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Ongoing Projects - Extent And Scope Under Real Estate (Regulation And Development) Act, 2016

1. The enactment of Real Estate (Regulation and Development) Act, 2016 brought a sea change in the manner the real estate sector was being regulated. It brought along with it a hope in the eyes of the allottees to fulfil their dreams to get their abode for which they were waiting for long. Though it remains a fact that the manner in which the act has been implemented, it is disputable as to whether the Act has been able to achieve the object and to what extent it has been able to rectify the mischief for curing which it was enacted. One of the aspects which has remained subject matter of discussion, debate and dispute especially amongst the builders as to whether they are exempted from the clutches of requirement of registration under the Act and whether their projects were ongoing on the date when the Act came into force. Since the Act does not provide definition of "ongoing project" therefore, there remains confusion as to whether such projects for which licences were granted but no further implementation has been made are also covered and this prevailing confusion has often been a subject matter of dispute because in recent past it has been seen that the authorities has burdened the builders with penalties and costs for late registration of the project after the commencement of the Act. The instant article aims to clarify the air of confusion around the interpretation and scope of the term "ongoing project". The terms "ongoing project" is being discussed with reference to the Haryana real Estate (Regulation and Development) Rules, 2017.

2. In order to appreciate as to how this concept of "ongoing project" evolved, it is necessary to first dive into the legislative history and the object of the Act of 2016. A perusal of the statement of objects and reasons of the act shows that the act has been enacted to establish the real estate regulatory authority for regulation and promotion of the real estate sector and to ensure sale of plot apartment or building as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector. The idea of the legislation revolves around effective consumer protection, uniformity and standardization of business practices and transactions in the real estate sector in order to ensure greater accountability towards consumers to overcome frauds and delays and also the higher transaction costs. At the same time, it also intended to balance the interests of consumers and promoters by imposing certain duties and responsibilities on both.

3. There could not have been an effective way than to introduce the concept of "registration of real estate project" for imparting transparency in the real estate sector and ensuring its effective regulation. Accordingly, under chapter II of the Act of 2016 registration of real estate projects was made mandatory and to make the statute apply with rigours, sub section (1) of Section 3 provided that without registering the real estate project with a real estate regulatory authority established under the act, no promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner a plot, apartment or building, as the case may be in any real estate project. While making registration of "real estate project" mandatory under sub section (1) of section 3, the legislature by virtue of proviso to section 3(1) mandated that such projects which are "ongoing" on date of commencement of the Act and more specifically the projects to which the completion certificate has not been issued, shall have to make an application to the authority for registration of the project within 3 months from the date of commencement of the Act of 2016. Section 3 of the Act has been reproduced herein under for ready reference: -

`....3. Prior registration of real estate project with Real Estate Regulatory Authority -

(1) No promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase in any manner any plot, apartment or building, as the case may be, in any real estate project or part of it, in any planning area, without registering the real estate project with the Real Estate Regulatory Authority established under this Act.

Provided that projects that are ongoing on the date of commencement of this Act and for which the completion certificate has not been issued, the promoter shall make an application to the Authority for registration of the said project within a period of three months from the date of commencement of this Act.

Provided further that if the Authority thinks necessary, in the interest of allottees, for projects which are developed beyond the planning area but with the requisite permission of the local authority, it may, by order, direct the promoter of such project to register with the Authority, and the provisions of this Act or the rules and regulations made thereunder, shall apply to such projects form that stage of registration.

(2) Notwithstanding anything contained in sub-section (1), no registration of the real estate project shall be required -

(a) where the area of land proposed to be developed does not exceed five hundred square meters or the number of apartments proposed to be developed does not exceed eight inclusive of an phases;

Provided that if the appropriate Government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be inclusive of all phases, for exemption from registration under this Act.

(b) where the promoter has received completion certificate for a real estate project prior to commencement of this Act.

(c) for the purpose of renovation or repair or re-development which does not involve marketing, advertising selling or new allotment of any apartment, plot or building, as the case may be, under the real estate project.

4. From perusal of the aforesaid provision and the statement of object and reasons of the Act, it manifests that the legislative intent is to make an Act applicable not only to the projects which were yet to commence after the Act became operational but also to bring under its fold "ongoing" projects and to protect from its inception the inter se rights of the stage holders, including allottees/home buyers, promoters and real estate agents while imposing certain duties and responsibilities on each of them. Therefore, it becomes equally important to give such a meaning to the "ongoing" project, which would take forward the legislative intent.

