India: Ground Realities To Be Considered While Framing Rules Under RERA Act

Last Updated: 21 July 2016
Article by Sudip Mullick

Most Read Contributor in India, July 2019

Sudip Mullick, Partner, Khaitan & Co is in charge of the Real Estate and Hospitality practice of the Firm and also specialises in construction disputes. Mr Mullick has been with the Firm for about 2 decades and he is also a member of the Executive Committee of the Firm.

The Real Estate (Regulation and Development) Act, 2016 ("Act") has been enacted recently. Of the 92 sections in the Act, 59 have been notified on 26 April 2016 and came into force on 1 May 2016. The principal aim of the Act is to protect the interest of the allottees (purchaser of units in real estate projects). The Act applies to both residential and commercial real estate projects provided that such a project is constructed on land admeasuring atleast more than 500 square meters or the number of unit in such project are 8 or more. The Act is also applicable to ongoing projects in respect of which completion certificate has not been obtained.

While the Act has created expectation in the real estate industry that it would act as a catalyst in disciplining the promoters and bring much needed professionalism in the industry, there is also some amount of trepidation due to uncertainty regarding the application of the Act with respect to existing projects which would depend heavily upon regulations to be framed by the State Government and practices which develop gradually.


The Act requires the promoter of a real estate project (ongoing and new) to register the project with an authority called the Real Estate Regulatory Authority ("RERA") before marketing, advertising, booking, selling units in the project. The project can be registered only when the necessary approvals and commencement certificate are in place. If the project is to be constructed in a phased manner, then the promoter will have to register each phase of the project as a standalone project. The purpose of registration is to provide information to prospective allottee/s regarding the project and to allow them to make an informed decision as well as to regulate that the product promised by the promoter is delivered as promised. While registering the project, the promoter has to also declare brief details of all his projects launched in the last 5 years.


Some of the concerns of the industry with respect to ongoing projects is delay in such projects and consequences thereof. For example, if there is already a delay in ongoing project, would the promoter and allottees be governed by the existing agreement between themselves or would they be governed by the provisions of the Act and rules as framed? and would the compensation be determined by the adjudicating officer appointed under the Act? The question that screams for an answer is whether promoters would be required to deposit 70 per cent of the amount already received (as in most ongoing projects substantial amount would have been received and utilized by the promoter) or only such amounts which may be required for completion of balance construction. For ongoing and new projects, the prime concern of the promoter is that the authorities that would grant construction approvals have not been brought under the ambit of the Act.


Firstly, lender/investor would be concerned as to whether the mechanism as envisaged in the transaction documents of lending/ investment for receipt/repayment of principal and interest and/or protection of their investments would continue to hold good in view of provision relating to deposit of 70 per cent of money received from allottee in a separate account. Secondly, the lender / investors would also be concerned about the risks and liabilities of enforcing and/or resorting the step-in rights and the consequence thereof in view of the fact that a promoter in case of divesting their majority stake would require prior consent of RERA as well as 2/3rd of the allottees?


As a result of this Act, one of the opportunities that lenders and investors would foresee would be that in view of the provision that money will be allowed to be withdrawn on proportionate completion of project it may lead to need for additional requirement of finance by the promoters.


It appears that construction companies engaged in civil construction may have a greater role to play in various ongoing and future projects. Since, 70 per cent of the money received from allottees would be deposited with a scheduled bank, civil contractors will have great comfort in participating in the real estate project because of high degree of security of usage of the money and receipt of their payment. If such a model becomes successful, civil contractors should in their agreement with the promoter procure mechanisms akin to those that are usually procured by lender/investors to secure payment for themselves. There will also be enormous prospects for involvement of civil contractors in ongoing projects as well as new ones where lenders/ investors seek to exercise their step-in right as such lenders/investors will have little or no expertise relating to understanding time schedule for completion of construction and they would heavily depend upon recommendation of project consultants for advise or expediting project and if required, step-in for actual construction in order to deliver on time which will also impact lenders/investors right to receive money from the separate account.


The Act provides that the promoter shall obtain insurance in respect of title of the land, building and construction of the project, the benefit of which will ultimately be passed on to the allottees at the time of entering into the agreement for sale. This will provide insurance companies in India with opportunities to create new products on title insurance.


The respective State Governments are required to frame rules ("Rules") under the Act within 6 months from its commencement for carrying out the provision of the Act. Where an ongoing project is already delayed or is reasonably expected to be delayed (in the opinion of the promoter), in order to avoid any knee jerk reaction, mass failure or unnecessary non-productive litigation between promoters and allottees, it would benefit all stakeholders involved with the project if the rule framed by the State Government under the Act enact provisions for completion of delayed projects within a reasonable period of time. For the period of delay that has already happened before a project's registration, the allottee should be bound by the agreement between the promoters and allottee (whether registered or not), however, for any delay beyond the completion period proposed by the Promoter at the time of registration, the consequences would be as determined by the adjudicating authority (as defined) under the Act. The Act is silent on the consequences of failure of promoters to receive construction approval within a given period of time from the concerned authority. The Rules framed under the Act or the industry practices should evolve and address this issue since delays relating to approvals are a practical reality in India. The Act provides for stringent consequences in the event of lapse or revocation of registration of a project. In this regard, the State Government, while framing the Rules, should take a liberal view by applying the principal of condonation of delay and only in the event of repeated default by the promoter, should stringent punishment apply.

Thus, the Rules regarding grant of an appropriate extension of time for delay in completion of the project or delay in issuing construction approvals by the appropriate authority can be an impediment to the industry, especially in view of present constraint of granting additional time of only 1 year for extension of registration or completion of project. As is common knowledge, approvals are and may be withheld for extraneous considerations and for lack of willingness to take the responsibility of decision.

In case of ongoing projects, the Rules on mandatory deposit of 70 per cent should be carefully drafted so to enable RERA to assess the money received and to be received for a project and ensure that such amount of money as would be required for completion of the project be deposited in a separate account and not necessarily seek or require the promoter to deposit 70 per cent of the amount already received. Further, since the promoter is mandatorily required to obtain title insurance of the land, building and construction and ultimately pass it on to the allottees, the Rules to be framed by the State Government should provide some relaxation to the promoter from their continuing liability to compensate the allottee for any defects in title. The Rules to be framed by the State Government under the Act should be considered with an open and liberal mind so that they are flexible enough to address the challenges concerning the ongoing projects.

The Act which has now created various opportunities for its stakeholders including certainty of quality of product as promised and timely delivery of product or compensation in lieu thereof, should not be squandered due to acts, omissions and inflexibility of stakeholders including the State Government in framing Rules and implementation of the Act by being practical or taking into consideration ground realities.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions