(ABMK Law Chambers would like to thank Mr. Rishabh Jain, 5th year student, B.B.A. L.L.B programme at Symbiosis Law School, Noida (SLS) for putting together the present study as part of his internship work in March-April 2021.)
By its judgment in Pioneer Urban Land and Infrastructure Ltd & Anr v Union of India & Ors, (2019) 8 SCC 689, the Supreme Court of India had held that the remedies available to homebuyers under the Consumer Protection Act [“CPA”] of 1986, Real Estate (Regulation and Development) Act [“RERA”] of 2016 and the Insolvency and Bankruptcy Code [“IBC”] of 2016 acts are concurrent. This essentially meant that the availability of a remedy to the homebuyers under one law does not automatically make the remedies under the other laws unavailable.
Further, by its judgment in M/s Imperia Structures Ltd v Anil Patni & Another, (2020) 10 SCC 783, the Apex Court made it abundantly clear that the availability of a remedy under RERA does not act as bar for pursuing remedies available under the other acts.
That being said, with the multiplicity of remedies available to a homebuyer in cases of default on the part of the builder, there is major confusion amongst them as to the remedy they should opt for, and a lack of literature and resources to help them with the decision-making process. Majorly, a homebuyer has remedies available under the following laws:
1. Consumer Protection Act, 2019
2. Real Estate (Regulation and Development) Act, 2016
3. Insolvency and Bankruptcy Code, 2016
The different remedies available under these varied acts have been detailed below:
Consumer Forum
Applicable Law:
Consumer Protection Act, 2019 [“CPA”]
Remedy Available:
Return of money already paid by the consumer to the builder, along with any compensation as the forum may decide. The consumer forum may also provide costs to a party at its discretion.
Alternatively, where the complaint is regarding defects in the property, the consumer forum may give a direction for removal of the defects.
These remedies are laid down under Section 39 of the Consumer Protection Act, 2019.
“39. Findings of District Commission.—(1) Where the District Commission is satisfied that the goods complained against suffer from any of the defects specified in the complaint….it shall issue an order to the opposite party directing him to do one or more of the following, namely:—
…
(c) to return to the complainant the price, or, as the case may be, the charges paid by the complainant along with such interest on such price or charges as may be decided;
(d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party:
Provided that the District Commission shall have the power to grant punitive damages in such circumstances as it deems fit;
…
(f) to remove the defects in goods or deficiencies in the services in question;
…
(m) to provide for adequate costs to parties;”
Limitation:
The complaint must be filed within 2 years of the cause of action having arisen. However, any delay in filing of a complaint can be condoned if sufficient reason for the delay is shown. This period of limitation has been laid down under Section 69 of the Act.
“69.Limitation period.—(1) The District Commission, the State Commission or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen.
(2) Notwithstanding anything contained in sub-section (1), a complaint may be entertained after the period specified in sub-section (1), if the complainant satisfies the District Commission, the State Commission or the National Commission, as the case may be, that he had sufficient cause for not filing the complaint within such period:”
Procedure Followed:
1. Issuance of legal notice to the builder
2. Selecting appropriate jurisdiction – In the case of consumer complaints, the complaint has to be filed before the appropriate forum, depending on the “value of the goods or services paid as consideration”:
a. District Commission: Amount not exceeding Rs. 1 Crore
b. State Commission: Rs. 1 Crore to Rs. 10 Crores
c. National Commission: Amount exceeding Rs. 10 Crores.
3. Filing of Complaint: Once the appropriate jurisdiction has been identified, the homebuyer will file a complaint under Section 35 of the Act. This complaint must be filed within a period of 2 years from the cause of action having arisen.
Any complaints under this Act must be filed with the requisite fee as given in the table to Rule 7 of the Consumer Protection (Consumer Disputes Redressal Commissions) Rules, 2020.
Time taken to decide disputes:
No strict timeline for deciding complaints has been laid down in the Act. As such, the time that may be taken in deciding a consumer complaint cannot be estimated.
Appellate Procedure:
An appeal against order of the district commission needs to be filed before the state commission within 45 days of the date of order of the district commission. [Section 41]
An appeal against order of the state commission needs to be filed before the national commission within 30 days of the date of order of the state commission. [Section 51]
An appeal against order of the national commission needs to be filed before the Supreme Court of India within 30 days of the date of order of the national commission. [Section 67] Such an appeal before the Supreme Court will be subject to the rules framed under Order XXIV of the Supreme Court Rules, 2013.
The aforementioned appeal provisions also provide that where the district, state or the national commission, as the case may be, has ordered payment of any sum of money, fifty-percent (50%) of such sum must be deposited by the Appellant in order for the appeal to be entertained.
