c.v.o. ca’s news & views vol. 21 no. 1 / july 2017 2017/full... · 2017. 7. 29. · c.v.o....

C.V.O. CA’S NEWS & VIEWS VOL. 21 NO. 1 / JULY 2017

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From the desk of Chairman

NEWS BULLETINCOMMITEE

ChairmanCA Dinesh Shah

Office BearerCA Sunil Dedhia

AdvisorCA Manoj Shah

ConvenorCA Harsh Dedhia

Jt. ConvenorCA Jigar Chheda

MembersCA Hitesh Pasad

CA Bhavin DedhiaCA Kaushik GadaCA Nikita GogriCA Sagar MaruCA Virav DedhiaCA Zalak Savla

Sp. InviteesCA Rakesh Vora

C O N T E N T S

ASSOCIATION NEWS

Forth ComingEvents ........................... 4

EventsRetrospect ..................... 5

A R T I C L E S

Overview ofReal Estate(Regulation &Development) Act,2016 and FinancialImplication ..................... 6

History ofRegulations inMaharashtra andComparativeAnalysis ofState Law andCentral Law ................. 15

Registrationunder RERA–Conditions,Procedureand OnlineProcess ....................... 19

Obligations ofPromoter, Penalties,Compoundingof Offence &Imprisonment ............... 26

The Great GiftFriends, is it not that we all like to receive gifts, whether small or big? The child in us is eagerto take off the wrapping and see what the gift is. However we never fail to thank the giver of thegift and usually try to make the best possible use of the gift and that too, at the earliest.

The greatest gift which all of us have received, is the gift of life from God. But we rarely acknowledgethis priceless Gift and its Giver. We also normally fail to make use of this precious gift, and at times,the package is even left unopened. It is truly said that our life is a Gift from God and what use wemake of life is our ‘return gift’ to God.

Life is beautiful. It is beautiful because it is terminal. But death reminds us that life has an end,and hence we must not waste even a moment of this priceless Gift. The irony is that we are notconscious that life is slowly passing and may end any time. Life has been aptly described as “aparenthesis in eternity”. And its duration is merely a blip on a passing screen.

It is for us to realize that there are two stages in life: the first when we run after the worldlypursuits chasing power, pleasure, possessions and prestige. We seek our happiness in acquiringthese toys. Many of us do not go beyond this first stage and waste our entire life pursuing thesematerial goals.

The second stage is when we start asking questions such as:“Who am I? Why I am here? What is the purpose of life?”

It is only then that life really begins and we start living in the true sense.

While a few reach the second stage on their own, many start the journey on this second stagebecause of some rude awakening or a harsh wake-up call, the death of a near and dear one, somemajor financial setback, loss of a job, breaking up of marriage, a ‘near death’ experience or on advicefrom near one and well wishers, etc. These events set one on the path to the second stage. Deathin this sense is a friend as it puts us on the right path of thinking. We only start living when wethink of death seriously.

In this second stage of life, we discover that there is much more to life than merely attaining worldlyprogress. We come to realize the worthlessness of our wealth and personal belongings. We realizethe emptiness of the so-called success in life or business/profession, our power and our prestige.We realize as Bhagvad Gita says –

“What belongs to you today, belonged to someone else yesterday and will belongto someone else tomorrow.”

This is a stage when we learn to realise our full potential and grow as ‘human beings’. We realisethat ultimately only two things matter: have we given enough love to all around us and have welived for others? It is only when we live like this that we have truly lived. A well-lived life withglad acceptance of all situation is the most befitting ‘return gift’ to God, who has bestowed on usthis magnificent gift of life.

Rabindranath Tagore has beautifully penned these thoughts as under:When death comes and whispers to me,“Thy days are ended” Let me say to him;“I have lived in love And not in mere time”He will ask, “Will thy songs remain?”I shall say, “I know not, but this I know,That often when I sang I found my eternity”

Mumbai CA Dinesh Shah

VOL. 21 NO. 1 / JULY 2017 C.V.O. CA’S NEWS & VIEWS

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Compiled by :CA. Harsh DedhiaCA. Jigar Chheda

ASSOCIATIONNEWS

FORTH COMING EVENTS

STUDENTS COMMITTEE HAS ORGANISEDSTUDENTS STUDY CIRCLE ONTopic INCOME COMPUTATION AND

DISCLOSURE STANDARDSDate 12th July 2017Time 5.30 to 8.30 pmSpeaker Somil VisariaChairman CA VisheshSangoiVenue D.R. Ghalla Memorial Hall,

Jasmine Apt., Dadar (E), Mumbai - 14Investment Free

For Both Study Circle Registration, please click on the link: https://goo.gl/forms/AS7wsEx21X6YocTW2

DADAR (E) CPE STUDY CIRCLE OF WIRC HAS ORGANIZED:REFRESHER COURSE ON GST:

Date Time Topic Faculty7th July 2017 6 to 9 pm Registration, Accounts, Invoicing, Returns CA Shreyas Sangoi11th July 2017 6 to 9 pm Levy, Scope, Composition Levy, Place and time of Supply CA Heetesh Vira12th July 2017 6 to 9 pm Input Tax Credit and Related Transitional Provisions CA Kewal Satra

Registration and Snacks will start at 5.30 pmInvestment: Members: Rs.1500/- Non Members: Rs.2500/- (Pre-Registration compulsory)

Registration at:CVOCA Office: 022-24105987 Email: [email protected]

Topic INCOME TAX RETURN FILINGDate 13th July 2017Time 5.30 to 8.30 pmSpeaker Mansi ChhedaChairman CA Hetal MaruVenue D.R. Ghalla Memorial Hall,

Jasmine Apt., Dadar (E), Mumbai - 14Investment Free

MONSOON PICNICDate: 12th & 13th Aug 2017

Membership & Recreation Committee of CVO CA Associationis organising two full days Monsoon Picnic atDreammland, Near Kundan Dam, Kundan Pada,Shirol Gaon, Shahapur.

Point of attraction: Waterfall, Dam & lot of natural beautyFor more details on venue visit: http://www.dreammland.com/Charges: Rs 3,600/- person (adult) andRs 3,200/- kids (below 12 years)Including stay, food and travelling cost.

For Registration Contact:Name Email ID TelephoneCA Nilesh Dedhia [email protected] 9820871019CA Vinit Gada [email protected] 8655840598

CPE:9 hours


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EVENTS RETROSPECT

Study Circle Committee

Two days workshop on ICDSDays & Dates : Friday 9th & 16th June 2017Venue : Mysore Association Hall, MatungaTopics : All ICDSFaculties : 1. CA Paras Savla

2. CA Meghna Chheda3. CA Deepesh Chheda4. CA Vishesh Sangoi

In all more than 80 members availed benefit of theworkshop

Program Committee

Public Seminar in Gujarati on Goods & ServiceTax (GST)held Jointly with Shree Mulund KVOSamaj – YuvaVibhag on Sunday 11.06.2017 at VijaySociety Hall (ShishuKunj), Mulund West. The speakerswere CA JayeshGogri and CA KewalSatra. More than400 people have attended and taken benefit of the Seminar

The Group Leaders were Bhavik Shah, Kewal Mamania, Aniket Surve, Gaurav Raichura, Saurav Agarwal andMohd Bootwala.

Student CommitteeResidential Refresher CourseDate: 15th June 2017 & 16th June 2017Venue: Zaverben Popatlal Arogyadham, Plot No. 147A & 148A,Next to hotel Bijis, New Tungarli Road, LonavalaEntry Fees – Rs. 2,000/-Date/time Topic Speaker15th June 2017 (Thursday)11.00 am to 01.00 pm Inaugral & Motivational talk(CA Course in its entirety/

Dos & Don’ts of Articleship, Planning for Exam, etc) CA Atul Bheda02.30 pm to 05.00 pm GST CA Payal Shah05.00 pm to 07.00 pm Management Games CA Nisha Gala08.30 pm to 10.00 pm Skit Competition

16th June 2017 (Friday)10.00 am to 01.00 pm Group Discussion & Paper Presentation on

Case Studies in Income Tax CA Bhavin Shah02.00 pm to 03.30 pm Quiz

35TH ANNUAL GENERAL MEETING OF ASSOCIATIONDay & Date : Saturday, 24th June, 2017Venue : The Emerald Club, ChemburAttendance : Members - 118, Students - 10 & Total = 350 +Activities : Apart from carrying out ordinary business of adopting Annual Audited Accounts, Activity

report and Re-appointment of Auditor for next financial year 2017-18, Students who hadpassed their CA final exams with highest marks were felicitated with Late Shri D. R. GhallaPrize and Students who had cleared their IPCC & Intermediate exams with highest markswere felicitated with M/s Damji Merchant & Co. prize. Prizes for the Best Article in Newsand Views were also distributed. Members who were contributors of Legal updates in News& Views were also appreciated. Members were felicitated for their achievements inprofessional, social and education field. The AGM was followed by the audio visual musicalquiz called “Razmatazz” by Deepesh Chheda and his team and self-contributed dinnercarried by the members, their family and students.


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OVERVIEW OF REAL ESTATE(REGULATION & DEVELOPMENT) ACT, 2016

AND FINANCIAL IMPLICATION

Contributed by :CA Ashwin Shah(a member of the association)

he can be reached [email protected]

Evolution Post Independence:-We were under tremendous political dominance ofBritish Rule for nearly 150 years. IndustrialRevolution started in British Era which led toIndustrialisation and Urbanization resulting in hugemigration of population from villages to Urban Areas.Indian Economy was predominantly depending uponAgriculture for source of livelihood.

The urban centre particularly Mumbai inMaharashtra were centre of attraction for source oflivelihood on account of migration to urban centre.Slowly with education and improvement in standardof living of people, the demand for housing skyrocketed. There was vertical development in cities inreplacement of horizontal structures on account ofscarcity of land. The concept of Flat, Apartmentemerged and many reputed Builders started lookingat Real Estate Sector as big business opportunities.

Maharashtra Government took lead role to regulatereality sector and became pioneer state in India bygiving 1st ever Regulation named “TheMaharashtra Ownership and Flat Act, 1963(MOFA)” and many other State adopted the samelaw with little variation. There were very goodprovisions under MOFA to protect the interest ofhomebuyers namely:- Prohibition of acceptance of money in excess of

20% from customers without execution ofAgreement for Sales and Registration thereof.

Promoter to maintain separate account for allmonies realized from customers and use it onlyfor the purpose for which it is taken.

