Development of Dispute Resolution in the Real Estate Industry: Safeguarding Home Buyers Interest

by Shiv Sang Thakur and Parth Seth

Introduction

The real estate industry in India covers four sub-sectors of a country’s growing economy comprising housing, commercial, retail, and hospitality. The real estate industry has witnessed a massive change during these last two decades. Among the sub-sectors, housing remains a prominent one. Being a major and vital domain of the construction industry in India, real estate is the third-largest contributor to the country’s economy and has produced almost 40 million workforces, becoming the third-largest employment generator after agriculture and manufacturing.[1] Thus, any real estate dispute brings cascading and spiraling effects with special reference to builder-buyer disputes that can even lead to insolvency proceedings initiated by buyers after the introduction of The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (“the Amendment”). Hence, it is of utmost importance to find ways to bring amicable settlement of real estate disputes.

Growth of the real estate sector

India has the largest housing market in the world, with over 75–80 per cent share in the total real estate market size in India.[2] With an estimated change of market size in real estate from the US $120 billion in 2017 to the US $1 trillion in 2030, the real estate industry is expected to contribute 13% of the country’s GDP by 2025.[3]

Undoubtedly, the reason for this growth is urbanization, technological advancement, and active participation of the international market. Urbanization has brought an urge for growth creating residential and commercial realty demands making real estate also a preferred mode of investment. According to the current scenario, India needs to develop over 170 million houses to meet the urbanization demands by 2030.[4] The central government has also introduced initiatives by bringing various changes in its policies for affordable housing development. The central government in its 2020 annual fiscal budget extended the period for an additional deduction of Rs. 1.5 lakh for home loan interest on the purchase of affordable housing.[5] The government has also initiated schemes such as ‘Smart Cities’[6], ‘Housing for All by 2022’[7], ‘Atal Mission for Rejuvenation and Urban Transformation’[8], and ‘Pradhan Mantri Awas Yojana’[9] making it one of the largest affordable housing programs in the world.

Despite such developments, this sector is unable to meet the supply-demand nexus. Even the 2020 budget failed to meet the expectations of developers and property consultants in fulfilling the demand for funding to combat the liquidity crisis which has engulfed the real estate industry for the last few years. 

Delay in real estate projects lead to various disputes

The conundrum is to understand the probable cause of the real estate industry’s downfall even after so many developmental measures. Today, India stands at the 163rd and 154th positions out of 190 countries in enforcing contracts and registering property, respectively, in the World Bank’s Ease of Doing Business Ranking in 2019.[10] The few factors behind the decline could be the unsold housing stocks in big cities, scarcity of developed land in urban areas, funding and liquidity crises, etc.

The second and most prominent reason for its downfall is real estate disputes. Having emphasized the importance of real estate to India’s economy, it is clear that any delay or dispute can bring out a compelling and long-term effect on the economy, such as loss of finance, man-power loss, loss in business opportunities and goodwill, time and cost overrun and other opportunity costs. Among various other reasons for the dispute, the most common one remains the delay in completion and possession of a project leading to builder-buyer dispute. The most common causes for delay are:

  1. Conflict in case of joint ownership.
  2. The problem of project financing.
  3. Delay in getting permits/ approvals from a government authority.
  4. A complication in getting a completion certificate from RERA etc.

It becomes important to envisage and understand the causes of delay during any activity of construction. The reason for the delay so concluded should be quantified to find out its long-term effect on the workspace, on the project schedule, or in acceleration or deceleration of construction work. The advantage of this technique is that it can help in the early identification of such delay issues that can be settled through negotiation and conclusion of a settlement between the parties, preventing long-term disputes and litigation.

Litigation- a cumbersome trouble

Pendency of cases in Indian courts needs no introduction. Delay confuses buyers who have negligible knowledge of the law and thus leaves them with no other alternative but to approach the court of law resulting in further delay. Thus, this frustration and loss of money of buyers give rise to the need for a better dispute resolution method which can provide relief as expeditiously as required. The following are the different mechanisms of real estate dispute resolutions and their recent developments in real estate dispute settlement.

Real Estate Regulatory Authority

Intending to regulate the real estate industry, the government enacted a state-level regulatory authority called the Real Estate Regulatory Authority (RERA) through The Real Estate (Regulatory & Development) Act, 2016 (“the Act”). Statistics show that RERA has played a vital role in the efficient incorporation and completion of registered real estate projects. 