Mechanism for enforcement of orders:
Under Section 71 of the Consumer Protection Act, 2019, the consumer forums have the power to enforce their orders as if they were orders of a court. The relevant part of Section 71 reads:
“71. Enforcement of orders of District Commission, State Commission and National Commission.—Every order made by a District Commission, State Commission or the National Commission shall be enforced by it in the same manner as if it were a decree made by a Court in a suit before it and the provisions of Order XXI of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908) shall, as far as may be, applicable, subject to the modification that every reference therein to the decree shall be construed as reference to the order made under this Act.”
Further, the 2019 Act has also provided for the imposition of penalty for the non-compliance with an order of the consumer forums and the offences of non-compliance are to be tried summarily. In this regard, Section 72 of the reads:
“72.Penalty for non-compliance of order.—(1) Whoever fails to comply with any order made by the District Commission or the State Commission or the National Commission, as the case may be, shall be punishable with imprisonment for a term which shall not be less than one month, but which may extend to three years, or with fine, which shall not be less than twenty-five thousand rupees, but which may extend to one lakh rupees, or with both.
…
(3) Save as otherwise provided, the offences under sub-section (1) shall be tried summarily by the District Commission or the State Commission or the National Commission, as the case may be.”
RERA
Applicable Law:
Real Estate (Regulation and Development) Act, 2016 [“RERA”]
Remedy Available:
Under RERA, specific provisions have been framed for providing remedies to the homebuyers. In terms of the Act, it is a duty of the promoter [Section 18] to return the amount paid along with interest and compensation, and also a right of the allottee [Section 19] to seek refund of amount already paid along with interest and compensation.
Section 18 states:
“18. (1) If the promoter fails to complete or is unable to give possession of an apartment, plot or building,—
(a) in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein; or
(b) due to discontinuance of his business as a developer on account of suspension or revocation of the registration under this Act or for any other reason,
he shall be liable on demand to the allottees, in case the allottee wishes to withdraw from the project, without prejudice to any other remedy available, to return the amount received by him in respect of that apartment, plot, building, as the case may be, with interest at such rate as may be prescribed in this behalf including compensation in the manner as provided under this Act:”
Section 19 of the Act provides for the rights and duties of the allottees and sub-section (4) therein provides:
“(4) The allottee shall be entitled to claim the refund of amount paid along with interest at such rate as may be prescribed and compensation in the manner as provided under this Act, from the promoter, if the promoter fails to comply or is unable to give possession of the apartment, plot or building, as the case may be, in accordance with the terms of agreement for sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of this Act or the rules or regulations made thereunder.”
Alternatively, where the homebuyer is not seeking the relief of return of amount paid and does not wish to withdraw from the project, they may receive interest from the promoter till possession of the completed property is handed over. This is provided for in the proviso clause to the sub-section (1) of Section 18 and reads:
“Provided that where an allottee does not intend to withdraw from the project, he shall be paid, by the promoter, interest for every month of delay, till the handing over of the possession, at such rate as may be prescribed.”
Limitation:
The RERA does not specify any limitation period for the filing of complaints under Sections 18 and 19. In such cases, it is advisable to approach the appropriate authority and file complaints as and when the cause of action arises and avoid any delay in filing of complaints.
Procedure Followed:
1. A complaint is filed under Section 18 or Section 19 of the Act with the prescribed fee. The fee for filing complaints under RERA is prescribed by the state government and may differ from state to state. The prescribed fee in the National Capital Territory of Delhi Real Estate (Regulation and Development) (General) Rules, 2016 is Rs. 1,000/- [Rule 33].
2. The complaint is placed before the adjudicating officer appointed for this purpose under Section 71 of the Act, which reads:
“71. (1) For the purpose of adjudging compensation under sections 12, 14, 18 and section 19, the Authority shall appoint in consultation with the appropriate Government one or more judicial officer as deemed necessary, who is or has been a District Judge to be an adjudicating officer for holding an inquiry in the prescribed manner, after giving any person concerned a reasonable opportunity of being heard”
3. The adjudicating officer then has to decide the application within a period of sixty days from the date of receipt of application and if there is any application cannot be decided within the period of sixty days, the officer will have to record his reasons as to why the application could not be decided within sixty days. The relevant part of Section 71 of the Act in this regard reads:
“(2) The application for adjudging compensation under sub-section (1), shall be dealt with by the adjudicating officer as expeditiously as possible and dispose of the same within a period of sixty days from the date of receipt of the application”.