Promoter shall not alter plans, lay-out, etc,without consent of home buyers.

Promoters to disclose various facts beforecustomers.

There are provisions for formation of associationof allottees with in stipulated time.

There were provisions for conveyancingincluding deemed conveyance under the Act.

MOFA is in place for more than 50 years and wasamended from time to time to cope with need of thepeople.

However, MOFA failed to address the grievances andcomplaints of home seekers on account of variousfactors listed here under:-

a. The provisions of MOFA requires homebuyers tolodge complaints with Courts for any misdeedand non fulfilment of promises by the Promoter.Slowly Courts were over burdened with largenumber of cases and there were delay indelivering justice to home buyers.

b. Builders took the advantage of this situation ofslow judicial system in India and startedexploiting home buyers by way of Anti consumerpractices, one sided contract under MOFA,creating land bank by using project fundrealised from customers somewhere else andthereby delaying the possession of the flatspromised to the customers. Many fly-by nightoperators cropped up and collected huge fundsfrom customers and disappeared. Slow JudicialSystem could not give timely justice and therewas no fear in the minds of Promoter for thejudicial system.

c. As of date nearly 3 crores cases are pending withvarious Courts in India. Customers have lost theconfidence in judicial system on the ground that“Delay in Justice is a good as denial ofjustice".

d. Later on with increase in FSI, Builders startedtaking benefit of increased FSI by not conveyingthe title to the customers. Non disclosures ofinformation was cause of concern for customers.

e. There were inadequate transparent mechanismwhereby customers could have reliableinformation for effective decision.

f. Supreme Court also observed at manyoccasions that :“Unwary purchasers in search of roof overtheir heads and purchasing flats frombuilders, find themselves having fallenprey and become victims to the designs ofunscrupulous builders. The builderconveniently walks away having pocketedthe money leaving behind the unfortunate


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occupants to face the music in the event ofunauthorized construction being detectedand threatened with demolition.”

EMERGENCE OF INDEPENDANTREGULATOR:-

Maharashtra Government once again took lead rolein thought process to establish Regulator andbrought Maharashtra Housing Regulation &Development Act 2012, which was notified in 2014.In the meantime RERA bill was placed in parliamentin 2013 which was Central law. In spite of pendencyof Central Bill, Maharashtra Government wentahead and notified MHRDA in 2014 and tried to setup separate Regulator and quick dispute resolutionmechanism.

Govt of India decided to implement slogan of "OneCountry One Law". RERA Bill was put forwardbefore Rajya Sabha for discussion and debate. RajyaSabha submitted its Standing Committee Report inFebruary, 2014 under the chairmanship ofMr. Sharad Yadav. Committee took lots of efforts andcalled for the suggestions from various stakeholders.The Bill was modified to great extent to turn the samein favour of homebuyers. Even Report recommendedto bring regulation of competent authorities /planning authorities for the betterment of RealEstate Sector but the same has been sidelined.

Real Estate (Regulation & Development) Act, 2016RERA was notified w.e.f. 1st May, 2016 withnotification of various administrative sections but allimplementative sections were notified from 1st May,2017.

Section 56 of MHRDA was intended to repeal MOFAbut as the said Act was not fully notified and section92 of RERA, 2016 repealed MHRDA from 1st May,2016.

Thus, in Maharashtra now we have two laws MOFAand RERA to govern the Real Estate transactions.

RERA is a Central Act and State were required tonotify Rules for implementation and set upRegulatory Authority and Tribunal for disputeresolution. As of now, only 14 States and UnionTerritories have notified Rules and very few haveappointed Regulator/Regulatory Authority. Since theImmovable properties and Real Estate are under concurrent list of Constitution, the implementation andadministration has to be done by respective State andappropriate Government for Union Territories.

The Project which falls under Planning area ofappropriate government are required to getregistered with respective State / Union Territories.Maharashtra Regional and Town PlanningAuthority has declared entire Maharashtra asPlanning Area and hence all the projects underMaharashtra States will get covered under RERA.

Maharashtra notified rules, established authorityand initialized maharera website named www.maharera.mahaonline.gov.in.

Key Changes :-a. No Marketing can be done by Promoter without

registration of project with authority havingjurisdiction over the planning area whereinproject is located. Entire Maharashtra isdeclared as planning area by MaharashtraRegional Town Planning Authority.

b. No project would be granted registration unlessit has got approved plans from jurisdictionalcompetent authority. This is going to impactunauthorized construction wherein it would bedenied registration under RERA for lack ofapproval of plans etc but are surely punishableunder RERA for carrying out marketing withoutgetting registered under RERA.

c. 70% of amount realized towards salesconsideration from customers needs to bedeposited in separate account with schedulebank. The funds of this separate account can beused only for the development of project. This isintended to ensure that project funds are notdiverted and project is completed with instipulated time. Customer’s confidence in theregistered project is likely to increase with thismechanism.

d. Promoters are required to define timeline with inwhich project will get completed includingtimeline for various development work viz.Internal development, external development,civic infrastructure like water, sanitation, firefighting ,electricity etc. This will help customersin decision making process for planning hishousing needs in future. Extension of time lineis permissible for one year at the discretion of theAuthority.

e. Promoters had no fear for judicial system in theregime of MOFA since there were delay in justiceand provision of nominal penalties. RERA 2016has prescribed penalties ranging from 5-10 % on


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the estimated cost of project on the promoters forvarious violation, rules and regulation under theAct including delay in possession, unfair tradepractices etc. It may go up to 25-30% ofestimated cost of project for multiple violationsunder the Act. There are provisions forimprisonment for term of three years for thepromoters. There is separate regulatoryauthority to check all the unfair trade practicesand misdeed of promoters and provide fast trackdispute resolution mechanism.

f. Association of allottees has to be formed by thepromoter with in three months of at least 51 % ofallottees have booked their apartment. This willresult in early formation of association ofallottees even during the construction phase ofthe Project. Further, promoter needs to specifyduring registration process itself, the type ofassociation of allottees viz. Society, Condeniumof apartment or Company.

g. Promoters can not transfer or assign its majoritystake in the project without getting prior consentof allottees and regulatory authority.

h. Statutory Auditors of promoters are required tocertify under Annual Report about diversion ofproject funds along with quantification thereof.This would provide additional check on the enduse of monies realised from the customers.

i. In the Layout kind of development, Promotercan select the multiple phases/project as tonumber of building, number of wings, number offloors, etc. Promoters are required to makedisclosure about approved plans and FSI as wellas proposed plans and FSI. This will enablecustomers to know the exact proposeddevelopment of entire layout while makingselection of apartment or building.

j. Withdrawals from separate account are nowcontrolled and regulated. Funds can bewithdrawn in proportion to the cost of %completion of the project only after certificationfrom project Architect, Engineer and CharteredAccountant other than Statutory Auditors.

k. For the first time India, we have concept ofInsurance of Title of Land and construction ofthe Project. Promoters are required to obtain thisinsurances after registration of the project andhand it over to association of allotees, as may benotified by Central Government.

Real Estate and Immovable properties are in the concurrent list under Constitution.

Therefore, Central Government has enacted centrallegislation which extends to whole of India exceptJammu and Kashmir. State Government and otherauthorities of Union Territories are given powers toframe the Rules and administer the Real Estate Law.

There would certainly be diverengence in framing oflaw by various appropriate government anddifference in administration and execution policiesacross India. The concept of "One Country OneLaw" has not been achieved by Real EstateRegulation.

Various Regulators have already started takingdifferent views on issues and MAHARERA has beenmore aggressive in implementation of Real EstateLaw in Maharashtra.

Recently World Bank have made analysis ofeffective system of approval authorities forconstruction industry for 190 countries andIndia rank comes to 185 out of 190 countries.Real Estate is 2nd largest sector in terms ofproviding employment opportunities underIndian Economy. It is expected to grow everyyear by 30% for next 10 years as youngpopulation will need more houses with theconcept of nuclear family system. We were 376millions on independence and now reached toaround 1339 millions and expected to surpassChina in terms of size of population by 2030.

India is largest democratic set up amongst theworld economy and we can not afford to carryon with current trends and practices ofcompetent authorities.

The Competent Authority/ Planning authority needsto gear up to full scale to provide transparent andsingle window system for effective promotion of RealEstate Sector. This is because Promoters are one ofthe limb of this sector and in order to gear up entireRealty Sector other limbs like Improvement in Creditlines, speedy approval system, increase in purchasingpower of people and effective government policies foraffordable housing will play key roles.

Whether Objectives enlisted while enacting RealEstate Regulation, would get achieved or not shallsolely depends on the spirit of various appropriateGovernment and regulators which are enforcing theLaw.


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The intentions of various authorities connected withReal Estate Sector will decide the growth of thissector.

To conclude let me narrate Father of Nationand National Leader Mahatama Gandhiji that"If someone wants to understand what I wantedto say, one has to look at my conduct.My words cannot override my conduct".

FINANCIAL IMPLICATIONIntroduction of new Regulation has brought radicalchanges for Promoter in terms of: Financial Disclosures; Monitoring on Funds realized from Customers; Checking End use of Money and Restriction on

Diversion of funds; Introduction of Separate Account for Project

working; and Certification from Professional for compliance of

Separate Account.

Further, Preamble to the Act focuses on thefollowing:

Regulation and Development of Real EstateSector;

Protection of rights of customers; Bringing efficient and transparent system for

better working; and Setting up Fast Track Dispute Resolution

Mechanism.

RERA intends to bring Promoters i.e Builders andDevelopers into financial discipline to ensure thattimeline of project completion are achieved andcustomers confidence is increased to result in overallgrowth of Real Estate Industry.

There are various financial disclosures andprocedures laid down under the Act with ultimategoal of protection of customers funds.

Financial Disclosures during Registration of ProjectFor New Project:-

Promoters are required to disclose the followingduring registration process of new Project:-

Estimated Cost of Project:-Promoter will have to prepare cost structure at

the inception of new project with detailedanalysis of various costing viz.,

Land Cost;Approval cost;Core construction cost;On site expenses – Direct cost;Borrowing cost; andOff site expenditure – selling and administrationcost.

