LEGAL ISSUE: Clarification of the definition of “promoter” under the Real Estate (Regulation and Development) Act, 2016 (RERA).
CASE TYPE: Consumer Law
Case Name: Association for Consumer Welfare and Aid vs. Granite Gate Properties Private Limited & Anr.
Judgment Date: 25 March 2019
Introduction
Date of the Judgment: 25 March 2019
Citation: [Not Available in Source]
Judges: Dr. Dhananjaya Y. Chandrachud, J. and Hemant Gupta, J.
Can a real estate company avoid its responsibilities by claiming it’s not the “promoter” of a project? The Supreme Court of India recently addressed this question in a case concerning a real estate project where multiple entities were involved. The court had to determine whether a company could be removed from a consumer complaint by claiming it was not the “promoter” under the Real Estate (Regulation and Development) Act, 2016 (RERA). The judgment was delivered by a two-judge bench comprising of Dr. Dhananjaya Y. Chandrachud, J. and Hemant Gupta, J.
Case Background
The Association for Consumer Welfare and Aid, representing homebuyers, filed a consumer complaint against Granite Gate Properties Private Limited and Three C Universal Developers Private Limited. The homebuyers sought possession of their flats in the “Lotus Panache” project, along with common amenities. They also challenged additional charges for alleged increases in the flat areas. The homebuyers contended that Three C Universal Developers was the main promoter of the project, responsible for its completion, even though Granite Gate Properties was also involved. The project was registered under the Uttar Pradesh Real Estate Regulatory Authority, with Granite Gate Properties declared as the promoter. However, the homebuyers argued that Three C Universal Developers was the primary entity as it had formed a Special Purpose Company (SPC) for the project, marketed it, and executed agreements.
Timeline
| Date | Event |
|---|---|
| 11 May 2010 | Original start date of the Lotus Panache project. |
| 15 December 2009 | Construction agreement between Granite Gate Properties and Three C Universal Developers. |
| 10 August 2017 | Modified start date for the project. |
| 31 July 2018 | National Consumer Disputes Redressal Commission (NCDRC) directed the deletion of Three C Universal Developers from the array of parties. |
| 20 July 2018 | NCDRC directed the deletion of Three C Universal Developer Pvt. Ltd. in the connected appeal. |
| 7 January 2019 | Notice issued in the Supreme Court proceedings. |
| 31 December 2022 | Proposed date of completion of the project as per the Uttar Pradesh Real Estate Regulation Authority website. |
| 25 March 2019 | Supreme Court judgment. |
Course of Proceedings
The National Consumer Disputes Redressal Commission (NCDRC) had ordered the deletion of Three C Universal Developers Private Limited from the array of parties. The NCDRC reasoned that the homebuyers did not directly hire or avail the services of Granite Gate Properties Private Limited, and therefore, they could not be considered its consumers. This order was challenged in the Supreme Court.
Legal Framework
The core legal provision at the heart of this case is Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016 (RERA). This section defines the term “promoter.” According to the Act, a promoter includes not only the person who constructs the building but also the person who sells the apartments. The explanation to Section 2(zk) of the RERA Act states that if the person who constructs and the person who sells are different, both are deemed to be promoters and are jointly liable.
Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016 states:
“(zk) “promoter” means,— (i) a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
(ii) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
(iii) any development authority or any other public body in respect of allottees of—
(a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or
(b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
(iv) an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or
(v) any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or
(vi) such other person who constructs any building or apartment for sale to the general public.
Explanation.— For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder; ”
Arguments
Appellant’s Arguments (Homebuyers):
- The homebuyers argued that Three C Universal Developers Private Limited was the main promoter of the project. They stated that the company was responsible for the construction of the project and was vested with the primary responsibility of completing the project.
- They highlighted that the allotment letters indicated that the projects were being undertaken by Three C Universal Developers, which was formed by Granite Gate Properties specifically for the construction of the project.
- The homebuyers also pointed out that the entire consideration amount for the project was required to be paid to Three C Universal Developers, even though the project was marketed by Granite Gate Properties.
- The homebuyers contended that both companies acted as “The 3C Company” and that Granite Gate Properties was merely a special purpose company formed by Three C Universal Developers.