5. It is worthwhile to refer to the legal principles settled by the Apex Court for interpreting the definition clause so as to understand the true import of the term. The most popular way of interpreting any clause or for that matter a definition clause is held to be the "contextual interpretation". Interpretation must depend upon the text and the context. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. If the statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than the statute is looked at without glasses provided by the context. The requirement is to look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire act. No part of a statute or word of a statute can be construed in isolation. (as observed in State of Maharashtra v. Reliance Industries Ltd., (2017) 10 SCC 713).

6. For understanding scheme of the Act of 2016 in order to ascertain the scope and meaning of "ongoing projects", it is relevant to refer to the definitions of "completion certificate", "development", "real estate project", "sanctioned plan" and section 4 of the Act of 2016 read with Rule 3 and 4 of Rules of 2017. This would further help us to understand as to the "regulatory function" of the authority which the legislature had sought to achieve with enactment of Act of 2016. At first reference is made to the definition of real estate project as provided in section 2 (zn) of Act of 2016, same is as follows:-

(zn) "real estate project" means the development of a building or a building consisting of apartments, or converting an existing building or a part thereof into apartments, or the development of land into plots or apartments, as the case may be, for the purpose of selling all or some of the said apartments, or plots or building, as the case may be, and includes the common areas, the development works, all improvements and structures thereon, and all easement, rights and appurtenances belonging thereto.

7. A real estate project is defined to mean "development" of building or building consisting of apartments or conversion of existing buildings into apartments or development of land into plots for the purpose of selling including common areas, development works, easement rights etc. The word "development" as used in the aforesaid definition is defined in section 2(s) to mean, `carrying out the development of immovable property, engineering or other operations in, on, over or under the land or the making of any material change in any immovable property or land and includes re-development.' As a sequel of above, the word "development" used in relation to "real estate project" connotes that "real estate project" involves the process of making "material change in any immovable property/land" in the form of apartments, plots or buildings etc., for the purpose of selling. Thus, the concept of development i.e., making change in land/immovable property is very much ingrained as far as phrase "real estate project" as used in the Act of 2016 is concerned. It would thus, be no gainsaying that definition of real estate project itself takes care of "ongoing projects" i.e., including within its ambit the projects which are at any stage of "development" and "not yet completed" and no completion certificate has yet been issued.

8. To further understand the relevance of the definition of "real estate project", reference is made to the sub section (2) of section 3 which grants exemption to certain real estate project from the requirement of registration which includes such projects wherein the promoter has received a "completion certificate" prior to the commencement of the Act. The "completion certificate" is defined in section 2(q) of the Act of 2016 to mean, "completion certificate, or such other certificate, by whatever name called, issued by the competent authority certifying that the real estate project has been developed according to the sanctioned plan, layout plan and specification as approved by the competent authority under the local laws." Thus, any project which is short of completion certificate i.e., not yet developed in accordance with the sanctioned plan and is in the "development" stage can be called as "ongoing" within the scope of Act of 2016.

9. The words "sanctioned plan" as also used in definition of "completion certificate" is defined in the Act in section 2(zq), as per which "sanctioned plan means the site plan, building plan, service plan, parking and circulation plan, landscape plan, layout plan, zoning plan and such other plan and includes structural designs, if applicable, permissions such as environment permission and such other permissions, which are approved by the competent authority prior to start of a real estate project". The legislature has specifically used the words "prior to start of a real estate project" while defining the meaning of "sanctioned plan". The words "prior to start" assumes all the more significance because as seen from the definition of "real estate project" it connotes "development" i.e., process of making material change in the immovable property or land for converting into apartments, buildings, plots etc., and the stage of sanctioned plan which includes site plan, building plan, service plan, circulation plan etc., all precedes the "real estate project". The legislature by providing that stage of getting approvals is "prior to start of real estate project" has excluded it from the concept of "development" as ingrained in section 2(s) and 2(zn) which defines "real estate project". Therefore, in the considered opinion of undersigned, a project cannot be called "real estate project" unless and until it has been conceptualized, for which building plans, zoning plans, layout plans etc. are the basics. This stage necessarily precedes the development of a "real estate project" i.e., development of land into buildings/apartments/flats/plots etc.