I Land Cost:-a. It shall include all such cost directly attributable

to acquisition of land including acquisitioncost, legal cost, marketing cost, interest cost,stamp duty, registration charges, premium fordevelopment rights, TDR cost, Additional andFungible FSI premium, etc.

b. There is provision to replace ASR Value i.e.Stamp duty Valuation of land on the date ofregistration as Land Cost provided Land isacquired by Gift, Inheritance or otherwisewithout incurring any cost thereupon.

c. The replacement of ASR value based cost shallnot apply to Land acquired with cost muchearlier inspite of the fact that there are nowhuge variation in land value.

d. If some cost are incurred by the Promoter/Co-Promoter to clear litigations amongst the legalheirs, then it would be difficult to replace ASRvalue of land looking at the drafting of theprovisions.

e. Estimation of cost of land for future payment forFSI and TDR acquisition shall be done atcurrent rates prevailing. This is because Rules ofEstimates warrants presumption of zeroinflation rate unless statistically future trendcould be recognized.

f. Promoters while entering into DevelopmentAgreement with land owner agrees to sharesome areas free of cost or some revenue withland owner in exchange of obtaining Land fordevelopment. Naturally obligations incurred bythe promoters on the execution of DevelopmentAgreement can be termed as Land Cost forPromoter which are incurred for acquisition ofdevelopment rights though construction cost areto be incurred at future dates.


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Regulatory Authority vide its order dated 11thMay, 2017 has provided altogether newdefinition of Co–Promoter to include such landowner and has tried to make or frame the lawthat these financial obligations on the part ofPromoter for acquisition of development Rightsare not to be considered as Land Cost for thePromoter.

Regulatory Authorities are administrator andregulator of the Law and not Law maker or LawFramer. It can certainly suggest StateGovernment or Central Advisory Council forsuitable amendments in the Law.

The Order dated 11th May, 2017 issued byRegulatory Authority are subject to challenge onits validity if it has attempted to make or framethe Law. Again these directions are meant forrestricting withdrawal of funds duringwithdrawal process. Hence, one can add all suchobligations of Promoter as part of Land costwhile submitting Estimated Cost of the Projectduring registration process.

g. Interest cost incurred till the land is put to useshall be part of land cost.

h. All legal cost and marketing cost pertaining toacquisition of land or land related rights shallform part of land cost.

i. In case of Rehabilitation development scheme ofState Government or Central Government, costincurred prior to registration of project underRERA namely clearance of land encumbrances,temporary transit accommodation charges,construction cost of rehabilitation buildings andother overhead cost, shall be included as cost ofland.

II Construction Cost:-It shall include the following:-

a. Core construction cost - Engineer to certifyestimated cost of construction

b. On site expenditure including direct cost likesalaries, consultant fees and other siteexpenditure

c. Payment of Fees, charges, premium, taxes toany competent authority or statutory authorityof Central or State Government

d. Interest payable including principal sum andinterest paid or payable to Financial Institutionincluding Schedule bank, NBFC, RegisteredMoney Lenders but shall not include Interestpayable on loan raised from Schedule Bank,NBFC or Registered Money Lenders forpurchase of land or obtaining the developmentrights over such land.

Inclusion of principal sum repayment forsecured loans as mentioned above will amount todouble counting of estimated cost and henceneeds to be properly adjusted while calculatingestimated cost of construction.

III Administration, Legal and SellingOverheads:-

Promoter is also required to incur suchcost to develop and complete the project inefficient manner.

FOR ON-GOING PROJECT:-Apart from disclosures relating to New Project,On-Going Projects also requires to disclose theadditional information which are mainlyintended to calculate feasibility study of project.

a. Chartered Accountant to certify estimatedbalance cost to complete the project.

b. Chartered Accountant to certify estimatedbalance receivable from customers from soldand unsold units. Rules provides forcalculation of receivable from unsold unitsbased on ASR value as on date of signingthe certificate.

c. If estimated cost of completion of project ismore than estimated receivables of theproject then instead of 70% of realizationfrom customers which are required to bedeposited in separate account, 100% shallbe deposited in separate account.

For calculation of receivable from unsold units, FairValue or Value for which agreement are executed atnearby date are not considered. This may lead tosituation that Promoter would be forced to deposit100% in place of 70% to a separate account.

Further, the concept of such feasibility study ismissing for New Project which may lead to situationwhere project fails to get completed on such financialcrisis.


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SEPARATE ACCOUNT MECHANISM

RERDA , 2016 has brought novel concept of separatebank account purely focusing the interest ofcustomers fund which are collected for the project.

Initially Builders Association demanded that insteadof separate account , we can have Escrow Accountwith Third Party to check the end use of money butStanding Committee Report of Rajya Sabha rejectedthe proposition of Esrow Account .

The Salient Features of Separate Account are asunder :-a. This Account to be opened with Schedule Bank.

b. Promoter to give Declaration in Form Bsupported by Affidavit stating that

1. 70% of the amount realized from customersfor the real estate project shall be depositedwith Schedule Bank.

2. It shall be used to cover cost of constructionand land cost.

3. Withdrawal from account shall be inproportion to percentage of completion ofthe project, to cover the cost of project.

4. Withdrawal shall be done only aftercertificate from professional like Architect,Engineer and Chartered Accountant tillOccupancy Certificate is received.

c. Upon receipt of Completion Certificate /Occupancy Certificate, entire amount lying inseparate account can be withdrawn byPromoter.

d. Promoters or Co-Promoters are allowed towithdraw only cost incurred and not profitelement till receipt of Occupancy Certificate.

e. All the previous arrangement of sharing fundswith Land owners, Investors and FinancialInstitution through mechanism of escrowarrangement , will be required to be redesigned.Even Co-promoter are required to open SeparateAccount in case of Area Sharing Arrangementupon realization of funds from allottees. Thisway Land owner, Investor and all such personsare put at par with promoter for the purpose ofwithdrawal of funds from separate account. Nowland owner will be able to recover only cost

incurred namely land cost and not profit portionfrom separate account.

f. Operation of separate account shall be onvoluntary compliance basis by the promoter andbanks are not going to interfere as regardswithdrawal of funds.

g. Rules provides that all these certificates ofprofessional needs to be deposited with bank forthe purpose of withdrawal. The funds fromseparate account shall be transferred to normalaccount equivalent to withdrawal certified bythese professional. However, Authority vide itscircular has done away with deposit of thesecertificate with bankers and rather it requires tobe produced as and when bank demands.

ISSUES DURING WITHDRAWAL PROCESS:-

a. Promoters are required to deposit 70% ofcustomers funds realized from time to time toensure that these funds are used for projectpurpose only and it entails timely handing overthe possession of the flat to the allottee.

b. Act and Rules provides for usage of funds of thisseparate account for the development of projector to cover the cost of project. However, Form 3designed for the purpose of withdrawalscontains many defects and needs to beredesigned and revisited.

c. Form 3 which is required to signed by CharteredAccountant has many grey areas leading toconfusion . The same are listed here under:-

1. While covering Interest cost it only includesPrincipal and Interest payable to FIincluding Schedule Banks, NBFC,Registered Money Lenders. It does not talkabout interest payable on unsecured loansand partners capital whereas no where inAct or Rules provides for exclusion ofinterest payable on unsecured loans andpartners capital. It also fails to covercharges for loan sanction andadministrative fees paid to raise the loan.

2. It does not include administrative andselling cost while deciding cost incurred tilldate. Let us analyze various provisions ofAct and Rules which supports thearguments that admini-stration and sellingcost also needs to be included while


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calculating cost of developing the project orcost to cover the project.

• Sec 2 - Estimated cost of Project means totalcost involved in developing the project andincludes land cost, taxes, cess, developmentand other charges .

• Rule 4 (2) – Engineer to certify estimatedbalance cost of construction whereas CA tocertify estimated balance cost to completeProject.

• Rule 5 – for ongoing project if estimated costof completion of project is more thanestimated receivables then deposit 100%and not 70% .

• Rules 5 Exp III – Cost of construction shallinclude all such cost towards on site and off-site expenditure for development of Projectincluding interest but excluding interest onland cost or development rights.

Looking at above provisions, it seems thatForm 3 needs to be redesigned to includeadministration and selling cost whichsometimes are to the tune 10% of cost ofproject. This is because developer cannotdevelop the project in effective mannerwithout efficient admin team, legal teamand sales team. He needs to incur majorexpenditure on these items to get effectiveresult for completion of entire project insmooth flow.

3. Payment of salaries to Partners of firmincorporated under Indian Partnership Act,1932:- The cause of concern is that Rulesprovide withdrawal only for cost incurredand not profit element. This is certainly costof the project but Supreme Court hascontended that Firm and Partners are oneand the same and any such payment isnothing but appropriation of profit.

4. Form 3 includes certification by CA onestimated figures of project cost. As per ICAIGuidelines, CA can not certify estimates.

5. Act clearly prescribes that Withdrawalshould be in proportion to cost of % ofcompletion of project to cover the cost ofproject. Whereas Form 3 prescribed byRules talks of cost incurred till date aswithdrawal.

Rules specifies that CA to find outproportion of cost incurred to total estimatedcost and then apply this proportion to totalestimated cost, which results in costincurred till date as withdrawal amount.

Cost incurred shall mean expenditurebooked by the Promoter whether paid ornot. Unused stock remaining on site shallnot for part of cost incurred since Engineerwill certify cost incurred based on activitiescarried out by promoter till date ofcertification.

Further, minimum of cost incurred ascertified by Engineer and CA shall beconsidered for the purpose of finding outwithdrawal from separate account.

Rules permit inclusion of land costirrespective of % completion or Third partyinterest creation.

Here, Inclusion of land cost in cost incurredtill date will amount to early withdrawal offunds rather than proportionatewithdrawal.

ICAI Guidance Note 2012 prescribes theformula to calculate % of work completion as-

% completion = Total construction costincurred / total estimated construction cost

This would get also validated by ArchitectCertificate which certifies % of workcompletion.

Considering the provisions of Act, we canarrive at cost of % completion of Project as -

Cost of % completion = % completion *estimated cost of the project.

However, Rules are favoring the Buildersand Developers allowing them earlywithdrawal of land cost. There is majordilution in favor of Promoter byMAHARERA Rules in this respect.

Even Guidance Notes of ICAI suggest thatland Cost shall be written off to the extent ofthird party interest creation i.e. sold area/total saleable area.


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Chartered Accountant certifying Form 3needs to be careful while making variousdisclaimer and arriving at conclusion onparticular issue about considering thedisputed expenses while arriving at figureof withdrawals.

This is because Statutory Auditor has tocertify diversion of funds in Form 5 which isto be submitted within six months ofcompletion of financial year. If StatutoryAuditor conclude that there is diversion offunds on account of difference of opinion onvarious points, the withdrawal certificateissued by other CA will be questioned andsubject to disciplinary actions under RERARegulation as well as ICAI Regulations.

