Everything you wanted to know about how the Maharashtra housing bill jeopardizes the interests of real estate buyers while protecting builders and developers. Advocate Mohana Nair analyses every word and clause for you
Despite requests from several activists and non-governmental organisations, like Mumbai Grahak Panchayat (MGP) and Moneylife Foundation for returning the new housing Bill for reconsideration, the state government is most likely to proceed with the Maharashtra Housing (Regulation and Development) Bill, 2012. Activists have been pointing out that the new Bill would take away rights and benefits that are available to buyers and housing societies under the Maharashtra Ownership Flats (Regulation of Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA).
The Bill has been passed by both Houses of the Legislature of Maharashtra on 17th July and we are informed that the Governor has given oral assent to the Bill. On receiving the requisite approvals, it will come into effect on a date appointed by the Government of Maharashtra by Notification in the Official Gazette. On the appointed day, the MOFA shall stand repealed though it will not affect anything done under MOFA or any right, obligation acquired or incurred under MOFA, prior to repeal.
Various new provisions and clauses have been introduced in the Bill, which did not find a place in MOFA. At the same time, several lacunae in MOFA have not been addressed at all, as most of the MOFA Clauses are retained in the same form.
The major changes wrought by the Bill are…
(i) The introduction of the Concepts of “Layout” and “Township” where “Layout” is development of more than one building in the form of a Complex or development of land admeasuring 1,000 sq. meters or more and “Township” is development of more than one Layout and where land being developed is 40 hectares or more. This is to take care of large projects which are presently being undertaken by the builders all over Mumbai and other towns in Maharashtra.
(ii) Setting up of a Housing Regulatory Authority and Housing Appellate Tribunal
(iii) Diluting the punishment to be awarded to Promoters who have committed breach of the provisions of the Bill, by deleting all provisions of MOFA which provided for imprisonment of Promoters for failing to comply with their duties.
The preamble to the Bill states that MOFA did not have an effective implementing arm as the flat purchasers could only approach the consumer forum or civil courts. It is for this reason that the Housing Regulatory Authority and Housing Appellate Tribunal are being established under the Bill. This is one aspect of the Bill on which both Promoters and flat purchasers agree namely that the setting up of these bodies would only delay matters by introducing more layers of litigation and increase corruption.
The preamble further provides that the Bill has been drafted to ensure full disclosure by Promoters and to ensure compliance of agreed terms and conditions and to usher in transparency and discipline in the transaction of flats and to check abuses and malpractices. At the same time, the penalties provided for non-compliance of provisions of the Bill have been made less stringent by removing provisions for imprisonment and of being disqualified for 5 years, as originally existed under MOFA.
The Bill has conferred powers on the Promoter which did not exist earlier. For e.g. under Clause 11(5), which is similar to Clause 12A of MOFA the Promoter shall not except with just and sufficient notice, cut off, withhold or curtail the essential services such as water supply, electricity, light in passages and staircases, lifts and sanitary services to flat purchasers or unit holders. Clause 11(5)(iii) however has been added which provides that if the allottee or flat or unit purchaser fails to pay the outgoings to the Promoter for a period of more than 3 months, then the Promoter may after giving notice of not less than 7 days, cut off, withhold or in any manner curtail or reduce any essential supply or services enjoyed by such allottee or flat or unit purchaser. At the same time, all sub-clauses which existed in MOFA which provided for punishment of a person who wrongly cuts off or withholds essential services have been deleted.
Similarly, in Clause 14(1) which is similar to Clause 7(1) of MOFA, a Proviso has been added which permits alteration or addition to the building being constructed if required by any government authorities or due to change in law (which would mean increase in FSI) or which are disclosed in the agreement, without previous consent of any or all persons who have agreed to take flats in such building.
Clause 14(2) is a new Clause which does not find a place in MOFA, which relates to a Lay-out rather than a single building. Clauses 14(2)(b) and 14(2)(c) are specially important as they permit the Promoter to amend the plans of the lay-out including recreation ground, park, garden and playground disclosed along with the building plans, from time to time, in accordance with the Development Control Regulations including for the utilization of the full development potential available, from time to time. These clauses also permit the Promoter to make further construction of a new building in the lay-out at any time after obtaining approval of the local authority provided that the Promoter shall not reduce inter alia the aggregate area of recreation ground, garden and playground in the approved lay-out without the previous consent of all persons who have agreed to take flats in the lay-out, except that such alteration or amendment is required by the authorities or due to change in applicable laws. It would therefore appear that in case of change in applicable laws (which would include change in FSI), the Promoter will be entitled to amend, modify or vary the lay-out plans and construct new buildings in the lay-out and thereby even reduce the open areas promised, without previous consent of persons who have agreed to purchase flats.
