Draft rules under real estate (Regulation & Development) act, 2016 for UTs - Need some consideration

Section 84 of the Real Estate Act, stipulates that the appropriate government shall, within a period of 6 months from the date of commencement of the Act, by notification, make rules for carrying out the provisions of the Real Estate Act. It further provides the subject matters for which such rules shall be framed.

As per the provision of section 2(g) of the Act, appropriate Government means in respect of matter relating to:

i.  The Union territory without Legislature, the Central Government;

ii.  The Union territory of Puducherry, the Union territory Government;

iii.  The Union territory of Delhi, the Central Ministry of Urban Development;

iv.  The State, the State Government.

Now the Central Government has come out with draft rules for Union territory without legislature to carry out the provisions of the Act, seeking  comments from the public. Since each of the appropriate governments has to frame the rules with respect to their state/Union territory of Delhi/Puducherry, but is most likely that, by and large, rules  framed by the Central Government for UTs shall be adopted with certain modifications/ addition/ alteration by other appropriate government to suit to their requirement.

There are certain observations/ clarification which should be addressed by the Central Government in the draft rule before promulgation of final rule for better regulation of the Real Estate Act:

1. As per rule 3, there are certain informations  and documents which are to be furnished to the regulatory authority for registration of the project. Not only the new projects but also projects which have already commenced but completion certificate has not been issued in respect of the project would also require registration by the promoter.

Comments/ observations: As per first proviso of the section 3 of the Act, registration of the project which has been commenced but is yet to get the completion certificate from the competent authority, is compulsory; but it was expected to get some relief, as to applicability of rule for existing projects, while framing the rules under the Act. As per Form A under rule 3(2), there are certain information which are required to be furnished to the Real Estate Regulatory Authority which includes an initial para starting from –“I/We hereby apply for grant of registration of my/our project to be set up at _______”.  In the projects which have already commenced or near completion but completion certificate has not been granted using the word –“ project to be set up at ____” will create confusion while seeking the registration. It is recommended that  a separate form should be used for the projects which have commenced but completion certificate has not been obtained.

2. As per para 2(ii) of the Form A, which requires copy of legal title deeds to be enclosed with Form A, is ambiguous and need clarity, as such whole para may be read as-“copy of legal title deed reflecting the title of the promoter to the land on which development is proposed to be developed along with legally valid documents with authentication of such title, if such land is owned by another person. 

Comment/ observation: the aforesaid para gives the impression that it is applicable in case title of the land is with some other person. But in such scenario,  the para 2(v)  of the Form- A shall be applicable. Thus, para 2(ii) of form- A, needs re-consideration.

3. An additional information pertaining to litigation, if any, on the land on which project is to be set up should be asked from the promoter under rule 3 and Form A.

4. As per rule 16(i)(c), there are certain financial information of the promoter need to be uploaded on the Web site of Authority. As per rule 16(i) ( c), following financials of the promoter need to be furnished:

i.  Authenticated copy of the PAN of the promoter

ii.  Audited balance sheet of the promoter for the preceding financial year and income tax return of the promoter for last three preceding financial years and in case of newly incorporate or registered entity annual return of last 3 years of the parent entity.

Comment/ observation: The word ‘balance sheet’ is bewildering and does not clarify whether it includes profit and loss account and other financial information in the Annual Account of the company like auditor report, annexures, cash flow statement etc. Similarly, it is also not clarified that balance sheet should be audited or not.  Secondly, at one side rule provides for furnishing of balance sheet for one year only whereas, it is seeking details of income tax return for last three years on the other side.

Surprisingly, in case of new entity, Annual Return for the last 3 years is being sought. As per provisions of the Companies Act, it is Annual Report which contains the financial details of the company and what purpose it will serve by furnishing Annual Return is beyond my understanding. Information to be furnished under aforesaid para should be synchronized and proper terms should be used.

5. The word ‘Force Majeure’ used in rule 7 should be clearly defined to thwart any future controversy and should necessarily include ‘non issuance of any approval by any competent authority’.

6. As per rule 16(i)(e), Land title search report by an advocate having experience of at least 10 years in land related matters should be uploaded on the web site of Authority.

Comment/ observation: An advocate having 10 year of practice would have been a sufficient compliance instead of using the words- “ advocate having 10 years of experience in land related matter” It would  put extra burden on the promoter to ensure that a particular advocate is having 10 years of experience in land related matters.

7. The Act itself has provided imposition of fine in case of compounding of offence under section 59, 64, 66 and 68 which in particular state that fine upto 10% of estimated cost of project/ flat etc. or imprisonment or both.

Comment/ observation: Rule 35 imposes monetary penalty for compounding of offence i.e. 10% of estimated cost of project/ flat etc without using the word – “ upto”, that mean fine shall be 10% of estimated cost of project/ flat etc. This does not give liberty to the Court to impose the fine within the frame work of 10% which is against and in contradiction of the provisions of the Act.

The writer has made written representation to Ministry of Housing and Poverty Alleviation giving his comments on draft rule framed under Real Estate ((Development & Regulation) Act,2016 on the above lines.