6. Land is basic raw material and ingredientfor project development and hence all costincurred for acquisition of land should beallowed and considered for the purpose ofcalculation of cost incurred. However, Rulesprovides to exclude interest payable to FIincluding, Schedule Banks, NBFC,registered money lenders, while Act is veryclear while defining estimated cost of projectwhich includes all the cost for developmentof project.

Further, exclusion shall not apply tointerest payable on unsecured loans andpartner's capital on funds raised foracquisition of land.

7. There are issues relating to refund ofAllottee funds upon cancellation or demandof refund from allottee. Whether Promoterwould be able to repay after withdrawalfrom separate account. This is because theseaccount can be used only for the purpose ofdevelopment of project. But original sumreceived from customers are alreadydeposited in separate account and utilizedfor construction activities.

Under this situation can one utilizewithdrawal from separate account forrefund of monies to customers uponcancellation?

8. It would now be difficult to pass BookEntries for various transactions pertainingto booking of flat / apartment viz., BarterAllotment to contractors, squaring up loans

to booking, etc. This is because Act requirespromoters to first deposit 70% of customersrealization into separate account.

We need more clarity and rethinking onwithdrawal process and issues connectedtherewith. Chartered Accountant will haveto take utmost care while certifying Form 3and Form 5 with proper reconciliation anddocumentation.

State Government should consult andshould consider the suggestions fromprofessional bodies like ICAI, ICWA whiledesigning the process of withdrawal fromseparate account including estimation ofproject cost.

Circular No. 7/2017 issued by MahaRera:-These Circular has brought many clarificationsbut has once again tried to frame the law ormake the law which are beyond the powers ofAuthority.

The important changes brought by abovecircular are listed as under:-

1. "Incurred" means creation of debt in favour ofseller or service provider for goods and serviceand also advance payment made for which goodsor services are rendered.

2. There is an introduction of new concept ofreplacement of ASR value as on 1.4.2001 andindexed value of land, development or leaseright. If these asset are acquired prior to1.4.2001, then cost thereof shall be replaced byASR value as on 1.4.2001 for such asset.

However, while allowing indexation of cost ofthese asset, there are some drafting error.

As per drafted language

Indexed cost = cost * { cost inflation index of assetin the year of its registration or receipt ofcommencement certificate, whichever is earlier /cost inflation index of year in which such asset isowned or held }

This is of no use as result would be cost only.

There is some drafting error and the correctedformula shall be


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Indexed cost = cost * { cost inflation index of assetin the year in which project is regd with RERAor receipt of commencement certificate,whichever is earlier /cost inflation index of yearin which such asset is owned or held }

For Example

Land acquired in 2002-03for 5 crore Index say 120

Project Regd with Maharera in 2016-17– Index say 255

Commencement Certificate received in 2014-15Index say 240

The result would be

i) Drafted languageIndexed Cost = 5 crore *120/120 = 5 crore

ii) Intended change = 5 crore * 240/120 = 10 crore

Risk Factors: Promoter would be allowed towithdraw profit on land portion withoutverification of the fact that whether ultimatelythere is sufficient profit or not.

There are no such provisions in Act or Ruleshence circular to this extent is void ab initio.

3. Interest paid on borrowing specifically done toacquire land, development rights or lease rightsshall be allowed as acquisition of cost of land.

Indexation of these interest cost can also be doneas mentioned above.

However, Rules clearly spells that interest paidor payable to FI including NBFC and registeredmoney lenders for acquisition of Land ordevelopment rights shall not be allowed as costincurred.

The circular to these extent issued is overridingthe Rules and beyond the powers.

4. Amount withdrawn till date in Form 3 shall belower of 100% amount realized from customerstill date or cost incurred till date.

There would be resultant lower withdrawalbecause only 70% of amount realized from

customers should have been considered in placeof 100%. This is mainly for the reason that evenseparate account talks of deposit of 70% ofamount realized.

5. Promoters are now allowed to have flexi deposittransactions in separate account to earn higherinterest on surplus fund subject to condition thatno lien mark on this Fixed deposit shall be doneand there are no diversion of proceeds of thisfixed deposit.

6. Promoter can deposit collection of Indirect Taxesand Pass Through Charges (like charges forcreation of legal entity, etc.) to their normalaccount.

7. Authority now clarifies that there are norestriction on end use of money withdrawn fromseparate account but it is recommended that itshould be used preferably for the project cost.

This clarification is against the basic principle ofensuring end use of money and even Promoterare required to file Declaration in Form B statingthe end use of money so withdrawn andcompliance to this effect.

The Circular to this extent has overriding effecton Section 4 of RERA Act, 2016.

8. There is clarification to the effect that Refund ofbooking amount on cancellation of flat can bedone from separate account.

9. Interest / Compensation payable to allotteeunder the Act shall be considered as costincurred. In fact, these are non development costbecause the same are paid either for falseadvertisement or delay in possession.

10. Selling and marketing cost though is part ofproject cost can not be withdrawn from separateaccount.

Selling and Marketing cost are certainly part ofdevelopment cost because without effectivemarketing efforts , it would be difficult to developthe project and definition of estimated cost ofproject confirms the same.

Authority has acted beyond the provisions of Actso far as items of expenditure under para 9 and10 are concerned.


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HISTORY OF REGULATIONS INMAHARASHTRA AND COMPARATIVE

ANALYSIS OF STATE LAW AND CENTRAL LAW

Contributed by :CA Saloni Zaveri

she can be reached [email protected]

The Real Estate sector in India has come a long wayby becoming one of the fastest growing markets inthe world. It is not only successfully attractingdomestic real estate developers, but foreign investorsas well. It is the second largest employer afteragriculture. The Real Estate sector though being oneof the most critical sectors of the Indian economy, ithas no regularized norms and lacks transparencyand accountability.

The real estate buyers often suffer from variousabuses, ill practices by few errant developers/promoters such as inordinate delay in gettingpossession of the flat/unit, alteration of the layoutplans and specifications of flat/unit without anyintimation to purchasers, non-disclosure of clear andmarketable title in relation to the land, non/ delayedformation of society, non-conveyance of theownership of land in favour of the society (fordeveloper to continue having a say on maintenanceor control over society corpus, open parking slots,terrace space to install cell towers and hoardings toearn revenue, to enjoy the benefit of additional FSI),collecting large sums of money without entering intoagreement for sale, launching projects and collectingfunds without obtaining due approvals fromcompetent authorities and using the said funds forcreating land banks, unauthorized constructionleading to orders of demolition, varying definition ofcarpet area by developers, concept of super built-uparea, no liability/accountability of brokers, absence ofa regulatory authority and a slow redressalmechanism i.e. if a consumer had a complaint againsta developer they have to make rounds of consumer orcivil courts.

There are various legislations governing the realestate sector in Maharashtra, the major ones beingMaharashtra Ownership Flats (Regulation of thepromotion of construction, sale, management andtransfer) Act, 1963 (‘MOFA’), MaharashtraApartment Ownership Act, 1970 (‘MAOA’),Maharashtra Housing (Regulation andDevelopment) Act, 2012 (‘MHRDA’). The otherlegislations prevalent in Maharashtra areMaharashtra Housing and Area Development Act,1976, Development Control Regulations for GreaterBombay, 1991, Maharashtra Regional and TownPlanning Act, 1966 etc.

Way back in 1963, taking advantage of prevalentacute shortage of housing in several areas ofMaharashtra, sundry abuses and malpractices wererampant. The Maharashtra government thereforefelt the need to introduce a necessary regulation toregulate and promote the construction, sale,management and transfer of flats taken onownership basis. MOFA was the first of its kind inIndia which was later followed by the other states inIndia. It is a regulatory statute and does not createrights and is merely intended to prevent abuses andmalpractices which were rampant in the real estatesector. MOFA was initially introduced for a period of5years which was then extended from time-to-timeup to 31st March 2005. However, due to thecontinuing shortage of housing which wasaggravating day by day, the Act was made perpetual.

MOFA obligates the promoters to furnish thenecessary prescribed information to purchasers,prohibits him from accepting amount in respect of flatbeyond the prescribed percentage without getting theagreement for sale executed and registered, prohibitshim from creating any charge on the property afterthe flat is booked, obligates him to seek prior consentof the purchasers for making any alterations oradditions in the approved and disclosed plans,obligates him to deposit the amount collected inrespect of advance, deposit, maintenance, etc. in aseparate bank account and use it for those purposeonly. MOFA also obligates the promoter to get a co-operative society or company or any other form oforganization registered after a prescribed number offlats are sold and to convey the title over the land andbuilding and the common area to such society,company or organization of purchasers and also hasa concept of deemed conveyance. It also lays downconsequences by way of penalties and prosecutions incase of defaults by promoters. However, MOFA doesnot apply to Maharashtra Housing and AreaDevelopment Authority (‘MHADA’) and boardsestablished under Maharashtra Housing and AreaDevelopment Act, 1976.

Under MOFA, the promoter conveys the title over theland and building to the organization of flatpurchasers i.e. society or company, etc. The title,therefore, vests in these collective entities in whichflat purchasers are members who get the occupation


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rights by virtue of their membership. MAOA providesfor ownership of an individual apartment in abuilding and to make such apartment heritable andtransferable property. It applies only to property(used or proposed to be used for residence, office,practice of any profession or for carrying on anyoccupation, trade or business or for any other type ofindependent use), the sole owner or all the owners,submit the same to the provisions of MAOA byexecuting and registering a declaration. Eachapartment owner is entitled to the exclusiveownership and possession of his apartment inaccordance with the Declaration executed andregistered by him. Each apartment owner shouldexecute a Deed of Apartment in relation to hisapartment. MAOA empowers apartment owners tothe exclusive ownership and possession of theapartment (physical structure), including theproportionate share in the undivided common areasand facilities. It also makes the apartmenttransferable and heritable, enabling apartmentowners to secure a mortgage on the apartment. Thisproves beneficial to both the apartment owner andthe builder, who is able to use the freed-up capital tostart new constructions. Besides all this, MAOA helpsapartment owners come together and formassociations, which in turn takes responsibility forensuring residents’ welfare and promoting theirrights.

