2021 (12) TMI 1520 - HC - Indian Laws

Recovery of unpaid dues - Validity of Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations 2017 - ultra vires the provisions of the Rajasthan Real Estate (Regulation and Development) Act 2016 or not - case of the bank is that it is not amenable to jurisdiction of RERA since RERA can issue directions only against a promoter allottee or a real estate agent - HELD THAT - The controversy at hand is substantially governed by the decision of Supreme Court in case of M/s Newtech Promoters and Developers Pvt. Ltd. 2021 (12) TMI 892 - SUPREME COURT . It was a case in which the question was delegation of the authority in terms of Section 81 of the Act which is recalled provides that the authority may by general special order in writing be delegated to any member such powers and functions under the Act as it may deem necessary. When the Supreme Court has upheld the delegation of powers to adjudicate in single member of the authority in terms of Section 81 of the Act recourse to Regulation 9 of the Regulations of 2017 would become academic. The resolution challenged by the petitioners passed by RERA delegating powers to decide complaints into single members could as well have been passed in exercise of powers under Section 81. In fact the resolution itself does not refer to the source of power under Regulation 9 alone. Whether so stated or not this resolution can always stress the source of the power under Section 81 of the Act since it is well settled that non-mentioning of the provisions or wrong reference to a statutory provision for exercise of power would not invalidate the exercise if powers can be traced to any statutory source. In fact the resolution itself refers section 81 of the Act as well as regulation 9 of the regulations. Section 35 of the SARFAESI Act provids that the provisions under the said Act shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Similarly worded provision giving overriding effect to RERA Act is contained in Section 89. This Section as noted provides that provisions of the said Act (i.e. RERA Act) shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The question would therefore arise which of the two provisions giving overriding effect to the statute would prevail. In case of Bikram Chatterji 2019 (7) TMI 1233 - SUPREME COURT the Supreme Court did apply RERA provisions to the transactions which were executed prior to introduction of the Act. This was however on the basis that there was large scale fraud committed by the promoters in connivance with the financial institutions - the Supreme Court having come to the conclusion that creation of security interest itself was fraudulent the charge was invalid and therefore even if created before introduction of RERA Act the same would not affect the right and interest of the allottees in terms of Section 11(4)(h) thereof. This would mean that in absence of fraud or collusion the Act cannot be applied retrospectively to the banks and financial institutions in whose favour security interests have been created prior to the enactment of the law. Does RERA have the authority to issue any directions against a bank or financial institution which claims security interest over the properties which are subject matter of agreement between the allottee and the developers? - HELD THAT - Clauses (a) (b) and (c) of sub-section (4) of Section 13 vest power in the secured creditor to take all steps as the borrower himself could take in relation to the secured asset. Clause (d) goes a step further and enables the bank to recover its dues directly from a debtor or the borrower who has acquired any of the secured assets. For all purposes thus the secured creditor steps in the shoes of the borrower in relation to the secured asset. This is thus a case of assignment of rights of the borrower in the secured creditor by operation of law. In other words the moment the bank takes recourse to any of the measures under sub-section (4) of Section 13 it triggers statutory assignment of right of the borrower in the secured creditor. Till this stage arises the bank or financial institutions in whose favour secured interest may have been created may not be in isolation in absence of the borrower be amenable to the jurisdiction of RERA. However the moment the bank or the financial institution takes recourse to any of the measures available in sub-section (4) of Section 13 of the SARFAESI Act RERA authority would have jurisdiction to entertain the complaint filed by an aggrieved person. Conclusion - (i) Regulation 9 of the Regulations of 2017 is not ultra vires the Act or is otherwise not invalid. (ii) The delegation of powers in the single member of RERA to decide complaints filed under the Act even otherwise flows from Section 81 of the Act and such delegation can be made in absence of Regulation 9 also. (iii) As held by the Supreme Court in the case of Bikram Chatterji in the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail. (iv) RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fraudulent or collusive. (iv) RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily deals with the following core legal questions:

(i) Whether Regulation 9 of the Rajasthan Real Estate Regulatory Authority Regulations, 2017, is ultra vires the Rajasthan Real Estate (Regulation and Development) Act, 2016 (RERA Act).

(ii) Whether the Rajasthan Real Estate Regulatory Authority (RERA) has jurisdiction over banks, particularly when they act as secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

(iii) Whether RERA can apply retrospectively to transactions and mortgages created before the enactment of the RERA Act.

