Case Summary of Neelkamal Realtors Suburban Pvt. Ltd. vs The Union Of India And 2 Ors [AIR 2018 (NOC) 398 (BOM.)]

Introduction

This old order of the Bombay High Court, Neelkamal Realtors Suburban Pvt. Ltd. and Anr. v. Union of India and Others, was an examination of the constitutional validity of the Real Estate (Regulation and Development) Act, 2016, more popularly known as RERA. This case is of utmost importance to the Indian real estate as it resolves the issue of working out the balancing of rights between developers and consumer protection. This article will explore the entire backdrop of the case starting from the context, the issues involved, arguments put forth by both sides, the court verdict, and then, finally, the conclusions one may draw from this ruling.

Background of the Case

Indian realty is the single largest contributory industry to the Indian economy and contributes nearly 9% of the Gross Domestic Product (GDP) of the country. Despite its deteriorating growth rate, the sector was quite unorganized or perhaps less organized in nature and thereby created some other issues like delayed projects, opacity, and cheating of the buyers. With a focus on addressing these problems, the Indian Parliament has enacted RERA in 2016 with the objective of giving a statutory framework to make the real estate business efficient, transparent, and accountable.

RERA made some provisions for safeguarding the interest of consumers and encouraging fair business practices among builders. The Act has some main provisions like obligatory registration of real estate projects and agents, Real Estate Regulatory Authorities and Appellate Tribunals, and conditions for completing the projects on time along with imposition of penalty in case of delays. Even as the Act found favor with the consumers, some developers and builders opposed it when they saw specific provisions as unduly harsh and prejudicial to their operations.

Facts Leading to the Litigation

Various writ petitions were moved in the Bombay High Court by plot owners and real estate developers questioning the constitutional validity of various provisions of RERA. The petitions were led by Neelkamal Realtors Suburban Pvt. Ltd., with the other petitioners asserting that certain provisions of RERA violated their fundamental rights under the Constitution of India. The most frequent complaints were with respect to the retrospective working of the Act, the burden placed on the promoters, and the constitution of the Appellate Tribunal.

Key Issues Raised

Constitutional Validity of Provisions in RERA:

The petitioners also contended that some of the provisions in RERA placed unjustified restrictions on their freedom to practice any profession or engage in any occupation, trade, or business, under Article 19(1)(g) of the Constitution. They submitted that the Act was arbitrary and was against the canons of equality under Article 14.

Retrospective Application of RERA:

One major area of contention was whether RERA was retrospectively applied to projects that were under way when the Act came into force. The petitioners claimed that retrospective application of the Act to ongoing projects upset their business plans and saddled them with unexpected obligations.

Composition of the Appellate Tribunal:

The petitioners questioned the appointment of bureaucrats as judicial members in the RERA Appellate Tribunal, specifically under Section 46(1)(b) of the Act. They contended that such appointments undermined the independence and impartiality of the tribunal.

Arguments Presented

Petitioners’ Arguments:

Unreasonable Restrictions:

The petitioners argued that RERA placed excessive and unreasonable limitations on their business activities. They pointed out provisions that required the deposit of 70% of project funds in a distinct escrow account, alleging that it limited their financial freedom and raised project costs.​

Retrospective Effect:

They contended that the application of RERA to existing projects was unfair, since it changed the terms and conditions agreed upon prior to the implementation of the legislation. This, they asserted, interfered with their business process and financial planning.​

Composition of the Tribunal:

The petitioners contended that the presence of bureaucrats as judicial members in the Appellate Tribunal was a breach of the doctrine of separation of powers and was an infringement of the tribunal’s judicial autonomy.

Respondents’ Arguments:

Consumer Protection:

The Union of India was represented by the respondents, who contended that RERA came into force with the aim to solve the long-standing issues common in the real estate industry, particularly protecting consumers from malpractices done by developers. They emphasized that the Act was drafted to inject transparency, accountability, and efficiency in the sector.

Regulatory Necessity:

They argued that the measures challenged by the petitioners were essential to control the industry adequately and make developers honor their promise to consumers. The condition for depositing money in an escrow account, for example, was meant to avoid diversion of funds and secure completion of projects.

Prospective Application:

The respondents contended that the provisions of RERA were not retrospective but were retroactive, applying to existing projects from the commencement date of the Act without penalizing the past.

Court’s Observations and Rulings

Following a careful review of the arguments and provisions, the Bombay High Court passed a detailed judgment that resolved each of the issues before it.​

On Constitutional Validity:

The court reaffirmed the constitutional validity of RERA, expressing that the Act was passed in the greater public interest to govern the real estate industry and safeguard consumers. It ruled that the obligations laid out on promoters were not unreasonable and were in pursuit of ensuring transparency and accountability. The court underlined that the Act was an endeavor to harmonize the interests of both developers and consumers, and the limitations placed were not excessive or arbitrary.