Though MOFA enacted to provide for relief to flatpurchasers against sundry abuses, malpractices anddifficulties related to the construction, sale,management and transfer of flats, it was noticed bythe Maharashtra Government that MOFA did notprovide for an effective implementing arm for itsvarious provisions and the flat purchasers were leftat the mercy of redressing their grievance throughthe consumer forum or civil court for acts of omissionor commission of the developers. The Maharashtragovernment thus passed the MHRDA. The mainobjectives of the MHRDA was to regulate andpromote the construction, sale, management andtransfer of flat on ownership basis, to provide relief toflat purchasers against malpractices and difficulties,to establish a Housing Regulatory Authority and theHousing Appellate Tribunal, to reduce multiplelitigation before numerous authorities such asConsumer Forum and Civil Courts, to removeinformation asymmetry by ensuring full andcomplete disclosure and compliance on the part of thepromoters, to provide relief to the buyers from theadverse and malpractices by the promoters, to makethe housing sector transparent and promote plannedand healthy development and to pave a way forfaster construction and maintenance.

MHRDA sought to introduce the system ofregistration of housing projects and provided forsetting up of a Regulatory Authority for monitoringand regulating the activities of promoters. However,the Act had diluted pro-purchaser provisions andcertain provisions of MOFA, with regards to theresponsibilities mandated on the developers areconcerned. It also weakened the penalty provisionsdiluting it vis-à-vis developers and making it veryharsh vis-à-vis home buyers. Also, governmentorganizations such as MHADA were kept out of thescope of MHRDA. Further, draft rules were alsoformed, however the same were not finalized andnotified. Only few sections of the Act were notified bythe Government. MHRDA had a provision forrepealing MOFA. However, the said section was notnotified. Before the entire Act could come into force,the Union Government passed the Real Estate(Regulation and Development) Act, 2016 (‘RERA’)which repealed MHRDA.

The Union Government being aware of the rampantabuses and malpractices enacted RERA to protect theinterest of consumers in the real estate sector, toensure sale of plot, apartment or building, or sale ofreal estate project in an efficient and transparentmanner, to establish a regulatory authority beingReal Estate Regulatory Authority and to provide fora speedy dispute redressal mechanism.

Some of the important provisions of RERA are priorregistration of the real estate project with RERAauthority, inclusion of any development authority orany other public body is respect of allottees in thedefinition of promoter, deposit of 70% of the fundscollected from allottees in a designated bank account,withdrawals from the designated bank account to becertified by Engineer, Architect and CA, annualaudit of project accounts, promoter to providecompensation to buyer for any false or incorrectstatement along with a full refund of property costwith interest, provision of Affidavit cum declaration,consent of 2/3rd allottees for any other addition oralteration in plans, quarterly updation on webpage,defect liability period of 5 years, increased assertionon the timely completion of projects and delivery tothe consumer, prescribed timelines for formation oflegal entity of allottees, conveyance of title,establishment an adjudicating mechanism for speedydispute redressal, stronger financial penalties forMahaRERA non-compliances.

While it has been in discussion since enactment ofRERA, as to whether MOFA, is repealed or is still inforce, RERA has carved out an overriding provision


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(Section 89) whereby its provisions will override all other laws, which are inconsistent with the provisions ofRERA.

A comparative analysis of RERA and MOFA is as follows: -

Points MOFA RERA

Scope Flats Buildings, apartments, units, plots,redevelopment / rehabilitation

Territory Maharashtra India except Jammu and Kashmir

Registration of project No such provision Compulsory, No advertisement ofproject allowed unless registered,Details of project to be published onRERA website and updated onquarterly basis visible to the public,Audit requirement

Depositing amount received Only advance or deposit, 70% of amounts received from allotteesfrom Allottee in sums taken towards share to be deposited in separate account,a separate account capital or towards outgoings Conditions for withdrawal –

Certification required, % of completion

Restriction on accepting Not more than 20% of Not more than 10% of cost ofadvance before entering sale price apartment, plot or buildinginto Agreement for sale

Defect Liability Period 3 years 5 years

Definition of Carpet Area Not defined under the Act Net usable floor area of an apartmentDefinition as per DCR 1991, Excludes external walls, area underNet usable floor area within Service shafts, exclusive balcony ora building excluding that verandah area, exclusive open terracecovered by the walls or any area (appurtenant to net usable floorother areas specifically area, meant for exclusive use ofexempted from FSI allottee) butcomputation in these areas Includes area covered by the internalIncludes area of balcony partition walls of the apartment

Alterations or additions in Previous consent of all persons Previous written approval of atleastthe sanctioned/ disclosed who have agreed to take flats 2/3rd allottees who have agreed toplans in the building required take apartments in the building

required

Assignment by promoter of No specific provision Prior written approval of 2/3rdhis major rights and allottees and Real Estateliabilities in the project to regulatory authoritya third party

Interest rate By promoter to flat owner on Promoter to allottees or vice versafailure to give possession– 9% – SBI MCLR +2%Vice -versa (mentioned in ModelAgreement but not mandatoryclause)– 9%


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Formation of Society Within 4 months from the date Within 3 months from the date on– Time Period on which minimum number which 51% of total number of allottees

of persons required to form have booked their apartmentsuch organisation havetaken flats

Conveyance of title Within 4 months from the date Within 3 months from date of issueto Organisation on which society is registered of OC

Registration & Functions Real Estate Agent not covered Prescribedof Real Estate Agent

Regulatory Authorities / No specific authority made Real Estate Regulatory Authority,Redressal Mechanism under the Act, Metropolitan or Appellate Tribunal, High Court

Judicial Magistrate given Easy way of filing complaint withpowers RERA online disposal time of 60 days

Penalties Imprisonment (1/3/5years) Imprisonment (3 years) or fineor fine or both, (% of estimated cost of project)

or both

RERA will go a long way in benefitting both the buyers and promoters and will lead to renewal of the lostconfidence of the buyers, increased transparency, higher investment in the industry, project efficiency androbust project delivery, quicker redressal of complaints, timely completion and hand-over, informed decisionmaking, etc.

FOR ATTENTION OF MEMBERS/SUBSCRIBERS Members are requested to come forward and contribute

their articles in CVO CA’s News & Views, the mouthpiece ofour Association. Best Article contributed by new comershall be awarded with a special prize.

While sending Articles for News & Views, please confirmthat the same are not published/not given for publishingelsewhere. No correspondence shall be made inrespect of Articles not accepted for publication; nor willthey be sent back.

The views and opinion expressed or implied in the Newsand Views are those of the authors and do notnecessarily reflects those of the association. Theopinion expressed herein should not be construed aslegal or professional advice. Neither the Association northe authors/contributors are responsible in any mannerfor any personal or professional liability arising due tothe decisions taken by readers on the basis of theseviews. The association is also not in any wayresponsible for the result of any action taken on thebasis of the advertisement published in the journal.

This is “YOUR” magazine. Please give your feedback/suggestions etc. Kindly intimate change of youraddress by sending the necessary intimation to theAssociations’ Office.

Non receipt of News & Views may be intimated to :

CA Harsh Dedhia - 9892444121

Email Id - [email protected]

Rates for Advertisements in CVO CA’s News & Views(per insertion) are as under:

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(More than one insertion at time entitles for discount)Classified Advertisements rate Rs. 400/- for 100 words.

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Members are requested to register themselves to CVOCA Yahoo Group by sending E-mail to “cvoca-subscribe@ yahoogroups.co.in” to quickly receivethe latest updates and communication from theAssociation.

Points MOFA RERA


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REGISTRATION UNDER RERA– CONDITIONS, PROCEDURE

AND ONLINE PROCESS

Contributed by :Neel Shah(a student member ofthe association


The Real Estate (Regulation and Development) Act,2016 (“Act”) came into effect from May 1, 2017. It isa central Act applicable to the whole of India exceptthe State of Jammu & Kashmir with every statedelegated with responsibility to enact Rules as perspecific conditions prevailing in respective state. TheAct is consumer centric where the consumer is theking. It imposes various obligations on promoters andmandate them to adhere to Financial Discipline,transparency, deliverable, failing which, hugepenalties are leviable.At the same time certainresponsibilities and duties are also casted on Allotteeswith regards to timely payment of instalments oramount due for expense, failing which such dues canbe liable for interest.

This Article emphasizes on Real Estate Projects thatneeds to be registered (both New and Ongoing) withMaharashtra Real Estate RegulatoryAuthority (MahaRera), Procedure for onlineregistration in the state of Maharashtra, Registrationrequirement for Real Estate Agents and the processof registration.

Applicability for Registration of Real EstateProject:

All commercial and residential real estate projects(Projects) will have to register except projects where:1. Area of land proposed to be developed does not

exceed 500 sq.mts.2. Number of apartments proposed to be developed

(inclusive of all phases) doesn’t exceed 83. Promoter has received Occupancy Certificate

(O.C) /Completion Certificate (C.C) for a realestate project prior to commencement of this Act,or

4. For the purpose of renovation or repair or re-development which does not involve marketing,advertising, selling or new allotment of anyapartment, plot or building, as the case may be,under the real estate project.

Real Estate Project:As defined Real Estate Projects means thedevelopment /redevelopment of a building,

Contributed by :CA HItesh Pasad(a member of theassociation


apartment, converting existing building or a partthereof into apartments or development of land intoplots or apartments for the purpose of selling all orsome of the said building, apartments or plot. Piece ofland sold without any development or dividing intovarious smaller plots is not required to be registered.Also development carried out with the intention forself-use is not covered.

When Project needs to be registered?

No project shall advertise, market, book, sell or offerfor sale, or invite persons to purchase any plot,apartment or building without registering withMahaRera. Thus all projects needs to be registeredprior to making any offer for sale, proposal orbrochure for sale. This also means that projects whichare carried out with the intention of not selling till thetime of obtaining O.C need not register itself.

All ongoing project has been provided a transitionperiod of 3 (three) months to register i.e. till 31st July,2017. During this transition period sale or offer forsale can be carried out without registration. Posttransition period sale can be carried out only afterobtaining registration (mere application forregistration is not sufficient).

However, as per the “Additional FAQ 2: Q.11”, whereO.C / C.C. are issued during the transitional period,project is not required to be registered underMahaRera.

What is an Ongoing Project?

Ongoing project is not defined in the act or rules.However, as per our view, an inference can be drawnfrom replies to two FAQs (No.1 and 9) from“Additional FAQ 2, MahaRera” that project whichhas received Intimation of Approval (IOA) /Intimation of Disapproval (IOD) or where sale ismade prior to 1st May, 2017 will be termed as anOngoing project.

