Introduction
The augmentation of the Real Estate Regulation Authority (RERA) Act,2016 has brought a significant change in this industry. Many consumers are now relieved from malicious tactics and dirty pools which the promoters used to play before the enforcement of this Act. Since 2016, buyers are seeking fast track grievance redressal in the niche area of real estate. However, there are always pros and cons of any new reform or initiative and the same is observed in RERA Act. The RERA, which is the quasi judicial body, established in accordance with section 20 of the RERA Act, 2016 has adopted a single eye view in various cases. One of such cases is an issue relating to forfeiture of the amount on the termination of agreement for sale between the buyer and the promoter.
What’s the current RERA’s stance in this forfeiture amount issue?
Recently, Maharashtra Real Estate Authority Regulation (MahaRera) in the case of Mr. Amit Agarwal v. M/s Godrej Properties Limited (13 August 2020[i]) have dealt with the similar issue. In the instant case, the complainant came into an agreement for sale with the respondents for purchase of Flat nos. 503 and 504 in D wing of residential phase no. 1 of the respondent’s registered project, “The Trees”. The complainant has booked those flats and according to the agreement for sale the buyer had to pay the respondent under the payment plan of 25%, 60% and 15% a total consideration of Rs 1, 41,67,000/-. The agreement for sale was executed on 16 October 2016 and till then the buyer had discharged payment of Rs 97,49,343.56/-.However, the complaint was delaying the payment ranging from 39 days to 149 days. Meanwhile, the buyer started the construction and informed the complainant about the progress of the same.
The Buyer failed to pay the rest of the consideration after receiving a number of reminders and warnings from the respondent. Unfortunately, the respondent sent a last letter dated 6.03.2018 informing the complainant that they will wait till 8.03.2018 and thereafter in the event of non-payment of due consideration, the termination procedure will commence. Then the respondent terminated the deal by sending an email on 23.03.2018. The complainant after the termination of the agreement applied for loan but on failure to pay process fee, the loan application was rejected. The agreement for sale was having a forfeiture of amount clause providing that upon the termination of the agreement by the developer, the developer shall be entitled to forfeit 20% of the consideration along with the interest amount which the buyer needs to pay from the date of default in payment to the date of termination and refund the balance amount without claiming any damages or cost, charges or expenses. The respondent upon termination forfeited a sum of Rs 56, 66,800/- but did not refund the balance amount. The respondent contended that they had received Rs 37, 07, 464/- for Flat no. D-503 and Rs 36,50,514/- for D-504. Further, they have to discharge Rs13, 72,213/- towards service tax and GST and non- refundable brokerage of Rs 3,54,115/- for each flat. So, the actual total value received by them was Rs 19,81,136/- for Flat no. D-503 and Rs 19,24,186/- for Flat no. D-504. Respondents averred that they have suffered a loss amounting to Rs 3,54,175/- for each flat towards the brokerage charges to the channel partners which is non-refundable. The interest loss of the delayed payment is Rs 4,38,811 for flat no. D-503 and Rs. 4,62,014/- for D-504.
On the above facts, the Maha RERA observed that the agreement of sale was unfair and arbitrary as it contains forfeiture of amount clause only in favour of the Developer, it did not contain any such clause for buyer. Believing this reason, it ordered the developer to refund Rs 19,81,136/- for Flat no. D-503 and Rs 19,24,186/- for Flat no. D-504.
As it is evident from the agreement’s forfeiture amount clause that if the developer terminates the agreement then the 20% of the consideration would be forfeited along with the interest amount from the delaying period to the termination. The buyer was also in fault as he always tried to delay its payment even after being given prior notice and reminders. According to the MahaRera agreement sample, the developer shall give 15 days notice to the buyer before termination. After the termination, the buyer applied for a loan but didn’t pay the processing fee. The act of the buyer was unacceptable as the developer was performing his duties duly on time. It was the fault of the buyer which resulted in the termination.