Clause 18(1) is similar to Clause 10(1) of MOFA. Clause 10(1) of MOFA required the Promoter to form a co-operative society as soon as a minimum number of persons required forming a society or company had taken flats. (The Co-operative Societies Act provides that a Society can be formed with 10 members, which by a Circular has increased the minimum number of members required to submit a proposal for registration to 60% of flat purchasers i.e. when the Promoter has sold 60 % of flats). However, the said Clause has been modified to permit the Promoter to take steps for formation of a co-operative society or other corporate body within four months from the date on which the occupation certificate in respect of such building is issued or, minimum 60 % of the flat purchasers in such building have taken possession or the Promoter has received full consideration and other amounts for the same, whichever is earlier. The period within which the body is to be formed has thus been extended to benefit the Promoter and is now connected to occupation of the building and payment of consideration to Promoter rather than to date on which flats are sold.
Clause 18(2) and (3) are new Clauses which do not find a place in MOFA. Clause 18(2) is especially important as it relates to formation of co-operative society or company or any other legal entity of persons taking flats in a lay-out consisting of more than one building or wings and provides that the Promoter shall form a separate and independent co-operative society or company or other legal entity in respect of each of the buildings or wings and once again provides that the Promoter may do so within four months from the date on which the occupation certificate in respect of such building or wing is issued or minimum sixty per cent of the total flat purchasers in such building or wing have taken possession or the Promoter has received full consideration and other amounts for the same, whichever is earlier. Clause 18(3) provides that the Promoter shall thereafter form and register an Apex Body or Federation consisting of all such entities in the lay-out, within such period as may be prescribed. At present, no period has been prescribed for formation of such Apex Body or Federation..
Clauses 19(2) provides that conveyance of title from the Promoter to the Society till such time as the entire development of the lay-out is completed, shall be only in respect of the structures of the buildings in which a minimum number of sixty per cent of total flats are sold along with FSI consumed in such building. The conveyance shall be further subject to the right to use, in common, the internal access roads and recreation areas developed or to be developed in the lay-out and with the right to use of the open spaces allocated to such building or buildings in terms of the agreement for sale executed by the Promoter with each flat purchaser. The Proviso to this Clause 19(2) is specially important since it gives a go-by to anything contained in the Bill or in any agreement or in any judgment, decree or order of any court or in any other law for the time being in force (which would by implication include even the Transfer of the Property Act) and confers right in the Promoter to develop and continue to develop the remaining lay-out plan and to construct any additional structures thereon by consuming the balance FSI and balance TDR relating to the said lay-out plan as well as any future increase in FSI or TDR rights due to change in the law or the policies of the Government or local authority. It further provides that even if the FSI of the plot in a lay-out is increased due to change in law or policies of the Government or local authorities subsequent to any conveyance of any one or more structures in the lay-out to flat purchasers, this increase in FSI which is proportionate to the FSI utilized or consumed by the conveyed structure or structures to total FSI of the lay-out, shall belong to the flat purchasers of the conveyed structure or structures and it shall not be necessary for the Promoter to obtain any consent or permission from such flat purchasers for the purpose of utilizing the balance FSI or TDR rights. It is thus clear from the two Provisos to Clause 19(2) that conveyance of structures in a lay-out can be done in a phased manner and so long as conveyance of even a single structure remains in the lay-out, the Promoter will continue to have a share in the balance or increased FSI or TDR relating to such portion of the lay-out which has not been conveyed to the flat purchasers.
Clause 19(3) provides that where the title of the Promoter to be conveyed is in respect of the entire undivided land underneath all such buildings in a lay-out, and if no period for executing such conveyance is agreed upon, then such conveyance shall be executed by the Promoter in favour of the Apex Body or Federation within such time as may be prescribed after formation of the Apex Body or Federation. Once again such time has not been prescribed as yet.