4. In deciding the application, the Act lays down the factors that the adjudicating officer shall consider as are given under Section 72 of the Act:
“72. While adjudging the quantum of compensation or interest, as the case may be, under section 71, the adjudicating officer shall have due regard to the following factors, namely:—
(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
(b) the amount of loss caused as a result of the default;
(c) the repetitive nature of the default;
(d) such other factors which the adjudicating officer considers necessary to the case in furtherance of justice.”
Time taken to decide disputes:
The time limit for deciding matters as prescribed under Section 71 is sixty days. However, this period may be extended by the adjudicating authority and in every such case of extension, reasons must be recorded for the extension.
Similarly, any appeals from the orders of the adjudicating authority are to be disposed of within 60 days and where the appeal could not be disposed of within the period of sixty days, the appellate tribunal is to record its reasons for the same. Section 44(5) of the Act states:
“(5) The appeal preferred under sub-section (1), shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal within a period of sixty days from the date of receipt of appeal.
Provided that where any such appeal could not be disposed of within the said period of sixty days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within that period.”
Appellate Procedure:
An appeal from the order of the Adjudicating Authority as established under Section 20 will lie before the Appellate Tribunal and this appeal must be filed within a period of 60 days from the date of order against which the appeal is preferred. [Section 44(2)]
The proviso to sub-section (5) to Section 43 provides that where a promoter files an appeal before the Appellate Tribunal, a sum of minimum thirty percent of the penalty imposed on him must be deposited by him. It is further provided that this deposit may be more than thirty percent or may even be the total amount to be paid along with interest and compensation. The said proviso reads:
“Provided that where a promoter files an appeal with the Appellate Tribunal, it shall not be entertained, without the promoter first having deposited with the Appellate Tribunal atleast thirty per cent. of the penalty, or such higher percentage as may be determined by the Appellate Tribunal, or the total amount to be paid to the allottee including interest and compensation imposed on him, if any, or with both, as the case may be, before the said appeal is heard.”
In contrast with the provisions of the Consumer Protection Act of 2019, the RERA provides a much lower minimum deposit percentage (30% compared to 50% under the Consumer Protection Act) but the deposit can go up to as high as 100% including interest and compensation, while the Consumer Protection Act has fixed the deposit amount to 50%.
Against an order of the Appellate Tribunal, an appeal will lie before the High Court. In this connection, Section 58 of the Act provides:
“58. Appeal to High Court.—(1) Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the High Court, within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal.”.
The act does not specifically provide for any appeal from the order of the High Court. An appeal from the order of the High Court, therefore, shall lie before the Supreme Court of India under Article 136 of the Constitution of India in the form of a Special Leave Petition.
Mechanism for enforcement of orders:
The rules for enforcement of orders of the authority established under Section 20 of the Act have been framed by the states and differ from state to state. Rule 27 of the Haryana Real Estate (Regulation and Development) Rules, 2017, for instance, provides for enforcement of the orders of the Authority under Section 20 or of the Appellate Authority and reads:
“27. (1) Every order passed by the adjudicating officer or the Authority or the Appellate Tribunal, as the case may be, under the Act or rules and the regulation made thereunder, shall be enforced by an adjudicating officer of the Authority or Appellate Tribunal in the same manner as if it were a decree or a order made by a civil court in a suite pending therein; and it shall be lawful for the adjudicating officer or the Authority or the Appellate Tribunal, as the case may be, in the event of its inability to execute the order, send such order to the civil court, to execute such order.”
Sub-rule (2) to Rule 27 for the compounding of offences punishable by imprisonment.
This rule has been framed in view of Section 40 of the Act.
Sections 63 and 64 of the Act specify the penalties that may be imposed on the promoter of the project for failure to act in accordance with an order passed under the Act. In particular, Section 63 relates to the orders of the Authority established under Section 20 while Section 64 relates to the orders passed by the Appellate Tribunal established under Section 43.
“63. If any promoter, who fails to comply with, or contravenes any of the orders or directions of the Authority, he shall be liable to a penalty for every day during which such default continues, which may cumulatively extend up to five per cent., of the estimated cost of the real estate project as determined by the Authority.”
“64. If any promoter, who fails to comply with, or contravenes any of the orders, decisions or directions of the Appellate Tribunal, he shall be punishable with imprisonment for a term which may extend up to three years or with fine for every day during which such default continues, which may cumulatively extend up to ten per cent. of the estimated cost of the real estate project, or with both.”
The significant difference between Sections 63 and 64 is that for acting in violation of an order of the Appellate Tribunal, a promoter may be punished with imprisonment for upto three years.
IBC
Applicable Law:
Insolvency and Bankruptcy Code, 2016 [“IBC”]
Remedy Available:
Home buyers will be entitled to a portion of the sale proceeds from the sale of assets if the builder is declared insolvent.
