MAHA RERA: Promoter vs. Co-Promoter

Bar & Bench December 12 2017
MAHA RERA

By Amit H Wadhwani

The Maharashtra Real Estate Regulatory Authority (Regulatory Authority) has by its Circular No. 12/2017 dated 4 December 2017 read with Circular No. 13/2017 dated 4 December 2017 (collectively the Circular) replaced its earlier Order dated 11 May 2017 (the Co-promoter Order) wherein the Regulatory Authority had coined the definition of ‘Co-promoter’ of a real estate project that is registered with the Regulatory Authority.

By virtue of the Circular, the Regulatory Authority has withdrawn the concept or definition of Co-promoter as defined in the Co-promoter Order and termed such Co-promoter as a ‘Promoter’ itself subject to the qualifications set out in the Circular.

Set out below is a brief background on the circumstances which led to the Regulatory Authority replacing the Co-promoter Order with the Circular:

Promoter Defined under the said Act

Section 2 (zk) of the Real Estate (Regulation and Development) Act, 2016 (the “said Act”) defines the term ‘Promoter’ as follows:

(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.

Co-Promoter defined under the Co-Promoter Order

The said Act did not describe or provide for definition of the term Co-promoter. On 11 May 2017, the Regulatory Authority issued the Co-promoter Order [pdf], thereby introducing the concept of Co-promoter which shall mean as follows:

  • Any individual / organization who enter into any arrangement with the Promoter and are entitled to a share of the total revenue generated from sales of the apartments in the project (Revenue Share) or share of the total area developed for sale in the project (Area Share) shall be termed as Co-promoter;
  • In case of Area Share, the Co-promoter should open a separate bank account for deposit of 70% realization realized from sale of the area allocated to such Co-promoter;
  • In case of Revenue Share, the Promoter was prohibited from paying Revenue Share of Co-promoter from the separate bank account opened by the Promoter for the real estate project and the same shall not be considered as cost of the project;
  • Such Co-promoter shall also submit a declaration as prescribed in Form B of the Maharashtra Real Estate (Regulation and Development)(Registration of real estate projects, Registration of real estate agents, rates of interest and disclosures on website) Rules, 2017 (the Rule);
  • The liabilities of such Co-promoter shall be as per the agreement or arrangement entered with the Promoter and a copy of the agreement or arrangement shall be uploaded on the portal of the Regulatory Authority at the time of registration.

Pursuant to issuing the Co-promoter Order, the Regulatory Authority also made provisions in the on-line application forms for entering the details of a Co-promoter with necessary classification of Area Share and Revenue Share.

Writ Petition Challenging Co-Promoter Order

The Co-promoter Order has been challenged by Ismail Ibrahim Patel and six others under a Writ Petition No. 2773 of 2017 filed in the High Court of Judicature at Bombay (the Court) against the State of Maharashtra, Regulatory Authority, Union of India and Shiv Krupa Enterprise.

The grounds of challenge are set out below:

  • The said Act, itself does not define Co‑Promoter but defines the word ‘Promoter’ and the Regulatory Authority is not empowered to coin a new definition of ‘Promoter’ and notify the same in absence of any statutory authority under the said Act;
  • The definition of Co-promoter in the Co-promoter Order has added to confusion amongst stake holders.

The Regulatory Authority rightly argued before the Court that the Co-promoter Order has been issued to elaborate the definition of ‘Promoter’ under the said Act, only as and by way of a clarification and to bring in more transparency in the registration process.

The Regulatory Authority further submitted that in order not to disturb the various steps that are already taken by all stake holders and to dispel various apprehensions expressed by the petitioners during the course of the arguments, the Regulatory Authority has decided to withdraw and appropriately replace the Co-Promoter Order within a period of 3 (three) weeks from the date of final disposal of the Writ Petition, i.e. 3 weeks from 14 November 2017.

Accordingly, the Bench of Justice Naresh H Patil and Justice R.G. Ketkar vide Order dated 14 November 2017, disposed of the Writ Petition thereby permitting the Regulatory Authority to withdraw the Co-promoter Order and appropriately replace the same within a period of 3 (three) weeks from 14 November 2017, with effect from the same date i.e. 11 May 2017.

CIRCULAR ISSUED BY MAHA RERA

On 4 December 2017, the Regulatory Authority issued the Circular and replaced the Co-promoter Order with an intent to bring maximum transparency, awareness and for removal of doubts on the subject. The Circular clarifies as follows:

  • Co-promoters who are entitled to Area Share or Revenue Share as explained under the Co-promoter Order in fact clearly fall within the definition of ‘Promoter’ as defined under the said Act and as such as Promoters within the meaning of the said term and are therefore jointly liable for the functions and responsibilities specified in the said Act in the same manner as Promoter who actually obtains building permissions and carries out construction.
  • At the time of filing on line application, it is necessary to distinguish and/or identify whether such Promoter is (i) land owner, or (ii) investor, or (iii) is actually obtaining the building permissions for carrying out construction and is in fact carrying out construction. Therefore, Promoters will now be classified as (a) land owner Promoter or investor Promoter, and (b) Promoter who actually obtains building permission and actually carries out construction.
  • In case of existing projects that are registered with the Regulatory Authority, such land owner Promoter or investor Promoter who have registered themselves as Co-promoter shall now be known as “Promoter (land owners / investors)”.
  • For the purpose of withdrawal from the separate bank account, the obligations and liabilities of all such Promoters shall be at par with each other.
  • The written agreement or arrangement entered between such Promoters shall clearly specify the rights and shares of each Promoter and copy of the same should be uploaded on the portal of the Regulatory Authority.
  • Such land owner Promoter / investor Promoter shall also submit declaration in Form B as prescribed under the said Rules; and in case of Area Sharing they shall open a separate bank account for deposit of 70% realizations.

The above Circular clarifies one important doubt that societies and / condominiums involved in a redevelopment project with a Promoter who are entitled to only rehabilitated portion in the newly developed building as permanent alternate accommodation, may not be required to register themselves as Co-promoter or Promoter.

 

Amit H Wadhwani is a practicing Advocate and a Legal Consultant to Radius Developers.

 

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