Clause 19(7) provides that upon execution of the conveyance, the Society or the Body in whose favour such conveyance has been executed shall be entitled to the FSI or TDR rights relating to the building which has been conveyed as well as its proportionate share in increase in FSI. This appears to be against law as it exists today. as FSI is a right attached to land and not to the building. Another position contrary to law as it exists presently is sought to be introduced in these Clauses viz that though conveyance to the Society has been made of only the building and FSI consumed by that building and no interest in land has been created and in fact the land has been conveyed to the Apex Body, in the case of reconstruction or redevelopment the Society will be entitled to reconstruct/redevelop on the portion of land allocated to it under the agreement for sale between Promoter and flat purchasers in that building. So also, Clause 19(8) provides that if there is any increase in FSI or TDR or any benefits available on a Layout plan due to changes in Government policies after the conveyance of the land under the Layout to the Apex Body or Federation, then such increased FSI or TDR shall be divided among the respective legal entities in proportion to the TDR or FSI used for the purpose of construction of the buildings managed by them.
Clause 49 which relates to penalty for non-compliance by the Promoter of the provisions of the Bill are similar to Clause 13 of the MOFA. However, the penalties provided in Clause 49 are only fines and the provision of imprisonment has been deleted altogether. The fines on the other hand have been increased considerably. Further penalty provided in Section 13(2)(for criminal breach of trust), 13(4), 13(5) and 13(6) (further punishment on being convicted), 13A (power of magistrate to pass sentence) and 14 (offences of companies) have been dropped completely as the same relate to punishment for criminal offences of the Promoter. The Builder Lobby claims that the increase in quantity of fees having been increased would affect them badly but makes no comment on the deterrent provision of imprisonment and of being disqualified for 5 years having been removed.
To sum up:
(i) It is thus evident that the Bill has in the guise of protecting flat purchasers, in fact given wide powers to the Promoter and permitted him to retain rights in FSI and TDR even after conveyance is effected of one or more buildings in a lay-out, till the entire property is conveyed to the Apex Body.
(ii) The Bill has also given the right to the Promoters to cut off or curtail use of essential services if the flat owners fail to pay dues for the same.
(iii) The time for formation of a Society as a legal entity has been extended under the Bill from what was provided in the Co-operative Societies Act. Further since the Rules have not been framed, the time prescribed for formation of Apex Body/Federation as well as for Conveyance has not been prescribed at present.
(iv) Further, by making it mandatory for a Promoter to form a separate Society for each building/wing in a lay-out, and for conveyance of such building to the concerned Society, the flat purchasers may be protected against Promoters who try to delay formation of Society and conveyance till development of entire Layout is completed. However at the same time, the right to decide whether one single society should be formed or multiple societies, has been taken away from the flat purchasers who are ultimately the persons who need to manage the Society/ies and who would be affected by the constitution of the Societies.
(v) The provision regarding formation of separate Societies for each building in a Layout and separate conveyances to each of them also indirectly benefits the Promoter as he can delay the conveyance of the entire plot till the Apex Body is formed and in the meantime continue to be entitled to the FSI/TDR for the same. The Promoter has also been given powers to build further structures in the Layout and even alter the open spaces or other recreational amenities or reduce them, without permission of the flat purchasers if there is a change in law, which presumably would include increase in FSI.
(vi) The provision for conveyance (which includes sale, lease, etc.) of the building alone without the land beneath, would also enable the Promoters to lease the same to the individual societies rather than outright sale under which normally conveyance of building is done along with land on which it stands. This is already seen in the stand taken by several Promoters of large Layouts) even before the Bill has become law). Who have been insisting on separate Societies being formed for each building/wing and of leasing the building alone to each Society, on the ground that the land cannot be sub-divided. At the same time, they insist that the Apex Body is being formed only for administration and no title will vest in such Body, thus enabling the Promoters to retain the title to the land along with all resultant benefits that go with the land.
(vii) The penalties on the Promoter failing to comply with the provisions of the Bill have been made less stringent as all provisions of imprisonment and disbarring have been removed. The increase in the amount of penalty is not a sufficient deterrent where the Promoters are dealing with development of large lay-outs which are worth hundreds of crores of rupees.
(viii) Artificial powers of right in future FSI in favour of a Society which does not have title in the land and right to reconstruct/redevelop on a land which does not belong to it, have been introduced which are alien to the law as it presently exists.
(ix) By introduction of Housing Regulatory Authority and Housing Appellate Tribunal, it is not clear whether the process of regulation of the housing sector will be improved or it will only delay the entire process by introducing more layers of decision and Appeal.
(Mohana Nair is an Advocate in Bombay High Court. She also serves as advisor to several corporate, banks and financial institutions)