(iv) Whether RERA has the authority to issue directions against banks or financial institutions claiming security interest over properties involved in real estate agreements.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Validity of Regulation 9 of the Regulations of 2017

- Relevant Legal Framework and Precedents: The RERA Act establishes the Real Estate Regulatory Authority and empowers it to regulate real estate projects. Section 85 allows the authority to make regulations consistent with the Act. Regulation 9 permits single-member benches to decide specific matters.

- Court's Interpretation and Reasoning: The court held that Regulation 9 is not ultra vires as it is procedural and consistent with the Act. The delegation of powers to single members is permissible under Section 81 of the RERA Act.

- Key Evidence and Findings: The court referenced the Supreme Court's decision in M/s Newtech Promoters and Developers Pvt. Ltd., which upheld similar delegation powers under the Act.

- Application of Law to Facts: The court found that the delegation of powers to single-member benches is consistent with the statutory framework and does not require Regulation 9 to be invalidated.

- Treatment of Competing Arguments: The petitioners argued that Regulation 9 was ultra vires, but the court found these arguments unpersuasive in light of the statutory provisions and judicial precedents.

- Conclusions: Regulation 9 is valid and consistent with the RERA Act.

Issue (ii): Jurisdiction of RERA over Banks

- Relevant Legal Framework and Precedents: The definition of "promoter" under Section 2(zk) of the RERA Act includes assignees, potentially encompassing banks acting as secured creditors.

- Court's Interpretation and Reasoning: The court held that banks, when enforcing security interests under the SARFAESI Act, could be considered assignees of the promoter, thus falling under RERA's jurisdiction.

- Key Evidence and Findings: The court relied on the interpretation of the term "assignee" and the statutory rights banks acquire under the SARFAESI Act.

- Application of Law to Facts: The court found that when banks take measures under Section 13(4) of the SARFAESI Act, they assume the rights of the borrower, triggering RERA's jurisdiction.

- Treatment of Competing Arguments: The banks contended that RERA lacked jurisdiction, but the court found that the statutory framework allowed for such jurisdiction.

- Conclusions: RERA has jurisdiction over banks acting as secured creditors under certain circumstances.

Issue (iii): Retrospective Application of RERA

- Relevant Legal Framework and Precedents: The RERA Act does not explicitly provide for retrospective application. The court considered the principle that statutes are presumed to be prospective unless stated otherwise.

- Court's Interpretation and Reasoning: The court concluded that RERA does not apply retrospectively to transactions and mortgages created before its enactment unless fraud or collusion is involved.

- Key Evidence and Findings: The court distinguished between ongoing projects and completed transactions, emphasizing the impracticality of applying RERA retrospectively to closed transactions.

- Application of Law to Facts: The court determined that RERA's obligations cannot affect pre-existing mortgages unless fraudulent conduct is proven.

- Treatment of Competing Arguments: The respondents argued for broader applicability, but the court limited RERA's retrospective reach to cases of fraud.

- Conclusions: RERA does not apply retrospectively to pre-existing mortgages unless fraud is established.

Issue (iv): Authority of RERA to Issue Directions Against Banks

- Relevant Legal Framework and Precedents: Section 31 of the RERA Act allows complaints against promoters, allottees, or real estate agents. The definition of "promoter" includes assignees.

- Court's Interpretation and Reasoning: The court held that RERA could issue directions against banks once they exercise rights under Section 13(4) of the SARFAESI Act, effectively becoming assignees.

- Key Evidence and Findings: The court analyzed the statutory framework of both RERA and SARFAESI, concluding that banks assume the borrower's rights upon enforcement actions.

- Application of Law to Facts: The court found that RERA could address complaints involving banks when they act as assignees under the SARFAESI Act.

- Treatment of Competing Arguments: The banks argued against RERA's authority, but the court found sufficient statutory basis for RERA's jurisdiction in specific contexts.

- Conclusions: RERA can issue directions against banks acting as assignees under the SARFAESI Act.

3. SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: "In view of the remedial mechanism provided under the scheme of the Act 2016, in our considered view, the power of delegation under Section 81 of the Act by the authority to one of its member for deciding applications/complaints under Section 31 of the Act is not only well defined but expressly permissible and that cannot be said to be dehors the mandate of law."

- Core Principles Established: The RERA Act allows for delegation of powers to single-member benches; RERA can exert jurisdiction over banks under certain conditions; RERA does not apply retrospectively to pre-existing mortgages unless fraud is involved.

- Final Determinations on Each Issue: Regulation 9 is valid; RERA has jurisdiction over banks in specific contexts; RERA does not apply retrospectively to pre-existing mortgages without fraud; RERA can issue directions against banks acting as assignees.