10. Further reference is made to section 4 of the Act which provides for the "application for registration of real estate projects". As per section 4(1) of Act of 2016 every promoter is bound to make an application to the Authority for registration of "real estate project". The power to prescribe the manner and form along with fees, is bestowed on the State Government, however, at same time sub section (2) of section 4 makes it mandatory for the promoter to enclose certain documents which includes, an authenticated copy of the approvals and commencement certificate from the competent authority obtained in accordance with the laws as may be applicable for the real estate project, sanctioned plan, layout plan and specifications of the proposed project or the phase thereof, and the whole project as sanctioned by the competent authority, plan of development works, number of apartments. Section 4 in its entirety is reproduced herein below for the ready reference:-

4. Application for registration of real estate projects -

(1) Every promoter shall make an application to the Authority for registration of the real estate project in such form, manner, within such time and accompanied by such fee as may be (prescribed)

(2) The prompter shall enclose the following documents along with the application referred to in sub-section (1), namely -

(a) a brief details of his enterprise including its name, registered address, type of enterprise (proprietorship), societies, partnership, companies, competent authority), and the particulars of registration, and the names and photographs of the promoter;

(b) a brief detail of the projects launched by him, in the past give years, whether already completed or being developed, as the case may be, including the current status of the said projects, any delay in its completion, details of cases pending, details of type of land and payments pending;

(c) an authenticated copy of the approvals and commencement certificate from the competent authority obtained in accordance with the laws as may be applicable for the real estate project mentioned in the application, and where the project is proposed to be developed in phases, an authenticated copy of the approvals and commencement certificate from the competent authority for each of such phases;

(d) the sanctioned plan, layout plan and specifications of the proposed project or the phase thereof, and the whole project as sanctioned by the competent authority;

(e) the plan of development works to be executed in the proposed project and the proposed facilities to be provided thereof including firefighting facilities, drinking water facilities, emergency evacuation services, use of renewable energy.

(f) the location details of the project, with clear demarcation of land dedicated for the project along with its boundaries including the latitude and longitude of the end points of the project;

(g) proforma of the allotment letter, agreement for sale, and the conveyance deed proposed to be signed with the allottees;

(h) the number, type and the carpet area of apartments for sale in the project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas appurtenant with the apartment, if any;

(i) the number and area of garage for sale in the project;

(j) the names and addresses of his real estate agents, if any, for the proposed project;

(k) the names and addresses of the contractions, architect, structural engineer, if any and other persons concerned with the development of the proposed project;

(l) a declaration, supported by an affidavit, which shall be signed by the promoter or any person authorized by the promoter, stating -

(A) that he has a legal title to the land now which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person;

(B) that the land is free from all encumbrances, or as the case may be details of the encumbrances on such land including any rights, title, interest or name of any party in or over such land along with details;

(C) the time period within which he undertakes to complete the project or phase thereof, as the case may be;

(D) that seventy per cent of the amounts realized for the real estate project form the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of of construction and the land cost and shall be used only for that purpose.

Provided that the promoter shall withdrawn the amounts from the separate account, to cover the cost of the project, in proportion to the percentage of completion of the project.

Provided further that the amounts from the separate account shall be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion of the project.

Provided also that the promoter shall get his accounts audited within six months after the end of every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant and it shall be verified during the audit that the amounts collected for a particular project have been utilized for that project and the withdrawal has been in compliance with the proportion to the percentage of completion of the project.

(E) that he shall take all the pending approvals on time, from the competent authorities.

(F) that he has furnished such other documents, as may be prescribed by the rules or regulations made under this Act; and

(m) such other information and documents as may be prescribed.

(3) The authority shall operationalise a web based online system for submitting applications for registration of project within a period of one year form the date of its establishment.

