MahaRERA allows developer to de-register South Mumbai project, paves way for more such exits

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In an unprecedented order, the Maharashtra Real Estate Regulatory Authority (MahaRERA) has allowed a developer to de-register a residential project, ruling that there is no provision in the RERA Act to force completion of the project when the developer had expressed inability to complete it.

The developer Turf Estate Joint Venture LLP of DB Turf View, which was developing a 93-story tower in South Mumbai, has also refunded money with interest to two-thirds of the buyers. However, five buyers had denied accepting the refund and had challenged the same. The MahaRERA has said the RERA Act is silent on deregistration at the request of a developer, but it has to take the decision based on the intent of the law.

Describing it as a landmark order, legal experts said it pave the way for other developers to explore the option of de-registration.

Trupti Daphtary, an Advocate & Solicitor based in Mumbai, said, "There is no specific provision in RERA Act for deregistration. This order could pave the way for developers to explore this option in case the real estate project is commercially unviable. However, deregistration orders must be passed on a case-to-case basis looking at the overall project status, the number of allottees, and their interests."

The residential tower in South Mumbai was registered as an ongoing project in August 2017. The earlier developer made an application for the change of developer in July 2021, under section 15 of the RERA Act on the grounds of conversion of Turf Estate JV to Turf Estate Joint Venture LLP.

This application also enclosed letters of more than two-thirds of the total 27 allottees (buyers) of the project consenting to the change of promoter and also of plans of the project. The MahaRERA approved the changes in October 2021.

The new developer, in January 2022, made an application attaching a letter dated for de-registration of the project on the ground that out of 27, 21 allottees’ allotments were cancelled and a refund of their amounts was given to them with nine percent interest per annum.

One allottee had not paid so a simpliciter cancellation of the allotment was done but the remaining five allottees, of which four are companies, challenged the termination of allotment in the Bombay High Court in February 2021. After this, the Bombay HC asked the MahaRERA to hear the matter.

According to the MahaRERA order, a registration number once given to a project does not remain for all times to come and there do exist circumstances where it lapses or stands revoked.

However, this case is different where the developer has come forward seeking de-registration of the project, expressing an inability to deliver possession in accordance with the terms and conditions of the letter of allotment.

The MahaRERA in its order stated, "There is a situation herein where the project in itself as was planned is now sought to be abandoned. This in effect means that there will be no project available for allotting premises as was promised.

In such a situation one has to look for a legislative remedy to force the hand of a Promoter (developer) to complete a project which he wants to abandon. Unfortunately, there is no provision in the said Act which provides a path for forcing a promoter to complete a project which the promoter has voluntarily come forward to say that he is unable to complete the project in the present form."

The order adds, "Further it is not the case of any of the respondents (buyers who challenged the termination of the allotment) that the applicant promoter is unable to complete the said project due to financial fraud or misappropriation of the monies provided by the allottees. Thus, this Authority sees no mechanism to force the hand of a developer where a case of fraud or misappropriation is not made out."

The MahaRERA said it cannot force the developer to complete the project where the interest of the buyers is protected and the money involved is repaid with interest.

The order stated, "Travelling further into the world of commercial reality, the question that arises is can a regulator force a commercial entity to complete a project that is not financially or otherwise viable especially when the money of the investors stands protected. Thus, on both the tests of commercial viability and the availability of a legislative mandate the answer is that the promoter cannot be forced to complete the project."

Section 18 of RERA Act allows for a refund only at the request of the allottee and not the developer. The MahaRERA in the order further states that the question that now begs an answer is why did section 18 provide for a refund only when the allottee desires and not vice versa? The reason is apparently clear when we examine the intent of the legislation.

The very foundation and intent of this legislation are to protect the interest of the buyer (allottee) as the project proceeds. The very intent of this section 18 is to ensure that the promoter does not select and choose allottee/s which he intends to evict, it said.

The aim is that the choice to exit from the project should be in the hand of the allottees and not the promoter. In this case, it is clear and not disputed that the promoter has chosen to terminate the allotment of all 27 allottees and not a select few. Thus, there seems to be no malafide on part of the applicant promoter while terminating the allotments, the order said.

The MahaRERA in the order has quoted section 14 and section 15 of the RERA Act in order to back up the stance of de-registering the project.

Section 14(2) of the RERA Act clearly states that wherever larger changes like alterations in sanction plan layout plan specification of the building or common area within the project are envisaged the same cannot be done without the previous written consent of two-thirds of the allottees. The Act lays out the condition precedent to permit substantial changes when they become necessary, the order said.

It added: Section 15 lays out the process to be followed wherein the original promoter desires to transfer or assign his majority rights and liabilities in respect of the real estate project to a third party. Here once again the legislation prescribes that this cannot be done without obtaining prior written consent from two-thirds of allottees. Thus, the legislature has recognised that there will be situations arising wherein certain major changes would have to be carried out without jeopardising the rights of the allottees.

The legislation has sought to protect the rights of the allottees in the event of major changes becoming necessary by providing for obtaining consent to do so by a two-thirds majority of the total allottees. The legislature has been over cautious and not satisfied itself by just prescribing a simple majority (51 percent). It has gone the extra step by prescribing an absolute majority of two-thirds, the order added.

The MahaRERA Chairman Ajoy Mehta, in his September 2, 2022, order further put out some conditions before allowing de-registration of the project. It concluded by saying, "The said project is deregistered and the applicant promoter shall not advertise, market, book or create third-party rights by the offer for sale, enter into an agreement for sale any apartment in the said project. No order as to cost."

Advocate Sanjay Chaturvedi who practises with MahaRERA said, "RERA has the power to adjudicate inverse litigation, under this power, MahaRERA has given a just and fair chance to all the parties. When a project is frustrated and all the parties are paid off by the developer, he must get a fair chance to de-register it. It is a landmark judgment.”

Further, lawyers also cautioned against misuse. "RERA has on the ground of equity read a provision for de-registration of the project in the RERA Act. Sooner or later the order will have to pass the litmus test of RERA's authority to read a provision in the Act. However, until then this will serve as a precedent wherein RERA will consider de-registration on a case-to-case basis in an ad hoc manner. The only hope is that this is not misused" said Nirav Jani - Partner, Vigil Juris.

In a statement, DB Realty spokesperson said, "DB Realty is a 50 percent partner in the Turf Estate Joint Venture LLP along with Prestige. We received the required consent from the home buyers to transfer and change the nature of the project. More than 87 percent of the allottees decided not to continue in the project and we paid them principal amount with applicable interest in full satisfaction of their claims. The balance allottees whose allotments were terminated as per the provisions of the allotment letter decided to proceed with litigation."

"Against such termination, since they did not accept the refund cheques, we have secured their entire principal plus applicable interest in fixed deposits to show our bonafides. Certain matters are still sub-judice and hence we do not want to comment further and we have full faith in the judiciary and the court process,” the spokesperson said.