)
  1. Developers are required to deposit 70% of project funds in a designated bank account. Of the total collections, only 30% can be withdrawn/used without any restriction.
  2. In the event where the estimated receivables of the ongoing project are less than the estimated cost of completion of the project, then 100% of the amount to be realized from the allottees shall be deposited in the said separate account.
  3. Withdrawal from the RERA Account to be certified by Engineer, Architect, and Chartered Accountant
  4. Withdrawals from the RERA Account to be in proportion to the % completion method
  5. Withdrawals from the RERA Account can be made for the purpose of payment of construction and land cost of that project only
  6. Amount in RERA designated account cannot be used for Admin and Marketing expenses
Penalties for non-compliance under RERA

The RERA Act gives explicit and mentions of specific penalties for offenses by promoters, real estate agents, builders, and other parties who are involved under the ambit of this act:

  1. For non-registration of the project with the RERA Authority: 10% of the total estimated cost of the project. However, the agent is charged a penalty of Rs. 10,000 per day during default tenure up to 5% of property cost
  2. Where information or advertisement regarding the project is found to be false: Penalty for the promoter is 5% of the estimated cost of the project
  3. Where any provisions of the Act (except above) have been contravened: Penalty for promoter and agent is 5% of the estimated cost of the project/ property
  4. Where an order of the RERA has been contravened or has not been executed: Daily penalty for every day after passing of the order which has been contravened up to 5% of the estimated cost of the project/ property for the promoter, agent and the allottee.
  5. Where an order of the Appellate Tribunal has been contravened: Penalty up to 10% of the estimated cost of the project/ property for the promoter, agent, and the allottee.
Prosecution and Compounding
  1. Non-compliance of penalty order by Promoter (for non-registration of Project) issued by the Authority entails imprisonment up to 3 years or further penalty of 10% of estimated cost or both
  2. Non-compliance with the order of the Appellate Tribunal by Promoter entails imprisonment up to 3 years or further penalty of 10% of estimated cost or both
  3. Non-compliance with the order of the Appellate Tribunal by Agent entails imprisonment up to 1 year or a daily fine of 10% of the estimated cost of apartment or plot of land
  4. Non-compliance with the order of the Appellate Tribunal by Allottee entails imprisonment up to 1 year or a daily fine of 10% of the estimated cost of apartment or plot of land
  5. Imprisonment punishment could be compounded (before or after the institution of prosecution) by the Court
Offenses by Company
  1. In case of offense by company or partnership firm, Officer in charge, as well as company, shall be deemed to be guilty of the offense and be liable to proceed accordingly.
  2. Such a person shall not be liable for punishment if he proves that offense was committed without his knowledge or that he exercise all due diligence to prevent such offense.
  3. Where an offense under this Act has been committed by a company or partnership firm, and it is proved that the offense was committed with the consent or connivance of or due to neglect of any director or partner, manager, secretary or any other officer of the organization, then such person shall also be deemed to be guilty of that offense and be liable to be proceeded against and punished accordingly.