State To Widely Publicise RERA Act To Prevent Criminalisation Of Property Disputes: Orissa HC Holds Investor Protection Laws Inapplicable To Builder-Buyer Relations [Read Judgment]

The Orissa High Court last week asserted that the State Government will do well to give wide publicity to the provisions of the RERA Act, 2016 in order to "enable the lay and laity to seek refuge under the appropriate law" and "injunct any unnecessary litigations" arising out of builder-buyer relations.

Observing that the State will do well to ensure that the Regulatory Authority functioning under such an Act must be aided by all means possible, Justice S. K. Panigrahi remarked that a wide publicity of the RERA Act will "go a long way" in preventing the property related disputes which are being "perilously brought within the dragnet of criminal proceedings".

The Single Judge was considering an application for bail of the Managing Director of a construction and development company in connection with a FIR under sections 406/420/120-B of the I.P.C. read with Section 6 of the Odisha Protection of Interests of Depositors (in Financial Establishments) Act, 2011. The Counsel for the OPID urged that it was a case of planned cheating and fraud, that the provision of the OPID will squarely apply to the present case and that the provisions of the Real Estate Regulation and Development Act, 2016 have no application whatsoever.

However, appreciating the facts of the case, the bench noted that the accused persons had defaulted in fulfilling their part of the promise to deliver possession of the flat in question or to return the amount paid to them in pursuance of a simple flat buyer agreement. "The instant case is a classic example of a transaction gone awry which has been strenuously given the color of a criminal offence", observed the bench, referring to the growing propensity of parties to resort to criminal proceedings in order to "settle" otherwise purely commercial disputes "as has prima facie occurred in the instant case".

"The relevant law tailor-made for such situations would be the Real Estate (Regulation and Development) Act, 2016 which categorically caters to such situations", declared the Single Bench.

However, the Court lamented that the provisions of the said Act which, despite being "a well thought out Code by itself", is not being resorted to. Justice Panigrahi was of the view that the provisions of the RERA, in fact, provide for "umpteen fail-safe mechanisms to prevent most of the maladies associated with such cases".

"Instead, such circuitous proceedings are being resorted which is neither to the benefit of homebuyers nor to the real estate sector at large", expressed the bench.

Expounding the different applications of the OPID and the RERA, the bench explained that Act of 2011 envisages a situation where multitudes of small depositors are defrauded by dubious corporations by luring them with unscrupulous schemes which promised Utopian returns. The object of the Act is tailored to clear-cut situations where hapless depositors are defrauded by dubious "schemes" floated by such dubious "Financial Establishments" as provided under section 2 (d) of the Act. "Such companies are essentially sham or paper companies with no real businesses, which arduously market such devious machinations in the form of lucrative 'schemes' to gullible common folk, mostly acting out of avarice to invest in such schemes which promise them the moon, hoping to make quick bucks. Such schemes loosely find their origin in 'collective investment schemes' which were monitored by SEBI, the capital market regulator and guidelines framed by it from time to time. However, over the period, such Machiavellian paper companies began to erupt across the country mostly in rural and backward areas having designed the 'schemes', with a promise to the depositors with high returns and sometimes even assured some sham services to give it the color of genuine transactions", said the bench.

Cognisant of the shamelessly rampant advertising and marketing that were being carried out (almost on a war footing) by such companies, the bench explained that the legislatures across various states of the country were compelled to bring such enactments to curb the menace that was spreading fast and deep.

In cases of flat purchasers, Justice Panigrahi writes, that the agreements usually entered into are known, in common parlance, as flat buyers agreement. These agreements typically provide for the consideration to be paid for the flat/apartment purchased. "In a sense, these are sale transactions which are mandatory registrable under the relevant laws", said the bench. Stating that the question of return of deposit or payment of interest on such deposits does not arise, the bench expounded that this provision also unerringly points to the fact that real estate transactions were not intended to be covered under the provisions of the OPID.

Another peculiarity which the bench found likely to hit the application of this Act to real estate transactions is on account of the former's provision for attachment of the Financial Establishments in case of the deposit not being paid back or default payment. The operation of the provision also covers such situations where the Financial Establishment has transferred any of the property held by it to any other transferee. "Typically, in housing construction, a builder constructs a multiple number of apartments...Consequently, the operation of this Section of the (OPID) Act would result in a piquant situation where one lone buyer while claiming refund of his deposit would cause attachment of the other flats so constructed, irrespective of the fact as to whether such flats have been transferred to other transferees by the builder and corresponding rights thereupon have been created or not...This kind of a situation could not have been the intention of the legislature considering the practices, problems and complexities involved in the real estate sector", explained the bench.

The bench concluded that the object of the OPID Act was never intended to apply to real estate transactions simpliciter and doing so is nothing but misplaced or misadventures experimentation with the Act. "It is, in essence, is a social protection enactment and its application to real estate transactions, will lead to absurd and unintended consequences", reflected the bench.

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