The UP housing and urban planning department has been quick to approve the UP Real Estate (Regulation and Development) Rules, 2016. However, though the intention to ensure timely delivery of projects and set up a regulatory authority as mandated under the RERA Act 2016 is good, the provisions for stringent punishment for builders who violate housing rules and those dealing with compensation seem to have been watered down considerably.
Several imprisonment clauses have been made into compounding clauses (where money is paid in lieu of actual punishment). The offences and penalties chapter states that upon payment of a certain sum of money, “any person in custody in connection with that offence shall be set at liberty and no proceedings shall be instituted or continued against such a person.” If a compounding option is available to developers, they will have nothing to fear as they will avoid punishment for any fault by just paying a simple fine.
UP’s interpretation of the Real Estate (Regulation and Development) Act 2016 “is definitely a much watered-down version. In the chapter detailing the offences and penalties due to a developer in case he defaults, no builder will end up going to jail as most offences are compoundable. It seems to be soft towards those who are violating the contract,” says S K Pal, a Supreme Court lawyer.
The rules also mention that the money to be paid for compounding shall be proportionate to the term of imprisonment subject to a maximum of 10% of the estimated cost of the real estate project for three years. Ten per cent is the maximum limit that has been set in the UP Rules instead of being fixed as in the Central rules for union territories, says Rahul Rathore, a Delhi-based lawyer.
The rules framed by the Centre have said that “If any promoter contravenes the provisions of section 3, he shall be liable to a penalty which may extend up to ten per cent of the estimated cost of the real estate project as determined by the Authority. (2) If any promoter does not comply with the orders, decisions or directions issued under sub-section (1) or continues to violate the provisions of section 3, he shall be punishable with imprisonment for a term which may extend up to three years or with fine which may extend up to a further ten per cent. of the estimated cost of the real estate project, or with both.”
The UP RERA Act states “The money to be paid for compounding shall be proportionate to the term of imprisonment subject to a maximum of 10% of the estimated cost of the real estate project for three years.”
The rules also state that a building without a completion certificate will come under the ambit of the RERA Act. The UP government has interpreted it to say that if 60% of people are residing in a particular project or if an application has already been filed by a builder with the authority for the certificate, these rules will not apply to them.
UP Rules define ongoing projects as under-development projects for which completion certificates have not been issued. It excludes projects (i) where services have been handed over to the local authority for maintenance (ii) where common areas and facilities have been handed over to the association or the residents’ welfare association for maintenance (iii) where all development work has been completed and sale/lease deeds of 60% per cent of the apartment/houses/plots have been executed (iv) where all development works have been completed and application has been filed with the competent authority for issue of completion certificate.
Handing over possession of a building without a completion certificate is illegal. “The rules should have clearly stated that if people have taken possession under duress and the building has not received a completion certificate, RERA should apply to them. UP Apartment Act strangely has a provision for partial completion. To give legal sanctity to these activities, rules have been framed in a manner to protect these activities but this can go against buyers,” says Pal.
Rathore says that the UP rules do not have any reference to the rate of interest at which the money has to be refunded to homebuyers as against the central RERA Act under which developers will now be required to refund or pay compensation to the allottees with an interest rate of the State Bank of India’s highest marginal cost of lending rate plus 2% within 45 days.