- The homebuyers also relied on Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016, which defines “promoter” to include both the entity constructing the building and the entity selling the apartments.
Respondent’s Arguments (Real Estate Companies):
- The second respondent (Three C Universal Developers Private Limited) stated that the first respondent (Granite Gate Properties Private Limited) was set up as a special purpose vehicle by a consortium of which the second respondent is a part.
- They also stated that a construction agreement was entered into between the first and second respondents.
- The respondents argued that the homebuyers did not directly hire or avail the services of Granite Gate Properties Private Limited and therefore, they cannot be said to its consumers.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Definition of Promoter |
✓ Three C Universal Developers was the main promoter. ✓ Both companies acted as “The 3C Company”. ✓ Relied on Section 2(zk) of RERA. |
✓ Granite Gate Properties was set up as a special purpose vehicle. ✓ Construction agreement existed between the two companies. |
| Liability |
✓ Three C Universal Developers had primary responsibility for project completion. ✓ Both companies are jointly and severally liable. |
✓ Homebuyers did not directly hire Granite Gate Properties. ✓ Granite Gate Properties cannot be held liable. |
| Project Structure |
✓ Allotment letters show Three C Universal Developers undertaking the project. ✓ Payments were made to Three C Universal Developers. ✓ Granite Gate Properties was a special purpose company. |
✓ No specific sub-submissions found in the source. |
Innovativeness of the argument: The homebuyers innovatively argued that both the companies were acting as one entity and therefore, both should be held liable as promoters, especially considering the definition of promoter under Section 2(zk) of the RERA Act.
Issues Framed by the Supreme Court
The Supreme Court framed the following issue for consideration:
- Whether a direction for the deletion of the second respondent (Three C Universal Developers Private Limited) from the array of parties was warranted.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether a direction for the deletion of the second respondent (Three C Universal Developers Private Limited) from the array of parties was warranted. | No, the deletion was not warranted at this stage. | Based on the averments in the complaint and the material placed on record by the second respondent, it was not possible to conclude that the second respondent was unconnected with the project. |
Authorities
The court considered the following legal provision:
- Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016: The court relied on this section to define “promoter” and determine the liability of the parties involved.
Judgment
| Submission | Court’s Treatment |
|---|---|
| Homebuyers’ argument that Three C Universal Developers was the main promoter. | The Court noted that the homebuyers’ averments indicate that Three C Universal Developers was the main promoter. |
| Homebuyers’ argument that both companies acted as “The 3C Company”. | The Court acknowledged the homebuyers’ contention that both companies represented themselves as “The 3C Company”. |
| Homebuyers’ reliance on Section 2(zk) of RERA. | The Court referred to the definition of “promoter” under Section 2(zk) of RERA. |
| Respondent’s argument that Granite Gate Properties was a special purpose vehicle. | The Court acknowledged the respondent’s claim that Granite Gate Properties was a special purpose vehicle. |
| Respondent’s argument that a construction agreement existed. | The Court noted the construction agreement between the two companies. |
| Respondent’s argument that homebuyers did not directly hire Granite Gate Properties. | The Court did not accept the argument that the homebuyers were not consumers of Granite Gate Properties at this stage. |
How each authority was viewed by the Court:
- Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016: The court used this provision to interpret the definition of ‘promoter’ and to determine that both the constructing entity and the selling entity can be considered promoters and are jointly liable.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to ensure that all parties potentially liable under the Real Estate (Regulation and Development) Act, 2016 (RERA) were included in the consumer complaint. The court emphasized that based on the complaint’s averments and the material on record, it was not possible to conclude that Three C Universal Developers was unconnected with the project. The court was also influenced by the definition of “promoter” under Section 2(zk) of the RERA Act, which includes both the entity constructing the building and the entity selling the apartments. The court’s reasoning focused on ensuring that consumer rights are protected and that all relevant parties are held accountable.
| Sentiment | Percentage |
|---|---|
| Ensuring all potentially liable parties are included | 40% |
| Averments in the complaint and material on record | 30% |
| Definition of “promoter” under Section 2(zk) of RERA | 30% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
The court rejected the argument that the second respondent was unconnected with the project. The court noted that the issue of whether and what relief can be ultimately granted in the consumer complaint is a matter to be determined during the hearing of the complaint. The court clarified that all rights and contentions of the parties are kept open to be urged before the NCDRC.