Category of homebuyers before the NCLT:
Section 6 of the IBC states that the corporate insolvency resolution process may be initiated either by a financial creditor, or an operational creditor, or by the corporate debtor itself. Initially, home-buyers were not considered to be falling within any of these categories and therefore could not initiate the corporate insolvency resolution process against a defaulting builder / promoter.
By its judgment in Pioneer Urban Land and Infrastructure Ltd. (supra), the Supreme Court held that homebuyers shall be considered financial creditors for the purposed of the IBC and thus gave powers to homebuyers to initiate corporate insolvency resolution process against a defaulting builder / promoter. However, in order to initiate insolvency proceedings against a developer, there must be a minimum of consortium of 100 homebuyers in the said project or 10% of the homebuyers in the project, whichever is less. The same has been provided in the second proviso to the sub-section (1) to Section 7 of the Code:
“Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent of the total number of such allottees under the same real estate project, whichever is less”
Limitation:
The limitation under the IBC is calculated in accordance with the provisions of the Limitation Act of 1963 as is provided under Section 238A of the Code, which reads thus:
“238A. Limitation. –The provisions of the Limitation Act, 1963 (36 of 1963)shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”
Thus, the limitation for filing complaints under the IBC runs for 3 years from the date the default occurs on the part of the developer / builder. This is in accordance with Article 137 of the Limitation Act.
For cases where the default on the part of the builder / promoter occurred more than 3 years prior to the filing of the Application for initiating insolvency proceedings, the homebuyer can file an application under Section 5 of the Limitation Act for condonation of delay, which may or may not be allowed at the discretion of the tribunal.
Procedure Followed:
1. Initiation: When a default on the part of the builder / promoter occurs, the homebuyers can file an application for initiation of corporate insolvency resolution process under Section 7 of the Code, against the said builder / promoter. For this, there must be a consortium of buyers as specified herein above.
The application under Section 7 has to be filed with the requisite fee of Rs. 25,000 as provided in the Schedule to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, at Sl. No. 1.
2. Upon admission of the Application under Section 7, the adjudicating authority declares a moratorium and appoints an interim resolution professional in terms of Section 16 of the Code.
3. In terms of Section 23 of the Code, the Resolution Professional will conduct the insolvency resolution process and will be bound by the duties provided under Section 27.
4. Liquidation: If the builder / promoter goes into liquidation, a liquidator is appointed in terms of Section 34. The liquidator will then form an estate of the assets of the corporate debtor [Section 36], verify the claims of the creditors [Section 39] and proceed with the sale of the assets and distribution of the sale proceeds amongst the persons with verified and approved claims [Section 53].
This distribution of the sale proceeds is done in the following order of preference:
i. insolvency resolution costs
ii. secured creditors whose loans are backed by collateral, dues to workers, other employees,
iii. unsecured creditors, [homebuyers will fall under this category]
iv. dues to government,
v. priority shareholders and
vi. equity shareholders.
Time taken to decide disputes:
The IBC is a time-bound process and the Code provides time-limits for the completion of every step of the process.
Section 12 provides the time-limit for the completion of the insolvency resolution process. In sub-section (1), it states that the insolvency resolution process should be completed within 180 days:
“(1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.”
Sub-section (2) and (3) therein provide that such period may be extended on an application by the resolution professional – for a maximum of 90 days – but the proviso clause to sub-section (3) provides that such an extension can only be granted once.
“(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 1[sixty-six] per cent of the voting shares.
(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.”
Since it was observed that delay in insolvency resolution process was being caused due to legal proceedings before other courts / tribunals, a 2018 amendment has inserted a second proviso clause to the sub-section (3) fixing the upper time limit for completion of the insolvency resolution process to 330 days including the time that may be spent in any legal proceedings:
“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor”
In cases where the insolvency resolution process cannot be completed within the period of 330 days as prescribed in Section 12, the adjudicating authority has the power to initiate the liquidation process. [Section 33 (1)]
Appellate Procedure:
Appeals against orders of the Adjudicating Authority will lie before the National Company Law Appellate Tribunal. All such appeals shall be filed within 30 days of the date of order. [Section 61]
Appeals against the orders of the National Company Law Appellate Tribunal will lie before the Supreme Court of India. All such appeals shall be filed within 45 days of the date of the order against which the appeal is preferred. [Section 62]
Both, the National Company Law Appellate Tribunal and the Supreme Court, as the case may be, may allow the filing of an appeal beyond the prescribed periods upon being satisfied that there was sufficient cause for the delay, for a maximum delay of 15 days.
Disclaimer:
The above study is meant to be merely informative and should not be treated as a substitute for legal advice.
Very well articulated. Quite comprehensive. Aptly lays down the road map of the relevant applicable proceedings.