Thus it is very important to identify such projects asnon-registration within transition period for this typeof projects may attract penal consequences which arestated separately in this article.


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Phase-wise registration As per the Act, the Real Estate Project (new /

ongoing) can be registered phase-wise. Eachphase shall be considered as a different project initself, complying with RERA requirementsseparately.

Phase-wise registration means registering eachbuilding in a layout project as separate phase,each wing in a multi wings building as aseparate phase or even certain floors of a singlebuilding as a separate phase.

Obtaining of O.C and handing over possessionon different dates could be one of the factorswhich can help in determining different phase.

For Layout plan, approval document to beuploaded during registration, it is unclearwhether to include the layout plan related to therespective phase or entire project. As per ourview, the sanctioned layout plan of the phaseand a typical plan of entire project shall beuploaded since it gives a transparent picture tothe buyers and authority.

PREREQUISITES FOR REGISTRATION OFReal Estate ProjectsPrior to making application for registration of anyReal Estate Projects following are few prerequisites orpoints which requires deliberation.

Separate Bank Account: Separate bank account with a scheduled bank is

to be opened prior to making application forregistration for depositing 70% of the sale orbooking advance received from the allottees,from time to time, to cover the cost ofconstruction and land.

In case of ongoing project, where the balanceamount of estimated cost of the project exceedsthe balance amount of receivables of soldapartment and ASR based receivables of unsoldapartments, 100% of the receivables shall bedeposited in separate bank account.

Insurance: Insurance has to be obtained for title of land and

building being part of real estate project andconstruction.

Sale agreement, allotment letter andadvertisement material: Sale agreement to be reviewed, if already

prepared, to cover minimum prescribed clause.

Further allotment letter and advertisementmaterial also needs to be RERA compliant.

Complete details of project cost and Cash flowfor the Project

Finance Costs:1. The cash flow statement is important to

determine the amount of finance cost that shallbe incurred in the project.

Payment Schedule for Revenue collection:1. The schedule for the collection of project

revenues shall be prepared considering the cashoutflows to minimize the finance cost.

2. Also, it should be in-line with the cost incurredfor construction activity, so that the 70% of theamount is blocked for minimum time. (Keepingestimated cost of the project constant, more thecost incurred, more the drawing poweravailable)

Estimated Costs:1. Estimated cost is to be worked out in detail i.e.

with minute detailing of civil work to finishingwork till the time of handing over possession ofarea sold.

2. Working of estimated cost is an important aspectfor ongoing projects to determine whether 70%or 100% of the receivables to be deposited inseparate bank account.

ASR Valuation:1. For ongoing projects, Annual Statement of Rates

(ASR)i.e. Stamp Duty valuation of unsoldinventory is taken for the purpose ofdetermining the amount to be deposited inseparate bank account.

Formation of Legal Entity and transfer of title: Where the sale /booking of apartments reaches

51%, the promoter shall either form a society /acondominium / Company /Apex body / anyother legal entity.

It is necessary to be clear about the kind of entityto be formed considering its pros and cons andvarious rights attached to development duringand after completion of project.

Registering the agreement for sale: A promoter shall not accept a sum more than

10% of the cost of the apartment, plot, orbuilding, as an advance payment or anapplication fee, from a person without first


21

entering into a written agreement for sale withsuch person and registering the said agreementfor sale.

The agreement for sale shall contain, minimum,all the clauses as per the RERA Modalagreement.

However, it is still an ambiguity on whether thepromoter who has already accepted bookings ofmore than 10% prior to 1st May, 2017 and doesnot intend to call for further monies, needs toregister the sale agreement as per the Act.

Approved plans: All approved plans as per appropriate authority

should be kept ready in soft form.

If plans for subject to any modification subject tochanges in applicable DC rules or any futureevent, disclosure of same need to be uploadedalong with applicable. This is important as anyamendment in approved plans requirespermission of 2/3rd allottees / members.

Certificates from Professionals: Architect Certificate in Form 1: This

certificate states total area to be constructed &constructed in the entire project as on the date ofmaking application for registration. Thiscertificate also has to state exact location of theplot and also various amenities and commonarea to be constructed.

Engineer Certificate in Form 2: Thiscertificate states Estimated construction cost ofthe Project, cost incurred and balance cost to beincurred as on the date of making of application.

Chartered Accountant Certificate in Form3:This certificate states Total estimatedconstruction cost of the project including financecost but excluding admin and selling cost. It alsocertifies cost incurred and sale proceedsreceivable for sold area and for unsold area asper ASR.

Other points Closed parking area, whether separately

saleable or proposed to be sold separately shallbe identified

Any Refuge areas to be identified and separatelydisclosed in Building details.

Every advertisement of the project published bythe developer shall bear the RegistrationNumber.

Online Process – Real estate project:Part 1:Promoter registration process onMahaRera Website

1. Go to the website:https://maharera.mahaonline.gov.in

2. Click on “Online Application” (A pop-up foropening an external window shall appear; Click“OK”)

3. Click on “New Registration”4. Select “User Type: Promoter”5. Enter your user name and password. Password

should have 1 CAPITAL Alphabet, 1 lower case,1 Special Character & 1 Numeric Value.

6. Enter Mobile Number and Email-ID7. Enter captcha and click on “Create user”8. Verify the email id by logging into the email

account provided in Step 6. The link is open forverification for limited time.

Part 2: Creating profile on MahaRera Website1. Login with your user name and password.2. Click on “Account” à “My Profile”3. Select the Information type, whether individual

or other than individual.4. Enter your details like Name, Address, Fathers

full name, PAN, Aadhar No., etc.5. Select Yes/ No for Past Experience.6. Provide the address for official communication7. Provide your contact details. Mobile Number and

Email-ID are prefilled. However, additionallyoffice number is required. Enter website, if any.

8. Upload Photo. The photo should be in JPEG orPNG format.

9. Click on Save Profile.10. If Promoter is of type Organization,then select

information type ‘Other than individual’. Whilefilling director details, select the respectivedesignation and fill the form. After filling theform,upload the picture and then click on addnew member to save the details. You can editand delete.

Part 3: Past Experience Details1. If promoter has launched the projects in last five


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years, then the promoter should fill thepastexperience details

2. In order to provide past experience details, theoption “Yes” needs to be selected in Part 2 point5 above.

3. Click on “Past Experience Details” underAccount.

4. Fill the Project details like Project Name, Type,Address, Land Area, No. of Buildings/ Plots, No.of apartments, Total Cost, Plot bearing SurveyNo./ Final Plot No., Original Proposed date andActual date of completion.After filling click onsave button to save the details.

5. Details can be edited or deleted.

Part 4: Project Details1. Click on “Add Project”2. Select whether the project is “new” or “on going”3. Enter the details of Project like Name, Type,

Proposed date of completion, Revised proposeddate of completion, Litigations, if any, co-promoter, if any.

4. Enter Land Details like Area, Location5. Enter FSI Details6. Enter the Address7. Enter the details of separate bank account8. After filling the form, click on add project to save

the form. Save forms will be displayed below.

Part 5: Adding details of Co-promoter1. If there is a co-promoter involved as per the

definition of RERA, select option “yes” underPart 4 point 3.

2. Click on Add Promoter under Project Details andenter the details and save.

Part 6: Building Details1. In order to provide details of the building, click

on “Add Building” under Project Details2. Provide the building details such as Name, No. of

Basements, Plinth, Podium, Slab of SuperStructure, Stilts, Open Parking, Closed Parking.

3. Enter the details of apartment like type, CarpetArea, Proposed number of apartments, No. ofapartments booked/sold/allotted.

4. Click on “Add Apartment”5. Click on “Add Building”

Part 7: Details of Common areas and facilities1. This section includes details about the common

areas and facilities provide by the promoter2. Click on “Common Areas and Facilities” under

Project Details.3. Enter the details of Project like Number of

Garages and Covered parking.4. Provide the details of Development works in

terms of what common areas and facilities areProposed, Percentage of completion and Details

Part 8: Adding Project Professional Details1. Click on “Add Project Professional Details” under

Project details2. Provide the details of Professionals like Real

Estate Agent, if any, Contractor, Architect,Structural Engineer, Any Other.

Part 9: Adding Litigations related to the project1. To enter the details of litigation select option

“Yes” under Part 4 Point 3.2. Enter details regarding litigation giving details

about the Name of the court, type of case,Petition, Year, Present status, interim order, ifany.

3. After filling the form, click on add button andsave the details

Part 10: Adding Project Cost1. Click on “Add Project Cost” under Project Details2. Enter the details of Estimated and Actual Cost

divided into Land cost and Construction Cost.

Part 11: Uploading Documents as proof1. Total 12 documents can be uploaded, out of

which 9 are mandatory which are Copy of thelegal title report, Details of encumbrances (orself-certified no encumbrance certificate in caseof no encumbrances), Copy of Layout Approval,Proforma of Allotment letter and agreement forsale, Declaration in Form B, Certificates ofArchitect under Form 1 for ongoing projects, CACertificate in Form 3, Engineer’s certificate inForm 2 for ongoing projects, Building PlanApproval (IOD).

2. The file size is 1mb of all the documents and onlypdf files can be uploaded.

Part 12: Task/ Activity Details1. It consists of Activity details about the building.2. Click on “Task/ Activity” Details under Project

Details.


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3. Enter the percentage of work completed againstthe mentioned activities.

4. Save it

Part 13: Making the payment1. Click on Payment.2. Verify the details provided and click on “Confirm

and Proceed to payment” after ticking the termsand conditions.

3. The Registration amount is gross amountexclusive of taxes. The taxes are leviedadditionally.

4. Select the convenient payment option and makethe payment.

Part 14: Application Withdrawal1. If promoter wants to withdraw the application,

Click on “Application withdrawal” under ProjectDetails.

2. Select the Project Name and verify the details.3. Administrative charges, service tax, service

charge is deduced and final refund amount iscalculated

4. Enter the bank details to receive the refundamount

5. Click on Confirm Withdrawal

Real Estate Agent

The Real Estate Agents (including property dealers,brokers, middlemen by whatever name called)arealso required to get registered under this Act. No realestate agent shall facilitate the sale or purchase ofany plot, apartment or building in a registered realestate project or part of it, without obtainingregistration under this section.

However, the agents who transact the sale oradvertisement of projects which have been excludedfrom registration requirement by the Act, shall not berequired to register themselves.

The real estate agents dealing in C2C transactionsare not required to be registered as real estate agentsunder the Act.