On Retrospective Application:

The court explained that the provisions of RERA were not retrospective but were retroactive. This is to say that the Act covered ongoing projects from the commencement date but did not punish acts that had been done prior to that date. The court explained that this was the only way to safeguard consumers who had invested in delayed or incomplete projects.​

On the Appellate Tribunal’s Composition:

The court partially knocked down Section 46(1)(b) of RERA, under which bureaucrats were to be appointed as judicial members of the Appellate Tribunal. It ordered that the tribunal be comprised mostly of judicial members to guarantee impartial adjudication and safeguard the principles of natural justice.

Implications of the Judgment

The Bombay High Court’s decision in Neelkamal Realtors Suburban Pvt. Ltd. and Anr. v. Union of India and Others has far-reaching consequences for the real estate industry in India. In confirming the constitutionality of the Real Estate (Regulation and Development) Act, 2016 (RERA), the court reaffirmed the legislative purpose of introducing transparency, accountability, and efficiency into the sector.​

Improved Consumer Protection:

The ruling highlights the need for protecting consumer interests in the housing sector. Through the validation of provisions that provide for timely completion of projects and impose penalties on delays, the court ensures consumers have a stable recourse to complain.

Regulatory Compliance for Builders:

Builders are now bound to follow the timeframes and fiscal disclosures prescribed under RERA in letter and spirit. The compulsion to place a large chunk of project money in escrow accounts puts an end to misappropriation of funds, inducing fiscal prudence.

Judicial Oversight:

The court order directing the incorporation of judicial members within the Appellate Tribunal raises the level of credibility and objectivity in the process of dispute resolution. The action is anticipated to instill more confidence in stakeholders on matters of the determination of disputes.

Balanced Approach:

Although the decision places strict liabilities on developers, it also shows understanding for potential difficulties they are likely to experience. By opening the door to delays due to exceptional circumstances being taken into consideration by authorities, the court keeps the law impartial.

Conclusion

Neelamkamal Realtors case is a milestone in the history of regulation of Indian real estate. Not only does the case adjudicate on the constitutional feasibility of RERA, but also lays down the precedent for how the balance has to be struck between the interests of consumers and developers. The judgment is a milestone in direction to achievement of objectives of transparency, accountability, and consumers’ protection in the real estate sector.

Apart from this, the order also reaffirms the responsibility of the judiciary to make legislature actions equal to the standards of the constitution. By maintaining the original core provisions of RERA and amending wherever necessary, the Bombay High Court provided a model that was pragmatic towards regulation. It demarcates the function of judicial intervention in determining legal frameworks to reconcile economic growth alongside protecting consumers according to it. The judgment also gives direction to future real estate legislations so that regulatory interventions remain effective and equitable.

The judgment also establishes a significant precedent for other sectors with similar regulatory challenges. The equilibrium of business and consumer rights interest was a model for legislative and judicial action in other sectors. By affirming the validity of regulatory authority as well as leaving space for equitable business conduct, the case brings about a more regulated and trustworthy real estate market. Overall, the case is a milestone judgment which will determine the future of India’s real estate market with greater confidence, effectiveness, and legal certainty.

 

References

1. C. Mehta, Environmental Law and Policy in India (3rd ed. 2020).
2. M. Seervai, Constitutional Law of India (4th ed. 2019).
3. Niranjan Rajadhyaksha, Balancing Regulation and Growth in the Real Estate Sector: A Judicial Perspective, 45(2) Indian L.J. 235 (2018).
4. Pratibha Jain & Akash Yadav, Constitutionality of Real Estate Regulations in India: An Analysis of RERA, 12 Nat’l L. Sch. India Rev. 88 (2019).
5. Prashant Reddy, RERA and its Judicial Scrutiny by the Bombay High Court (2018), https://www.barandbench.com/columns/rera-judicial-scrutiny-bombay-high-court.
6. LiveLaw, Bombay HC Upholds Constitutional Validity of RERA with Certain Modifications (2017), https://www.livelaw.in/bombay-hc-upholds-rera/.
7. Neelkamal Realtors Suburban Pvt. Ltd. v. Union of India, AIR 2018 (NOC) 398 (Bom.).
8. T. Plantation Pvt. Ltd. v. State of Karnataka, (2011) 9 SCC 1.
9. The Real Estate (Regulation and Development) Act, 2016.
10. The Constitution of India, art. 14, 19(1)(g).