RERA UPDATE | BOMBAY REALTY CASE

The Maharashtra Real Estate Appellate Tribunal, Mumbai (Appellate Tribunal) recently passed an order, allowing certain allottees (Allottees) of Bombay Realty`s Island City Center (Project) to withdraw from the Project and further, granting refund and compensation to the Allottees of the Project.

Background:

The Project was being developed by Bombay Dyeing (Promoter) at Spring Mills Compound, Wadala, Mumbai. The Allottees had submitted booking application forms for allotment of their respective flats in the 2 buildings of the Project between 2012 and 2013. The Promoter had issued allotment letters. Terms and conditions of allotment were mentioned in the said allotment letters. A list of amenities to be provided by the Promoter inside the apartments was also separately attached. The Allottees paid approximately 19% of the consideration of their respective flat in the year 2012-2013 to the Promoter, the balance being payable at the time of possession.

After the Real Estate (Regulation and Development) Act, 2016 (RERA) came into force on 1 May 2017, the Promoter registered the Project under RERA. Under the RERA registration, the timeline for the completion of the Project was unilaterally extended by the Promoter. The Promoter mentioned the proposed date of possession as 31 August 2018 and the revised date for completion of the Project as 31 August 2019 at the time of registration.

Complaint under RERA:

• As the Promoter failed to give possession of the flats on or before the year 2017 and also failed to render amenities as assured to the Allottees, the Allottees filed complaints under Section 31 of RERA. The Allottees had prayed in the said complaints that the Promoter be directed to cancel the allotment letters and refund the entire amount paid by the Allottees along with the interest and compensation for breach of Section 12 and Section 18 of RERA.
  
  
• The Adjudicating Authority, however disposed of the complaints by advising the parties to execute and register agreement for sale as per Section 13 of RERA within 30 days and in the alternative, directed that if the Allottees intend to withdraw from the Project, then such withdrawal would be guided by the terms and conditions of the allotment letters. No specific order for refund with interest and compensation was passed by the Adjudicating Authority under Section 12 and Section 18 of RERA.
  
  
• The Adjudicating Authority observed that Section 12 and 18 of RERA do not apply retrospectively and Section 12 is not attracted to the present transactions between parties which took place between 2012 and 2013, much prior to the enactment of RERA.
  
  

Appeal before Appellate Tribunal:

• The Allottees filed an appeal before the Appellate Tribunal. The Appellate Tribunal, relying on the decision of the Hon`ble Bombay High Court in Neelkamal Realtors Suburban Pvt. Ltd v. Union of India, held that Section 18 of RERA has quasi-retroactive application. Further, the Appellate Tribunal observed that Section 12 of RERA would also apply quasi-retroactively. As per the Appellate Tribunal, the principle of quasi-retroactivity applies a new rule of law to an act or transaction which is in the process of completion.
  
  
• The Appellate Tribunal held that though the Promoter gets an opportunity to prescribe a fresh time line for completing a project at the time of registration, however, the Promoter is not absolved of the liability under the agreement for sale. Further, the Appellate Tribunal also observed that the obligation to pay interest for delayed possession is not a penalty, as payment of interest is compensatory in nature.
  
  
• The Appellate Tribunal held that though no date of possession was mentioned in the letters of allotment, however, the Allottees have made out a case that when they booked the flats in the year 2012-13, the Promoter had assured them orally to give possession in the year 2017. It also held that it is settled position of law that in absence of a specific date of handing over the possession, a reasonable period of 3 years is to be assumed for handing over the possession.
  
  
• The Appellate Tribunal observed that the issuance of occupancy certificate in the year 2019 and offer of giving possession accordingly will not deprive the Allottees of the remedy of withdrawing from Project and claiming refund and compensation.
  
  
• Thus, finding the Promoters guilty of delaying possession and changing the layout plans, the Appellate Tribunal allowed the appeal of the Allottees and permitted them to withdraw from the Project. The Appellate Tribunal also directed the Promoter to refund the amount paid by the Allottees along with interest at the rate of 2% plus State Bank of India`s highest Marginal Costs of Lending Rate.
  

MHCO Comment: We believe that this is a landmark judgement passed by the Appellate Tribunal. Not only has the Appellate Tribunal taken a note of the problems faced by the Allottees under the Project that was initiated prior to the enactment of RERA, but it has also clarified that the Allottees do not require a registered agreement for sale for initiating action under RERA. Considering the fact that RERA is a beneficial legislation, the Appellate Tribunal has given RERA a wider interpretation to make sure that such Allottees are not left remediless. However, this will definitely be subject to an appeal before the Hon`ble Supreme Court.