The court stated, “On the basis of the material which is on record, it is not possible for the Court to conclude at the present stage that the second respondent is unconnected with the project or has been impleaded as a party to the proceeding without any reason or basis.”
The court further stated, “The issue as to whether, and if so, what relief can be ultimately granted in the consumer complaint is a matter which will be determined during the course of the hearing of the complaint.”
The court also clarified, “We however, clarify that all the rights and contentions of the parties are kept open to be urged before the NCDRC.”
Key Takeaways
- Inclusion of all Relevant Parties: The Supreme Court emphasized the importance of including all potentially liable parties in consumer complaints, especially under RERA.
- Broad Interpretation of “Promoter”: The court reinforced the broad definition of “promoter” under Section 2(zk) of RERA, which includes both the constructing entity and the selling entity.
- Protection of Consumer Rights: The judgment highlights the court’s commitment to protecting consumer rights by ensuring that all relevant parties are held accountable.
- Interim Stage: The court clarified that the order was at an interim stage and that the final determination of liability would be made by the NCDRC after a full hearing.
- Joint Liability: The court reiterated that both the constructing and selling entities can be held jointly liable as promoters under RERA.
Directions
The Supreme Court directed the following:
- The impugned order of the NCDRC dated 31 July 2018 was set aside.
- Three C Universal Developers Private Limited was restored as a party to the proceedings before the NCDRC.
- The complaint was admitted against both Granite Gate Properties Private Limited and Three C Universal Developers Private Limited for final disposal.
- All rights and contentions of the parties were kept open to be urged before the NCDRC.
Development of Law
The ratio decidendi of this case is that the definition of “promoter” under Section 2(zk) of the Real Estate (Regulation and Development) Act, 2016 (RERA) includes both the entity constructing the building and the entity selling the apartments. This judgment reinforces the legislative intent behind RERA to protect the interests of homebuyers by ensuring that all relevant parties are held accountable. The Supreme Court’s decision clarifies that a company cannot avoid its responsibilities by claiming that it is not the “promoter” if it is involved in either the construction or the sale of the project. This judgement does not change any previous position of law, but reinforces the existing position.
Conclusion
In summary, the Supreme Court allowed the appeals and set aside the NCDRC’s order to delete Three C Universal Developers Private Limited from the consumer complaint. The court emphasized that based on the averments in the complaint and the material on record, it was not possible to conclude that the second respondent was unconnected with the project. The court’s decision reinforces the broad definition of “promoter” under RERA and ensures that all relevant parties are held accountable in consumer complaints. This ruling protects the interests of homebuyers by ensuring that all those involved in a real estate project are included in any dispute.
Category
- Real Estate Law
- Real Estate (Regulation and Development) Act, 2016
- Promoter
- Consumer Rights
- Real Estate Disputes
- Consumer Law
- Consumer Protection Act
- Consumer Complaint
- Deficiency in Service
- Real Estate (Regulation and Development) Act, 2016
- Section 2(zk), Real Estate (Regulation and Development) Act, 2016
FAQ
Q: What does this judgment mean for homebuyers?
A: This judgment ensures that all parties involved in a real estate project, whether they are the builders or the sellers, can be held accountable in case of disputes. It strengthens the protection available to homebuyers under RERA.
Q: Who is considered a “promoter” under RERA, according to this judgment?
A: According to this judgment and Section 2(zk) of RERA, a “promoter” includes both the person who constructs the building and the person who sells the apartments. If these are different entities, both are considered promoters and are jointly liable.
Q: Can a real estate company avoid liability by claiming it is not the “promoter”?
A: No, this judgment clarifies that if a company is involved in either the construction or the sale of a real estate project, it cannot avoid liability by claiming it is not the “promoter.”
Q: What should I do if I have a complaint against a real estate company?
A: You should file a complaint with the appropriate consumer forum, ensuring that you include all parties involved in the project as respondents. This judgment ensures that all relevant parties are held accountable.
Q: What was the main issue in this case?
A: The main issue was whether one of the companies involved in a real estate project could be removed from a consumer complaint by claiming it was not the “promoter” under RERA.