OBTAINING PART OC BEFORE 30 JUNE 2017 | DOES NOT EXCLUDE PROJECT FROM RERA JURISDICTION

INTRODUCTION

The main purpose for enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA) was to protect the right and interest of the flat purchasers / allottees in real estate projects. RERA came into effect on 1 May 2017.

The issue brought before Maharashtra Real Estate Regulatory Authority (MahaRERA) was whether obtaining the Part Occupancy Certificate (Part OC) before 30 June 2017 will exempt the project from the jurisdiction of RERA.

Vide interim order on 12 September 2018 in the matter of Haresh Jethmal Asher v. Bellissimo Crown Buildmart (i.e. Lodha Developers) bearing Complaint Number CC0060000000044384, MahaRERA has held that that it has jurisdiction over a project where Part OC had been issued under local laws.

FACTS OF THE CASE

In the present case, Lodha Developers obtained Part OC vide letter dated 8 June 2018 for the 1st to 40th Floor. For rest of the floors for which the Part OC had not been obtained, MahaRERA clearly had jurisdiction under the RERA. However, the promoter of the project failed to provide proper amenities to the allottee (the complainant) as promised. Hence the complainant filed the complaint before MahaRERA for refund of the entire paid amount along with interest.

The main issue that came up before MahaRERA while hearing the complaint was whether the Part OC obtained under local laws exempted the project from registration under RERA and consequently, excluded the jurisdiction of MahaRERA.

Lodha Developers relied on the judgment of Prasad Patker v. Runwal Projects Private Limited (Complaint No CC006000000000182) where MahaRERA had already held that ongoing projects which have already received Part OC do not require registration.

DECISION OF MahaRERA

Section 3 of RERA exempted real estate projects from registration where the promoters of the project had received the completion certificate prior to commencement of the Act. On the other hand Rule 4 of the MahaRERA Rules, 2017 (Rules) exempted real estate projects where the promoters of the project had received either the completion certificate or the occupancy certificate prior to commencement of the Act.

To address this dichotomy MahaRERA compared the definition of completion certificate under the RERA and the definition of occupancy certificate and completion certificate under the Development Control Regulation for Greater Bombay, 1991 (DCR). MahaRERA while interpreting the definition of occupancy certificate under DCR and completion certificate under RERA held that in the State of Maharashtra the occupancy certificate is issued by the local authority (Municipal Commissioner) after obtaining the certificate from the private architect or engineer supervising the construction if the project complies with the laws and the sanctioned plan. Completion certificate is issued by the local authority (Municipal Commissioner) provided such project is as per sanctioned plans, layout and specifications. So after comparing the above definitions, MahaRERA concluded that Rule 4 of the Rules and Section 3 of RERA mean to say the same thing and are not contrary to one another. It also held that the occupancy certificate issued under the local municipal laws comes within the definition of completion certificate defined by RERA.

Further while answering the main issue, MahaRERA primarily relied on the judgment of the apex court in Union of India through Director of Income Tax v. Tata Chemicals Limited to hold that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning unless such interpretation leads to some absurdity.

MahaRERA referred to Section 3 of RERA which states that, if any project is ongoing and its completion certificate is not obtained prior to the commencement of the Act i.e. before 1 May 2017, then such project needs registration under the RERA. As in the given case, the project obtained its Part OC as per local laws on 8 June 2017, the said project requires registration under RERA.

In addition MahaRERA also held that in the interest of all the allottees of the project it would be anomalous to hold that some part of the building is covered by MahaRERA’s jurisdiction and other part is exempted. Hence it held that the entire project comes under the jurisdiction of MahaRERA.

MHCO Comment: Although the given order is an interim order, it clarifies the position in law that obtaining Part OC for a project does not exclude the jurisdiction of MahaRERA over such project. Similar orders have been passed by Haryana-RERA. This order is bound to cause tremendous discomfort to builders / developers who rushed to obtain occupancy certificates to avoid the provisions of the RERA
 
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

INITIATING INSOLVENCY PROCEEDINGS DURING PENDENCY OF PROCEEDINGS UNDER SECTION 34 OF ARBITRATION AND CONCILIATION ACT

 Introduction

A bench of Hon’ble Justice R. F. Nariman and Hon’ble Justice Indu Malhotra of the Supreme Court of India recently, in the case of K Kishan (Appellant) vs. Vijay Nirman Company Pvt Ltd (Respondent), considered whether the Insolvency and Bankruptcy Code, 2016 (``the Code``) can be invoked in respect of an operational debt where the arbitral award passed against the operational debtor creating such debt, has been challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (``the Act``).

Facts of the case

1. A contract was entered into between the parties for a construction project. During the course of the project, disputes and differences arose between the parties which were referred to an arbitral tribunal.
2. In the award, amongst other reliefs, a sum of Rs 1,71,98,302/- was granted in favour of the Respondent. There were certain cross claims of the Respondent which were rejected in the award.
3. Soon after the award was delivered, the Respondent issued a notice under Section 8 of the Code to the Appellant. The Appellant replied within 10 days stating that the invoice being referred to in the notice was the subject-matter of the arbitration proceedings and according to the Appellants, the Respondent was liable to pay larger amounts to them. Subsequently the Appellant challenged the award passed in the arbitration proceedings under Section 34 of the Act.
4. The Respondent thereafter also filed an application under Section 9 of the Code to the NCLT. The NCLT admitted the application stating that the Respondent was entitled to the sum as the award granted was in favour of the Respondent and also held that the fact that a Section 34 petition was pending was irrelevant for the reason that the claim was granted and no stay was received on the award.
5. On an appeal, the NCLAT held that the non-obstante clause contained in Section 238 of the Code would override the Act and the award of the arbitral tribunal mentioned in Part 5 of the Form V would be considered as a record of the operational debt. The NCLAT upheld the decision of the NCLT and dismissed the appeal.

The Supreme Court held:

1. The Supreme Court relied on the judgement of Mobilox Innovations Private Limited v. Kirusa Software Private Limited where it was held that the object of the Code was not to adjudicate and enforce a debt which could be possible by other Acts including the Act. Further the Hon’ble Court observed that if there is a real dispute between the parties which is likely to succeed on a point of law, the Code cannot be applied.
2. The Code is only applicable to cases where the claim is clear and undisputable. The filing of a Section 34 petition against an arbitral award, shows that the claim was not clear and is disputed. Therefore, the Code would not be applicable at least till the adjudication of the final award.
3. The Supreme Court also disagreed with the NCLAT’s view on the application of Section 238 of the Code stating that Section 238 would apply in cases where there is an inconsistency between the Code and the Act. The Hon’ble Court observed that in the present case there was no such inconsistency and on the contrary the award passed under the Act along with its challenge made it clear that the operational debt was disputed.
4. Allowing the appeal, the Hon’ble Court stated that it is most important that the operational debt be clear and not disputed. If the debt is disputed, within the parameters laid down in the Mobilox Innovations case, an insolvency application cannot be filed.

MHCO Comment: The judgment of the Supreme Court has made it clear that only an undisputed operational debt can be the subject matter of an application under the Code. A genuine challenge to an arbitral award which gives rise to the debt will preclude the operational creditor from pursuing an application under the Code. This decision further clarifies the ambit of dispute under the Code.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.