11. Once, Section 4 of Act of 2016 stipulates that the relevant documents which shall mandatorily be enclosed with the application for registration includes sanctioned plan, layout plan, number of apartments etc., therefore, in no sense can the stage of getting approvals/sanctioning of building plans/layout plans etc, be included within the ambit of definition of "development" used in context of "real estate project". These aspects precede the initiation of real estate project because it connotes the conceptualization of the idea of project, i.e., how the project would be planned, how many towers are to be constructed, how many plots are to be carved out, how many flats are planned, how the development works are to be executed, what size of plots/flats are to be planned. Unless and until the basic preparation in the aforesaid manner is done, no project can be developed. If the intention of legislature would have been to mandate the registration even before the plans are sanctioned and necessary approvals as enumerated in section 4 are taken, the Act would have been couched in such manner but, perusal of relevant provisions, as discussed above, goes on to show that the act presupposes that the promoter will take all necessary permissions first, will get the plans sanctioned and then would apply for registration. Rightly so, because if these details are not available, what would the authority regulate? A project which is not even existing on the paper. This could never be the intention of legislature. As the saying goes, "necessity is mother of invention", accordingly, the need to have a regulatory authority for real estate sector was felt, despite there were state enactments giving different authorities power to ensure compliance of sanctions/permissions granted by them to developer/promoter. Due to scattered power amongst numerous departments, effective regulation was almost negligible which resulted into the miseries of allottees as developers flouted the conditions often and ultimately, we saw a downfall in real estate sector. Thus, to promote the blooming industry, it was necessary to have a watchdog, ensuring that real estate sector promoted, regulated by protecting interest of consumers. Therefore, the Act of 2016 provided for establishment of an authority performing twin functions i.e., of regulation of real estate sector and of adjudication of disputes.

12. For regulation and promotion of real estate sector, "registration of real estate project" with the authority has been given utmost importance, so much so that section 3 of Act of 2016, as also discussed above, created a bar on the promoter to advertise, market, book, sell or offer for sale or invite persons to purchase in any manner any plot, apartment of building, in a real estate project or part of it, without getting the project registered with the authority. With this, the Act ensured not only the protection of interest of allottees, but also ensured "effective regulation" of real estate sector by intending to root out the possibility of exploitation of allottees and ensuring that the promoter is not flouting the permissions and the promises made to the allottees.

13. A very pertinent question arises at this stage is how "registration" is one of the mechanisms to ensure "regulation of real estate sector". The answer lies in section 4 of the Act of 2016 as per which the promoter is to furnish details of each and every aspect of the project i.e., detail of promoter, earlier project launched and their status, copies of approvals, sanctioned plan, layout plan, specification of project, plan of development works, location details of project, proforma of allotment letter, number, type and carpet area of apartment, name and address of real estate agents and declaration as regards the title of land, time period within which the project would be completed, details of bank account. It is only after these details are available with the authority, can the regulation function be performed, because in their absence, the authority would not be in a position to even ascertain as to whether the promoter is compliant with all the approvals, how many prospective allottees would be there, how many units are being proposed for sale, how many have already been sold and accordingly, in absence of this information even the allottees would not be aware about the promoter as it is necessary for the authority to publish all such details on the website. Without these details, the authority can neither perform its functions for promotion of real estate sector as envisaged in section 32 of Act of 2016 nor can it perform the functions as envisaged under section 34 of Act of 2016. Therefore, even though from reading of sub section (1) of section 3 it appears that requirement of registration is only before advertising, selling, marketing etc., but section 4 makes it evident that the registration of real estate project before development starts i.e., "at the stage of proposed development", which is only possible when the promoter has reached a stage where it is ready to undertake development and when this is read with word "ongoing", it further becomes clear that legislature intended to include the projects where the promoter is developing or is in a position to develop real estate project as provided in section 4 within ambit of "ongoing" as on 01.05.2017.

14. A further tinge of the necessity of documents to be enclosed along with application for registration is provided in section 7 of Act of 2016 which postulates about revocation of registration by the authority. One of the grounds provided for revocation of registration is that "the promoter violates any of the terms and conditions of the approval given by the competent authority". This supports the interpretation that no regulation is possible without the documents and information enclosed, as provided in section 4 of the 2016 Act. Thus, authority as envisaged by the legislature in scheme of the Act, is to carry out a herculean task of regulation of entire real estate sector, and not to act merely as a registrar office of only maintaining the records of registration. This is possible only if the project is registered after the authority is satisfied that promoter has necessary permissions/approvals to carry out the development of real estate project. The act of registration cannot be mechanical rather it is necessary for ensuring transparency in real estate sector and is one of the major steps towards achieving goal aimed by the Act because by granting registration, the authority has to overlook that promoter is compliant with the permissions granted to it by the competent authority for developing the project. In case, it is non-compliant, authority is empowered to revoke registration which would rightly impact the developer/promoter as he would not in a position to sell any part of the project in view of bar under section 3 of Act of 2016. To further give teeth to section 3, legislature added section 59 for punishing any act which is contravention to section 3 of Act of 2016. The act envisages a complete and full proof mechanism, therefore, at first instance it is imperative for the authority to ensure that it has entire details of the project which is possible only and only if the promoter is able to fulfil all necessary conditions provided in section 4 which are self explanatory about the aspect that "real estate project" has been conceptualised and promoter has made sufficient alteration in his position by taking various approvals to start developing a real estate project. If that is so, a project which is far from being "developed" and is still the stage of "conceptualisation" cannot be termed as "ongoing" because the act intends to regulate "development" of project and not the "conceptualisation".