The promoter needs to mention the names of theregistered real estate agents for the project alongwith its registration number (agent) during theonline application for registration. Any other agentshall not be allowed to sale / advertise or transact in

any way for the aforesaid project.

Online Process for registrationPart 1: Real Estate Agent registration processon MahaRera Website

1. Go to the website:https://maharera.mahaonline.gov.in

2. Click on “Online Application” (A pop-up foropening an external window shall appear; Click“OK”)

3. Click on “New Registration”4. Select “User Type: Real Estate Agent”5. Enter your user name and password. Password

should have 1 CAPITAL Alphabet, 1 lower case,1 Special Character & 1 Numeric Value.

6. Enter Mobile Number and Email-ID7. Enter captcha and click on “Create user”8. Verify the email id by logging into the email

account provided in Step 6. The link is open forverification for limited time.

Part 2:Creating profile on MahaRera Website1. Login with your user name and password.2. Click on “Account” à “My Profile”3. Select the Information type, whether individual

or other than individual.4. Enter your details like Name, Address, Fathers

full name, PAN, Aadhar No., etc.5. Select Yes / No, whether any criminal or police

case / cases pending.6. Select Yes/ No, whether you possess any

registration no. outside Maharashtra.7. Provide the address for official communication8. Provide your contact details. Mobile Number and

Email-ID are prefilled. However, additionallyoffice number is required. Enter website, if any.

9. Upload Photo. The photo should be in JPEG orPNG format.

10. Click on Save Profile.11. If Agent is of type Organization,then select

information type ‘Other than individual’. Whilefilling director details, select the respectivedesignation and fill the form. After filling theform,upload the picture and then click on addnew member to save the details. You can editand deleted.


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Part 3: Past Experience Details1. Click on “Past Experience Details” under Account.2. Agent have to fill the Project details about last 5 years.After filling click on save button to save the details.3. Details can be edited or deleted.

Part 4: Branch Details1. Click on “Add Branch Details” under Account2. Fill in the details like Branch Name, Address, Landline No., Fax Number, Email-ID.3. Upload Address proof.

Part 5: Adding Litigations related to the project1. Enter details regarding Case against company or member giving details about the Name of the court, type

of case, Petition, Year, Present status, interim order, if any.2. After filling the form, click on add button and save the details

Part 6: Registration Details1. If the agent has registration in multiple states, he is required to fill this form.2. Enter the name of the state, details of law/rules/regulations under which it is registered and upload the

Registration Document.

Part 7: Uploading Documents as proof1. Total 9 documents can be uploaded, out of which 4 are mandatory which are PAN Card, Self-certified copy

of letterhead rubber stamped, Acknowledgement receipts proposed to be used by the real estate agent,Income tax returns of last 3 years or declaration.

2. The file size is 1mb of all the documents and only pdf files can be uploaded.

Part 8: Making the payment1. Click on Payment.2. Verify the details provided and click on “Confirm and Proceed to payment” after ticking the terms and

conditions.3. The Registration amount is gross amount exclusive of taxes. The taxes are levied additionally.4. Select the convenient payment option and make the payment.

Other Provisions w.r.t. Registration

Particulars Real Estate Real Estate Form FormProject (REP) Agent (REA) (REP) (REA)

Withdrawal ofApplication Within 30 days of Online Online

Submission (MahaRera) (MahaRera)Note: Administrativecharges shall bededucted towardsprocessing of application.

Grant of Within 30 days of Submission Form C Form HRegistrationcertificate


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Deemed Failure to provide the registration within 30 days.Registration The authority shall provide the certificate

within next 7 days.Rejection of · Provisions of Act are not complied with Form D Form IApplication · Recording the reasons in writing

· Providing the opportunity of being heard to the applicant

Validity Period declared by the 5 Yearspromoter for completionof the project orphase thereof

Extension of · In case of Natural Form Evalidity Calamities and F

·Extension shall bemax 1 year

Renewal of atleast 60 days prior to Form KRegistration the expiry along

with the fees

Penal Consequences:Points Real Estate Project Real Estate AgentsFailure to Register One time:Fine: 10% of the Fine: ‘10,000/- pre day of default

estimated cost of the real estateproject. Max: 5% of the cost of plot, apartmentContinuing Default: or buildings of the real estate project,Fine: Further 10% of estimated for which the sale or purchase hascost of the project and / or been facilitated.Imprisonment: Upto 3 years

False information while Fine: 5% of the estimated cost ofmaking an application the real estate project.to RERANon-compliance with Fine: 5% of the estimated cost of 5% of the cost of plot, apartment orany provision of the Act the real estate project. buildings of the real estate project, for

which the sale or purchase hasbeen facilitated.

ConclusionThe due date for registration of ongoing projects being 31st July, 2017 is fast approaching it has become anurgency to register the unregistered projects. The working for the same shall be started as soon as possible sothat the application for registration is completed and filed in time and registration certificate is obtained.Since the sale and advertisement cannot be made prior to registration, the promoter shall take this on priorityand complete the same so that the business is not hampered.

Overall, proper implementation of the provisions of the Act and Rules shall bring in more transparency andcomparability between various project thus providing homebuyers comfort and assurance of completion ofproject as per stated date.

This article is based on the provisions of MahaRera Rules (applicable only for the projects in the state ofMaharashtra). For knowing the provisions applicable in other states the RERA rules for respective state shallbe read.


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OBLIGATIONS OF PROMOTER,PENALTIES, COMPOUNDING OF

OFFENCE & IMPRISONMENT

Contributed by :CA Bhavya Haria(a member of theassociation


REAL ESTATE – AN INDUSTRY ANALYSISThe real estate sector is one of the most globallyrecognised sectors. It plays a pivotal role in fulfillingthe need and demand for housing and infrastructurein the country. In India, real estate is the secondlargest employer after agriculture and is slated togrow at 30 per cent over the next decade.1 Itcomprises of four sub-sectors, viz. housing, retail,hospitality, and commercial.

Due to rapid urbanization, positive demographicsand rising income levels, the Indian real estate sectorhas attracted significant investment over the pastfew years. The Indian real estate sector haswitnessed high growth in recent times with the rise indemand for office as well as residential spaces.According to data released by Department ofIndustrial Policy and Promotion (DIPP), theconstruction development sector in India has receivedForeign Direct Investment (FDI) equity inflows to thetune of US$ 24.28 billion in the period April 2000-December 2016.

Traditionally, the real estate investment for homebuyers in India has been nothing less than anightmare. Some illustrations to name would be theprominent Supreme Court (SC) verdict on ‘TheMumbai Campa Cola Society case’2 wherein the SCconfirmed the Bombay High Court decision todemolish the illegal floors of a residential society inMumbai leaving 102 resident families stranded. In asimilar case the Supreme Court upheld the order ofthe National Consumers’ Disputes RedressalCommission imposing a penalty on real estatedeveloper Unitech Ltd. for delay in handing over flatsto the buyers, thereby granting relief to a largenumber of home buyers. Thus, litigation has been aninevitable feature for a home buyer in Indian realestate investment dynamics.

With growth and advancement in technology comesthe need of an updated legal framework governingthe said growth. Recently, the law Minister Mr. Ravi

Shankar Prasad has quoted, “Laws need to beconsonant with the times. 1,200 redundant Acts havebeen scrapped. 1,824 more have been identified forrepeal”3.

One such initiative is the overhauling of the lawgoverning the real estate sector. The earlierframework and regulatory regime was inadequate toaddress all the concerns of buyers and developers inthe real estate sector. The lack of an exhaustive legalframework paved the way for enactment of the RealEstate (Regulation and Development) Act, 2016(‘RERA’ / ‘Act’).

On 1 May 2017, the Central Government notifiedvarious provisions of the Act thereby bringing intoforce all the 92 provisions of the Act. The variousState Governments shall also notify the RERA rulesupto 31st July 2017. The Government ofMaharashtra vide Notification No. 23 dated 8 March2017 has notified Maharashtra Real EstateRegulatory Authority (‘MahaRERA’). TheGovernment of Maharashtra has also notifiedvarious Rules in this regard.

The Act and Rules are only applicable to new andongoing residential and commercial projects, i.e.,where occupation certificate or a completioncertificate has not been received on or before 1 May2017. Further, all current projects have been giventime till 31st July 2017 to comply with RERAregulations.

IMPORTANT OBLIGATIONS OF THEPROMOTERS AND THEIR RESPECTIVECONSEQUENCES OF FAILURE AREENNUMERATED BELOW

The Act casts an obligation on the promoter to ensurefairness and transparency in their operations, andalso protects the interests of the buyers by providingstringent penalties as a measure of control anddeterrence.

1 https://www.ibef.org/download/Real-Estate-June-2017.pdf2 Campa Cola residents association & anr. v/s State of Maharashtra & ors [Writ Petition No. 2465 of 2013]3. http://indiatoday.intoday.in/story/narendra-modi-law-ministry-ravi-shankar-prasad/1/984539.html


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REGISTRATION OF THE PROJECT

What is a project?A project means a real estate project including thedevelopment of a building / apartments, or thedevelopment of land into plots or apartment for thepurpose of selling and also includes the commonareas, improvements and structures thereon, and alleasement, rights and appurtenances belongingthereto.

Who is a promoter?A ‘promoter’ under the Act is defined, inter alia, as aperson who constructs or causes to be constructed anindependent building, a person who develops landinto a project, etc., i.e. to sum up, a builder or adeveloper. It would be interesting to see, whether areal estate trust (e.g. Parsi Community Trusts) or acondominium shall be treated as a promoter underRERA.

What is registration process?The promoters are required to make an application toget registered with RERA within three months ofapplicability of RERA for commercial as well asresidential projects.

All the projects where land is more than 500 sq. m. orhaving at least eight apartments, including the onewithout completion or occupancy certificate must beregistered. Where the project is to be developed inphases, every such phase shall be considered astandalone project, and the promoter shall obtainregistration under the Act for each phase separately.

The application for registration shall contain certaincrucial information about the project, date of launch,period of completion, status of various regulatoryapprovals, etc. The promoter is also required toprovide additional personal information, includingpromoter’s photograph. The data / documentssupplied by the promoter would be like an officialrecord open to public for verification.

The Act also mandates submission of a declaration bythe promoter, supported by an affidavit, inter alia,stating that he has legal title over the land proposedto be developed, that the land is free from allencumbrances and the time period within which heundertakes to complete the project.

