November 06, 2017

 

MUMBAI: The Center and State on November 3 stressed that a law can be made in public interest to overturn a private contract. Both were defending the new Real Estate (regulation and Development) Act (RERA) and its provisions against a constitutional challenge from builders who questioned its retroactive application on pending projects under old agreements.

The Government can, contrary to the builder's plea, make a law which has the effect of changing obligations under an existing contract said advocate general Ashutosh Kumbhakoni, citing apex court judgments to emphasize that RERA has a "retroactive" application on pending unfinished projects. Kumbhakoni said, "there is no constitutional guarantee that the terms of a contract will have to maintained. The legislature is empowered to bring in law in public interest that may impair or completely overturn a private contract and its obligations."

The new real estate regulatory law enacted by the Parliament last year came into force on May 1 this year. It is facing a constitutional challenge from several builders and the Bombay HC is tasked to decide on its validity. Home owners have intervened to support the law which provides that a builder is liable to return amounts to flat buyer if possession not granted by the date mentioned in the agreement. The builder may have to return the amount with interest and compensation if the buyer withdraws from the project and also pay interest per month till possession is handed, if the buyer stays on with the project.

"Why can’t the provisions for a payout by a real estate promoter be made applicable at least from the date of Real Estate (regulation and Development) Act (RERA) law coming into force?" A bench of Justices Naresh Patil and R G Ketkar on November 3 asked this question as the Kumbhakoni sought to help "iron out the creases".

"Asking the builder to pay interest from the date of possession mentioned in the agreement is unreasonable," said Justice Patil referring to the arguments made by the builders. "Can the provisions not be read down?" the judges asked. Kumbhakoni said, "It has to be made applicable from the day the amounts were received by the promoter and in case it is the opinion of the court that such provision is unconstitutional—and would breach fundamental rights—then it is possible to read it down to make it applicable from the date of the enforcement of the Law to protect its validity."

Earlier the judges had also question on what should the interest be paid. Additional solicitor general Anil Singh who appears for the Centre, which made the law, said it has to be on the amounts paid so far by the buyer. Singh also said that the builder's contention to appoint only judicial members to head the RERA authority has no basis. He pointed to several authorities including under the Public Premises Act, SEBI, money laundering law, which have no judicial member or judge heading it. He too cited judgments to show that "public interest is always considered to be above private interest".

Here the larger interest of home buyers is being protected in public interest by RERA, both the Centre and State argue. "The act is meant to bring in transparency and accountability for development of real estate sector," said Kumbhakoni adding that the RERA drafstman has been "unfairly criticised" by the petitioning builders. He cited judgments to say that no lawmaker or draftsman is expected to imagine every scenario, though it would certainly save the judges "if law were drafted with divine clarity."

"They are saying to do business in property is a fundamental right and taking that away is illegal under Article 19(1)(g). But we are not tinkering with anyone’s fundamental rights," said Kumbhakoni. What RERA seeks to do when it says that the authority will ensure completion of a project after its registration has been revoked for defaults by its builder promoter, is only to finish his unfinished work, which was his obligation. The rights of the buyers are kept in mind, said Kumbhakoni who will continue with his submissions on November 6.

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