15. As far as scheme of the Act of 2016 is concerned, it is clear that grant of all necessary permissions/approvals etc. precede the start of real estate project as these permissions are important to put a promoter in a position to start "developing" the project. Accordingly, a promoter who was not having all necessary permissions so as to enable him to develop a real estate project as on 01.05.2017, cannot be included within the scope of "ongoing" for the purpose of registration within three months from the date of commencement of the Act. It is being made clear that assessment is being made only for the purpose of assessing whether a project would be ongoing on 01.05.2017, because in any eventuality any "real estate project" is required to be registered at the stage of "proposed development" as envisaged in section 4 and also discussed herein above.

16. In view of the discussion made herein above, if we now read the definition of "ongoing projects" as provided in Rule 2 (o) of Haryana Real Estate (Regulation and Development) Rules, it would become clear that taking mere licence before 01.05.2017 is not the sole criterion for a project to be termed as "ongoing" project, it has to be in a stage where promoter is in a position to develop the project i.e. has taken all permissions required prior to start of real estate project or has started developing it already. The grant of licence before 01.05.2017 is though the initial point but "development works not yet completed" is determining the stage as envisaged within the definition of "real estate project" in section 2 (zn) which involves "development" and takes care of the mandate of section 4 of Act which requires registration for the "proposed development" as well, but at the same time excludes the stage of getting permissions/sanctioned plan etc., which as per section 2 (zq) are required "prior to start of real estate project". Therefore, an "ongoing project" is one wherein as on 01.05.2017, the promoter was in a position to start the development of real estate project after taking all permissions/approvals/sanctioned plans along with the projects which are already in development stage.A "real estate project" connotes "development" and it would be possible only when it is conceptualised and the promoter is in a position to put that concept/idea to life.

17. Therefore, the legal position as discussed above can be summarised in the manner as follows:-

(i) "real estate project" connotes "development" as defined in section 2(s) i.e., conversion of the immovable property/land into apartments/flats/plots etc. for purpose of selling it does not include within its ambit a mere "conceptualisation" but a stage at which the promoter has conceptualised and taken necessary approvals for developing the project. Therefore, concept of `ongoing' stems out from the definition of real estate project connoting development as against mere conceptualization.

(ii) The requirement of registration kicks in, the moment when the promoter is ready to start developing a real estate project because section 4 also refers to a project which is "proposed to be developed". When definition of "real estate project" is read along with the word "proposed" as used in section 4, it definitely implies that "proposed real estate project" which has come ahead of the stage of conceptualization is covered within the ambit of registration. This garners support from definition of "sanctioned plan" provided in section 2(s) which itself states that the approvals are required "prior to start of real estate project" and from the requirements given in section 4(2) which the promoter is required to fulfil in order to get the project registered. Therefore, as a logical corollary, all such projects wherein a promoter had obtained all relevant permissions and was in a position to initiate development along with such project which were already at development stage and have not been granted a completion certificate, are included within the ambit of "ongoing" project as used in section 3 proviso.

(iii) Definition of "ongoing project" as given in rule 2 (o) of Rules of 2017 necesitates twin requirement i.e., licence was taken before 01.05.2017 and development works are yet to be completed. The words "development works are yet to be completed" are cautiously used to include within its ambit such projects wherein either the promoter was in a position to start developing real estate project or has already started the development, but such development is not complete. Thus, it takes care of scheme of act as discussed in point (ii) above i.e., a project would be categorised as "ongoing" on the date of commencement of the Act of 2016 when a promoter is ready to start a real estate project as is contemplated from the scheme of Act of 2016 or has already started development and has not received a completion certificate.

Therefore, the ultimate test to decide whether a project would be ongoing as on 01.05.2017 is to answer a simple question whether a promoter was in a position on 01.05.2017 to start developing a project and to fulfil the requirements of registration given in section 4 of Act of 2016 read with rule 3 and 4 of Rules 2017 or is already in the stage of development but has not received completion certificate. If yes, it would be "ongoing" as on 01.05.2017.

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