In my opinion, the MahaRera has adopted single eye view by only looking into the forfeiture amount clause of the agreement. In their view, the developer shall have given the buyer at least 15 days notice period but they have ignored the fact that the developer has already given several reminders before terminating it. There are two more aspects which can be looked into consideration for determining the decision on the above case, firstly that the buyer has voluntarily accepted the terms of the agreements and secondly, the buyer has also contravened Section 19 of the RERA Act, 2016. The developer has also faced loss on construction and other miscellaneous expenses and neglecting these things is inept according to the principle of fair play and justice. Thus, in the instant case, the MahaRera can provide justice to the developer as well by taking into consideration that the sample draft of Maha Rera itself provides clause for forfeiture clause and termination clause by developer on subsequent three defaults in payment by the allottee.
Another instance wherein RERA failed to do complete justice to the Parties was in the case of Mr Sumit Mukjherjee and Mr. Ashutosh Mukherjee v. M/s Rajsanket Realty Limited (6 July 2020)[ii] which is also before the MahaRera. In this case, the buyer has booked a flat in the respondent’s project known as “Rajinfinia Phase II Wing A Wing B Wing C” for a total consideration of Rs 2,23,,09,890/- . The buyer paid a token amount along with taxes amounting to Rs 20,00,000/- to the respondent. Within a period of 40 days from the date of booking the complaint vide its letter dated 10.08.2016 cancelled the said booking and claimed for refund from the respondent. However, the respondent did not pay the refund and stated that it will refund the amount after finding another buyer for the said flat. After 2 years of this the complainant filed a complaint claiming its refund amount. After listening to both the Parties, the MahaRera passed the verdict in favour of the buyer and directed the developer to refund the full amount after taking the benefit of “moratorium period” as mentioned in Notification/ Orders No, 13 and 14 dated 12 April 2020 and 18 April 2020.
Again MahaRera adopted single eye view by directing the developer to pay full refund. In this case, it was a loss for the developer as well he would have to pay certain non-refundable sums to other parties or to the government. Moreover, the buyer cannot by just sending a letter revoke the booking they are obligated to send prior notice of at least 15 days before termination. Inspite of this they failed to take into consideration the obligations of the allottee/ buyer under Section 19 of the RERA Act. This act of the buyer is unethical and contrary to fairness. With reference to Section 73 of the Indian Contract Act, 1872 if any party breaches the terms and conditions of the agreement the other party needs to be compensated by the one who breached a compensation amount which would be done to recoup the other party in a state where no terms and conditions was breached. Supreme Court in catena of cases has upheld the same view. Reliance can be placed on the case of Karsandas H. Thacker Vs. Saran Engineering Co. Ltd.[iii] wherein the Hon’ble Court observed that when one party commits breach of contract, the other party should be compensated for the loss which the former knows that it would result to loss to the latter. RERA shall understand the footing of both the Parties before passing any order and they should pass orders keeping in mind that the law abiders should be compensated so that this new born law can adjust properly in the Indian judiciary. Thus, in these both cases it was evident that the order(s) were contrary to the principle of natural justice and fair play.
Conclusion
The discrepancy in this issue is arising as the RERA Act does not have any provision dealing with the forfeiture amount at the time of termination. This has led to the obscurity in the legal industry. Different State’s RERA are adopting a single eye on this issue. The legislature should bring an amendment in this regard so as the principle of equity, justice and good conscience can prevail in this area as well. Contact Act itself provides that “ubi jus ibi officium’ which connotes what where there is right, there is obligation. If the allottee or the buyer has right to possess the premises they have duty to pay the payment on time.
References
[i] The Maharashtra RERA, Mumbai, Complaint No. CC006000000151210
[ii] The Maharashtra RERA, Mumbai, Complaint No. CC00600000057591
[iii] AIR 1965 SC 1981
“Article by Ms Harshita Agarwal under internship of Adv Shankarlal Raheja
The Views herein are personal and while careful attention has been given to ensure that the information is accurate and assume no liability or responsibility for any reliance thereon. This article is merely information and knowledge sharing activity and is not a substitute to legal advice. We shall not be liable for any loss or damage caused due to any reliance thereof”.