WEB-DISPLAY OF THE PROJECTOnce the registration process is completed, thepromoter would be given a login ID to update thedetails of the projects for the awareness of the generalpublic. The promoter would also have access to theauthority’s website, wherein he can create a webpagefor the project. The promoter shall display to thepublic complete details i.e. status of projects,compliance regulatory approvals, past projects of thebuilder, etc., This webpage would be freely availableto the general public. Additionally, even the list ofdefaults or non-compliance, etc. committed by thepromoters will be uploaded on this website, thus,bringing complete transparency.

Further, RERA provides that the advertisement orprospectus issued or published by the promoter shallmention the website address of the Authority. Thiswebsite needs to be updated regularly on quarterlyintervals. The promoter is also required to upload thedetails of apartments and plots booked, garagesbooked, list of approvals taken and the approvalswhich are pending subsequent to commencementcertificate. Further, there is a prohibition on thepromoter to advertise, promote, market, or invitepublic for selling the project, without registering theproject with RERA.

INFORMATION TO ALLOTTEES

Section 11(3) of the RERA provides that the promotershall be responsible to make available the followinginformation to the allottee, at the time of booking andissue of allotment letter:a. sanctioned plans, layout plans, along with

specifications, approved by the competentauthority, by display at the site or such otherplace as may be specified by the regulationsmade by the Authority;

b. the stage-wise time schedule of completion of theproject, including the provisions for civilinfrastructure like water, sanitation andelectricity.

ASSISTANCE TO ALLOTTEES FORMAINTENANCE / DOCUMENTATIONThe promoter shall be responsible for providing andmaintaining the essential services, on reasonablecharges, till the completion of the project. It shall alsoassist in the formation of association or society or co-operative society of the allottees under the applicablelaws. The promoter is responsible to bear all costs


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until he transfers the physical possession of the realestate project to the allottee including land cost,ground rent, municipal or other taxes etc.

The promoter shall be responsible for conveyancingof the property, by executing a registered conveyancedeed in favour of the allottee alongwith theundivided proportionate title in common areas to thesociety. Further, after executing an agreement forsale for any apartment, plot, etc., the promoter shallensure that no mortgage or charge is created on suchapartment, plot and even if mortgage is done, itshould be ensured that it shall not affect the rightsand interest of the allottee.

No promoter shall transfer majority rights andliabilities of a project to any third party, withouttaking a prior written consent of atleast 2/3rdmajority of allottees and after taking approval of theRegulatory Authority. Further, the incomingpromoter would be required to comply with all theterms, conditions and obligations applicable to theoriginal promoter, thus, leaving the rights of allotteeunhampered.

OBTAIN NECESSARY APPROVALS

According to section 11(4) of the Act, it is theresponsibility of the promoter:a. to obtain the completion certificate or the

occupancy certificate from the relevantcompetent authority and make it available to theallottees individually or to the association ofallottees;

b. to obtain the lease certificate specifying theperiod of lease and certify that all dues andcharges in regard to the leasehold has been paidand to make the lease certificate to theassociation of allottees;

These regulatory approvals need to be obtained bythe promoter and has to be made available to theprospective buyers and allottees. Additionally, statusof sanctioning of these approvals would be requiredto be updated on the web-portal for public display. Itwould be unlawful on the part of the promoter togrant possession without obtaining the necessaryapprovals, i.e. completion and occupancy certificate.

NO FALSE PROMISESNo buyer should be misled with false hopes andhypothetical promises. The promoter shall diligently

make an attempt that no advertisement, brochure,etc. contains any misleading or false informationabout the projects. Further, the Act provides that ifany buyer acts on such false information andsustains any damage or loss due to such an action,then the promoter shall be responsible to grantcompensation to such bonafide buyer. Additionally,the buyer has been given an option to withdraw fromsuch subject and that the Adjudicating Authorityshall assist in such withdrawal.

CONSIDERATIONSection 13(1) of the Act provides that a promoter shallnot accept a sum more than 10% of the cost of theapartment, plot, etc., as an advance payment or anapplication fee from a person without first enteringinto a written agreement for sale with such personand register the said agreement for sale, under anylaw for the time being in force.

It is provided that the promoter must deposit 70% ofthe payment received from the allottees in an escrowaccount and ensure that the amount is solely used forthe development of the project for which it was taken.Further, for ongoing projects, 70% of money collectedfrom allottees after deduction of land andconstruction cost needs to be deposited in separatebank accounts. However, MahaRERA rules havediluted the proposition to state that the developer isexpected to deposit 70% of the only future receivablesfrom the projects and does not account for moneyalready received from home buyers.

This may prevent the diversion of the funds from theproject for which funds were collected, towardsaccumulation of other assets like land, plots, etc. Thisprevention of diversion of funds should ensuresmooth and speedy development of the projects whichare delayed due to reasons best known to thebuilders.

COMPENSATIONSection 18 provides that if the promoter fails tocomplete or is unable to give possession of anapartment etc., in accordance with the terms of theagreement for sale on account of suspension orrevocation of the registration, he shall be liable toreturn the amount received by him in respect of thatapartment, etc., with interest including compensationin the manner provided under the Act, to the allotteeson demand.


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The promoter is also required to compensate the allottees in case of any loss caused to him due to defective titleof the land, on which the project is developed in the manner as provided under the Act and the claim forcompensation shall not be barred by limitation provided under any law for the time being in force.

Further, the promoter is required to obtain all insurances as notified by the Government, including:a. title of the land and building as a part of the real estate project; andb. construction of the real estate project.

The promoter is responsible for the timely payment of insurance premiums and the said insurance would be forthe benefit of the allottees and associations, society, etc. While handing over the possession to the allottee, thepromoter shall also hand over all the documents in relation to such insurance.

A summary of the obligations cast on the promoters and the responsibilities imposed alongwith the penalconsequences for failure to fulfil such obligations, are given below:

Obligation of promoters Penal consequences Impact to Buyer

Register on the RERA website Penalty extending up to Full disclosure of the facts and recordwithin prescribed time 5% of estimated cost of of past projects is available

the projectPromoter shall not advertise, - Penalty extending up to The defaulters’ list to be uploadedpromote, market, invite public 10% of estimated cost of on the RERA websiteto purchase the property the projectwithout registration - Continued violation of this

offence can lead to a penaltyextending up to 10% ofestimated cost of the project, orimprisonment for a termextending up to 3 years; or both

Comply with orders and Everyday cumulative penalty as Additional redressal mechanism,directions given by the determined, extending up to rather than going before ConsumerRegulatory Authority 5% of estimated cost of the project Redressal ForumComply with orders and Everyday cumulative penalty Enforceability and speedy redressaldirections of Appellate as determined, extending up to of disputesTribunal 10% of estimated cost of the project,

or imprisonment for a termextending up to 3 years; or both

Obligation of Agents Penal consequencesRegister on the RERA Everyday cumulative penalty of INR 10,000 till default continues,website within prescribed time extended up to 5% of the cost of propertyComply with orders and directions Everyday cumulative penalty as determined, extending up togiven by the Regulatory Authority 5% of estimated cost of the project

Comply with orders and directions Everyday cumulative penalty as determined, extendingof Appellate Tribunal up to 10% of estimated cost of the project, or imprisonment

for a term extending up to 1 year; or both

Apart from the above, the Act also provides for revocation of registration, if the Regulatory Authority is of theopinion that the promoter has committed any default under the Act or is involved in any kind of unfair practiceor irregularities. Additional discretionary powers have been conferred upon the adjudicating authority to


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implement such revocation. The Act provides that post revocation of registration, the promoter shall be debarredinter alia from carrying out further construction of the project.

FILING OF COMPLAINTS / DISPUTE RESOLUTIONThe Government of Maharashtra, under MahaRERA, has provided for a speedy redressal mechanism for thebuyers. The Rules provide that any aggrieved person may file a complaint with MahaRERA or the adjudicatingofficer with respect to any registered real estate project, for any violation or contravention of the provisions ofthis Act or the rules and regulations made there under.

The Authority has been instructed to facilitate an early hearing and a speedy redressal mechanism foradjudicating such complaints. Any person aggrieved by any decision of MahaRERA or by an adjudicating officermay file an appeal before the Appellate Tribunal and subsequently to the High Court.

COMPOUNDING OF OFFENCEAt the discretion of the court, if a promoter/ real estate agent/ allottee is punished with imprisonment under thisAct, the punishment may, either before or after the institution of the prosecution, be compounded on such termsand conditions and on payment of such sums as may be prescribed under the Rules. The Rules prescribe forcompounding of offences committed by which are as follows:

Promoter: On account of failure to comply with order of the Regulatory / Appellate Authorityin relation to non-registration of project then instead of an imprisonment termextending up to 3 years, such offence can be compounded by paying a feeamounting to 5% (extendable up to 10%) of the estimated cost of project

Real Estate Agent/ Allottee On Account of failure to comply with the order of the Appellate Authority theninstead of an imprisonment term extending up to 1 year, such offence can becompounded by paying a fee amounting to 5% (extendable up to 10%) of theestimated cost of the property

ROLE OF CHARTERED ACCOUNTANTSRERA envisages various primary and secondary roles for chartered accountants, viz. assistance in registrationof projects, registration of agents, etc. RERA has provided for a ‘right to legal representation’, wherein theappellant may either appear in person or authorise one or more chartered accountants or other professionalsto present his case before the Appellate Tribunal.

The funds from the escrow account designated for the project whether utilised for completing the project only,shall be under the verification and certification of chartered accountants. The promoter shall need to get hisaccounts audited within six months after the end of every financial year by a chartered accountant in practice.Additionally, a chartered accountant can also be appointed as a Technical Member of Real Estate AppellateTribunal.

A RAY OF HOPE FOR HOME BUYERSThe expectation of the buyers with the advent of RERA is that the real estate sector will be more organised andtrustworthy which can make buyers and investors confident to buy in under construction and new projects andbring back smiles in real estate sector. Further, the agents / brokers would need to undertake additionalresponsibility of educating the buyers, verifying the fulfilment of regulations in projects, etc., therebyorganising the broker’s lobby.

The home buyers in India have seen litigation been dragged up to 20-30 years, and justice has been delayedto them. The implementation of RERA has raised a hope to usher a new era of transparency in real estate sectorwhich can bring relief for home buyers and can bring back confidence in the real estate sector all over thecountry. However, what needs to be looked upon is the strict implementation of the law in the respective statesand thus, Central Government may be required to intervene so as to ensure that the otherwise strict mandateof the legislation is not lost in the State Legislation.