The dispute resolution of RERA is a two-tier process. The aggrieved party will approach the state RERA Authority or Adjudicating Officer depending upon the nature of the violation of RERA provision.[11] The aggrieved person if vexed by the order can approach the Appellate Tribunal within 60 days and can be entertained even post this specified period if it satisfies the Tribunal with sufficient cause for such delay. The tribunal has a maximum of 60 days to dispose of the appeal and on its failure, it has to record the reason for its delay[12]. The order of the tribunal can be appealed to the High Court of respective states.

Till July 2019, there were a total of 43,927 registered projects[13] in the country, while various states are still either in their nascent or at a struggling stage in implementing RERA rules. However, quoting the example of MahaRERA, Maharashtra has done an applaudable job in resolving disputes through RERA followed by states like Uttar Pradesh and Delhi. As per the MahaRERA report, it has received 11,033 complaints/cases out of which 7,865 (72%) have been disposed of and the remaining 3168 (28%) are still in the hearing process to date.[14]

The problem lies with the execution of RERA orders. State authorities need to be more vigilant in the proper execution of the orders. The aim of the establishment of the institution is frustrated if no one honours its decisions. The authority issuing orders should be made responsible for the execution of decrees in the same manner as the decree/order of the civil court. Proper implementation of Section 63 is also important, laying down penalties for non-compliance with RERA orders within a stipulated time.

The jurisprudence of arbitrability over consumer and real estate disputes

National Consumer Dispute Redressal Commission in Aftab Singh v. Emaar MGF Land Limited & Ors[15] decided that jurisdiction of consumer court or RERA is not barred by the presence of the arbitration clause in the builder-buyer agreement.[16] Hence, it concluded that consumer forum and real estate tribunal disputes are not arbitrable despite an agreement having an arbitration clause. This judgment was welcomed for clearing the air on jurisdiction issues and protecting the rights of consumers or home-buyers standing at an uneven bargaining power and saving them from forced and expensive arbitration.

Conciliation forum – Need of the hour

Part III of Arbitration & Conciliation Act, 1996 deals with the provisions of conciliation of disputes which arise out of a legal relationship irrespective of the contract on the invitation from one party to another.[17] The same is enshrined in section 32(g) of the Act which provides for a prerequisite, non-mandatory provision for parties to opt for conciliation before approaching the RERA. A conciliation forum is established for the same with the aim of compromise between the parties. Finally, a settlement contract is signed on the settlement of the dispute, and breach of the same is considered to be a breach of the respective state’s RERA order and the aggrieved party can approach the RERA.

Conciliation is an alternative dispute mechanism that has two-fold aims: firstly, it helps in avoiding expensive and lengthy litigation, and maintaining confidentiality, and; secondly, for concluding a face to face amicable settlement through third party negotiations which gives opportunities for equal representation to the concerned parties. It reduces a lot of burden of the RERA.

States like Maharashtra have established their conciliation fora and have done a splendid job in achieving the primary objective of the Act i.e. expediting dispute settlement. According to the report provided by MahaRERA, 9 out of 10 cases are amicably resolved. A total of 648 applications for conciliation were received out of which 553 have been resolved and 95 are in the process.[18] This became a precedent for the opening of a conciliation forum in states like Uttar Pradesh, Delhi, followed by Karnataka (the latest one). Hence, conciliation becomes a visible and trustworthy shortcut for home-buyers for dispute settlement.

Home-buyers as “Financial Creditors” under Insolvency and Bankruptcy Code

The parliament came up with the Insolvency and Bankruptcy Code in 2018, granting home-buyers (allottees) the status of “financial creditor” and enabled them to approach NCLT[19] under Section 7 of the Code. A major development of jurisprudence came from Supreme Court judgment in Pioneer Urban Land and Infrastructure Limited and Ors. vs. Union of India and Ors[20] which upheld the amendment to the Code. This change acted like a skyrocket for investors and home-buyers against non-performing real estate projects. This was welcomed by home-buyers, especially those who invested in real-estate by taking loans and were paying EMIs or paying rent in the current place to stay while investing and expecting their dream projects to complete. Recently, another provision was added via the Insolvency and Bankruptcy Code (Amendment) Act 2020, which made the minimum number of allottees or investors to initiate insolvency proceeding against the developer to be either a hundred (or more) or ten per cent of total allottee of particular real estate project, whichever is less.[21]