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.comfor any assistance.

 COVID-19 | ENFORCEABILITY OF CONTRACTS IN INDIA | FORCE MAJEURE 

Corona Virus Disease (Covid-19) which originated in Wuhan, China in December 2019, has now plagued the entire globe. It has virtually brought the world to a standstill in the last 2 weeks. As per the Indian Ministry of Health and Family Welfare, there have been 606 reported cases of the Corona Virus in India and 10 deaths have been reported so far due to the disease (as on 26 March 2020). The situation has resulted, in the Indian Government imposing a complete lockdown in India for a period of 21 days with effect from 25 March 2020.

The World Health Organization has declared Covid-19 as a pandemic. The spread of Covid-19 in the country has led to the Indian Government invoking powers under The Disaster Management Act, 2005, which has given the Ministry of Health wide powers to contain the spread of the virus. Most state governments have also classified Covid-19 as an `epidemic disease` and hence have invoked the Epidemic Diseases Act, 1897, which gives local authorities, like municipal corporations the power to quarantine people and take other steps towards the containment of epidemics, such as restricting gatherings of people and imposing restrictions on inter and intra- city travel.

IMPLICATION OF LOCKDOWN

The lockdown would essentially result in a standstill for many businesses, using the work from home option if available or temporarily stopping work. This initiative by the Government puts into question, how contracts would be treated due to the stoppage of work. The questions which would arise are:

• Would all contracts entered into for performance at this time be repudiated or frustrated?
• Can such contracts be terminated citing force majeure.

The Government at this point, has not come up with a specific notification classifying Covid-19 as force majeure for all commercial contracts. Despite previous cases of epidemics in the country, there is no case law on the operation of force majeure clauses in the context of an epidemic. Though, the Ministry of Finance, Department of Expenditure, Procurement Policy Division and the Ministry of New & Renewable Energy have through Office Memorandums dated 19 February 2020 and 20 March 2020 respectively (Office Memorandums) clarified that any disruption in supply chains due to Covid-19 should be considered as a natural calamity and the force majeure clause may be invoked, however, the same cannot be treated as applicable to all sectors.

REVIEW OF CONTRACTS

Force Majeure Clause: Since there is no government notification on the same, the clauses in each individual contract would need to be reviewed minutely. For example, if a force majeure clause specifically lists out `epidemic` or `pandemic`, then Covid-19 would fall within the scope of such a clause, and either party may cite force majeure to terminate such a contract. In other cases, if for example, the language of the force majeure clause in a contract is: `any cause beyond the control of the both the parties`, then Covid- 19 may come within the ambit of force majeure, subject to the interpretation of the courts at the time of a dispute. Basically a party must firstly, prove that the force majeure event was not within its reasonable control, such that it could not have been avoided and secondly, it is not related to the neglect or misconduct of the affected party. A link between the two conditions must also be established. It is important to note that the party unable to perform the contract needs to timely invoke the clause by giving a notice citing the force majeure.

It is still uncertain how courts would deal with issues arising due to Covid- 19, as the disaster is still unfolding. It can be opined that the courts should treat Covid-19 as a natural calamity as seen by the Office Memorandums.

Frustration of Contract: The affected parties, in contracts which do not have a force majeure clause, can also argue that the circumstances persisting have made the obligations under the contract impossible to be performed, as provided under Section 56 of the Indian Contract Act, 1872 (Contract Act). Frustration would occur in a situation where the obligations under a contract become impossible to perform, as the purpose of the contract has been frustrated or the purpose has become unattainable. In such a situation, as per Section 56 of the Contract Act, it would be unjust to bind the affected party to its obligations under the contract.

Covid- 19 presents atypical challenges and it has already disrupted businesses, due to stoppage of travel, lockdowns and government directives to cease operations. As a result of it the performance of many contracts would be delayed or even cancelled.

MHCO Comment: The Chinese government has started issuing force majeure certificates to companies, which are incapable of fulfilling their contractual obligations. This effort is to try and protect them from breach of contract claims. The Indian government has till date not issued such certificates. Therefore parties must be ready to invoke and defend force majeure clauses, which might excuse performance of contractual obligations. 

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.comfor any assistance.