India: Whether A Society, Being A Landowner, Is A "Promoter" Under Real Estate Regulation Act, 2016?

The present article critically summarizes a judgment passed by the Hon'ble Maharashtra Real Estate Appellate Tribunal ("Appellate Tribunal") in common appeals filed by Udayachal Goregaon Co-operative Housing Society Limited to challenge the interim Order dated 6^th August 2018 passed by Ld. Member and Adjudicating Officer, Maharashtra Real Estate Regulatory Authority ("MahaRERA").

Brief Facts of the case:

Udayachal Goregaon Co-operative Housing Society Limited ("Society") entered into a Development Agreement dated 15^th April, 2013 with M/s. Jaycee Homes Pvt. Ltd. ("Developer") wherein it was agreed that the Developer would redevelop the then existing building of the Society and utilize increased FSI/ TDR to sell the sale component to third parties. Due to the alleged inability of the Developer to complete the project as per the terms and conditions set in the Development Agreement, the Society terminated the Development Agreement sometime in the year 2018. Meanwhile, prior to the termination of the Development Agreement, third party rights were created in so far as the sale component of the Developer was concerned.

Complaint before MahaRERA:

Pursuant to the aforesaid events, the third-party flat purchasers filed a complaint before MahaRERA against the Society and Developer on the premise that their respective Agreements for sale entered into with the Developer were legal and binding on the Society as well. The flat purchasers sought direction against the Society as well as the Developer to hand over possession of their respective flats by completing construction or in the alternative, allow them to complete remaining construction.

Society raised a preliminary objection on maintainability of the Complaint and contented that though it is the owner of land, it is not the Promoter as there is no privity of contract between the Society and such flat purchasers of the sale component. Reliance was placed upon the the Hon'ble Bombay High Court judgement in Vaidehi Akash Housing Pvt. Ltd. vs. New D.N. Nagar Co-op. Hsg. Soc. Ltd. & Ors.¹ ("Vaidehi v. D.N. Nagar") wherein it was held that third party purchasers, who claim through Developer under their respective agreements for sale/allotment letters, do not have any case for specific performance of their respective agreements against Society. Development of free sale component was inextricably linked to construction of rehabilitation component. Cost of construction of rehabilitation component had to be necessarily funded from and out of development and sale of the free sale component. Members could not be asked to wait indefinitely for years for getting something which they were legally entitled to and which legal entitlement was not even questioned by any other stakeholders.

Ld. Member and Adjudicating Officer, MahaRERA had passed an interim order and held the complaints to be maintainable on the basis that Society, being owner of the land is "Promoter" within the definition of 2(zk) of the said Act and in the changed circumstances, the judgement of Vaidehi v. D.N. Nagar would not apply as it was passed during the reign of Maharashtra Ownership of Flats Act, 1963 ("MOFA") and that the definition of Promoter has become broader in said Act. It also held that since the Society has terminated the Development Agreement, it has regained control over the sale component and therefore can be regarded as a 'Promoter'. The observation of the Ld. Member is reproduced hereunder:

"...the owner of the land who wants to redevelop the land and the person who is engaged for redeveloping it and selling it also became the promoters and their liability is joint. Such provision is not there in MOFA. Respondent No.2 by cancelling the Development Agreement of respondent no.1 and revoking their power of attorney regains the control and ownership of the sale component. Therefore, the definition of promoter defined by RERA is comprehensive definition and in my humble opinion includes the land owners who retain, share there are free of cost and allows to regain the control over sale component also."

Appeal before Appellate Tribunal:

The Society, aggrieved by the Impugned Order of MahaRERA challenged the same on the following main grounds:

1. Absence of privity of contract between the Society and Flat purchasers
2. Land owner cannot be Promoter in accordance with the Vaidehi v. D.N. Nagar ruling
3. Complex civil disputes cannot be summarily disposed of
4. that Society cannot be held responsible if the Developer fails to perform his obligations in respect of the Agreement for Sale.

The Society, in its appeal, also contended that MahaRERA Circular no.12 dated 4^th December, 2017 ("aforesaid Circular") stated that the Society, though a land-owner, is excluded from the definition of the 'Promoter' under the Real Estate (Regulation and Development) Act, 2016 ("said Act"). The aforesaid Circular was passed by the MahaRERA in light of the Order dated 14^th November 2017 passed by the Hon'ble Bombay High Court in Ismail Ibrahim Patel & Ors. Vs. State of Maharashtra & Ors². The said Writ Petition challenged the validity of the MahaRERA Office Order dated 11^th May 2017 wherein the definition of "co-promoter" was notified. The impugned Office Order was withdrawn by MahaRERA and replaced with the aforesaid Circular. The aforesaid Circular promulgates that only such individuals/organizations would fall within the definition of "Promoter" in RERA, on account of being landowners, as would be specified as such at the time of on-line registration of the project with the Authority.

Findings of Appellate Tribunal:

The Appellate Tribunal noted that the impugned Order was based solely on comparing the definition of 'Promoter' under MOFA and the said Act. However, clauses of the Agreements for sale/ Allotment letters were not referred to while ascertaining as to whether the Society falls within the definition of "Promoter". It was also held that the impugned Order does not refer to or mention the aforesaid Circular based on which the Society contended that it is excluded from the purview of definition of "Promoter". It was also observed that there was no convincing attempt made in the impugned Order in highlighting the difference in the definition of 'Promoter' under MOFA and the said Act. In light of the aforesaid, the appeals were allowed and the matter was remanded back to the Ld. Member and Adjudicating Officer, MahaRERA for deciding the issue of maintainability of the complaints afresh without being influenced by the observations made in the Order passed by the Appellate Tribunal.

Conclusion:

The law has now been settled by an Order passed by Hon'ble Bombay High Court in Goregaon Pearl CHSL Vs. Dr. Seema Mahadev Paryekar³ which endorsed the principle as laid down in Vaidehi v. D.N. Nagar that there is no case to treat the Society, who is merely in position of an owner vis-à-vis the third party purchasers, as a 'Promoter' within the meaning of MOFA and foist the obligations of a Promoter on the Society in relation to the purchasers. It was held that provisions of the said Act do not make any difference either. The said Act has been introduced to establish a regulatory authority for regulation and promotion of the real estate sector and to ensure sales in the sector in an efficient and transparent manner and to protect consumers of the sector. It is conclusively stated that the definition of 'Promoter' in the said Act is on similar lines as MOFA.

Footnotes