Conclusion

Justice delayed is justice denied is an old but prevalent saying in the contemporary scenario. The world is set to bear the unpredictable consequence of the COVID-19 pandemic post-lock-down. Undoubtedly, the real estate industry too will not remain unaffected. As a result, dispute resolution mechanisms helping in avoiding cumbersome litigation processes should always be given preference. Proper implementation and execution of legislation rules are desirable for keeping a check on the builder/promoter’s activities. Legislations and bodies like RERA and conciliation fora, respectively, are giving optimum results with little compromise and settlement between buyer and developer bringing expedite redressal of grievances, security, transparency, and timely possession of the project. Such mechanisms should be promoted.

Opinion expressed by the authors are personal.


[1] Dr. Ruchira Agrawal, “Real Estate Sector in India – Challenges and Opportunities”, 5 International Journal in Management and Social Science, 31 (2017).

[2] Dr. Ruchira Agrawal, “Real Estate Sector in India – Challenges and Opportunities”, 5 International Journal in Management and Social Science, 31 (2017).

[3] Indian Real Estate Industry, Indian Brand Equity Foundation (May 05, 2020), https://www.ibef.org/industry/real-estate-india.aspx.

[4] Dr. Ruchira Agrawal, “Real Estate Sector in India – Challenges and Opportunities”, 5 International Journal in Management and Social Science, 31 (2017).

[5] Bidya Sapam, “Budget 2020: Bailout for an ailing real estate sector slips through the cracks”, livemint (May 05, 2020), https://www.livemint.com/budget/news/budget-2020-tax-holiday-extended-for-builders-developing-affordable-housing-11580548478200.html.

[6] SMART CITIES MISSION, Ministry of Housing and Urban Affairs, Government of India (July 28, 2020), http://smartcities.gov.in/content/.

[7]“Housing for All by 2022” Mission-National Mission for Urban Housing, PMINDIA (July 28, 2020), https://www.pmindia.gov.in/en/news_updates/housing-for-all-by-2022-mission-national-mission-for-urban-housing/.

[8] The Mission, ATAL MISSION FOR REJUVENATION AND URBAN TRANSFORMATION, Ministry of Housing and Urban Affairs, Government of India (July 28, 2020), http://amrut.gov.in/content/innerpage/the-mission.php.

[9] Pradhan Mantri Awas Yojana, Ministry of Housing and Urban Affairs (July 28, 2020), https://pmaymis.gov.in/.

[10] Yogima Seth Sharma, “India Jumps to 63rd position in World Bank’s Ease of Doing Business 2020 Report”, The Economic Times (May 05, 2020),

https://economictimes.indiatimes.com/news/economy/indicators/india-jumps-to-63rd-position-in-world-banks-doing-business-2020-report/articleshow/71731589.cms?from=mdr.

[11] The Real Estate (Regulation & Development) Act 2016 § 31.

[12] The Real Estate (Regulation & Development) Act 2016 § 44.

[13] Implementation Progress Report, Real Estate (Regulation & Development) Act 2016 (May 05, 2020), https://credai.org/assets/upload/rera/resources/real-estate-regulation–development-act-2016-rera-implementation-progress-report—24-08-2019.pdf.

[14] MahaRERA Statistics, Maharashtra Real Estate Regulatory Authority (May 05, 2020), https://maharerait.mahaonline.gov.in/searchlist/PublicViewDashboard.

[15] Aftab Singh v. Emaar MGF Land Ltd. & Ors, (2019) 12 SCC 751, ¶ 55,56.

[16] Arbitration & Conciliation Act 1996 § 2, cl. 2.

[17] Arbitration & Conciliation Act 1996 § 61, 62.

[18] MahaRERA Statistics, Maharashtra Real Estate Regulatory Authority (May 05, 2020), https://maharerait.mahaonline.gov.in/searchlist/PublicViewDashboard.

[19] The Insolvency and Bankruptcy Code (Second Amendment) 2018 § 5, cl. (8), sub.cl. (f), explanation (i), (ii).

[20] Pioneer Urban Land and Infrastructure Limited and Ors. V. Union of India and Ors. AIR 2019 SC 4055, ¶ 86.

[21] The Insolvency and Bankruptcy Code (Amendment) Act 2020 § 7, cl. (1).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: