Co-promoters Liability in Real Estate Projects

Posted On - 11 July, 2024 • By - Jayanth Ravi

In a significant ruling, the Bombay High Court has clarified the liability of co-promoters in real estate projects. The case, Wadhwa Group Holding Private Limited vs. Vijay Choksi[1], has set a precedent that co-promoters are equally responsible for refunding allottees with interest in the event of project delays. This judgment underscores the importance of joint liability under the Real Estate (Regulation and Development) Act 2016 (RERA).

Background

The case originated from a dispute over a project called “The Nest,” initiated by SSS Escatics Pvt. Ltd. and Wadhwa Group Holding Private Limited under a Joint Development Agreement. The project was part of a Slum Rehabilitation Scheme in Andheri (West), Mumbai. Respondent No. 1, Vijay Choksi, had reserved a 2385 square feet apartment, paying ₹12,000,000 as partial consideration. However, due to delays and discrepancies in the project, Choksi sought a refund under Sections 12 and 18 of RERA.

Issues

The following substantial questions of law were framed for the Hon’ble Court to decide:

  1. Whether a promoter who has not received any consideration from an allottee be made liable for giving a refund with interest under Section 18 of the Real Estate (Regulation and Development) Act 2016?
  2. Whether an order of remand is warranted on account of the Maharashtra Real Estate Regulatory Authority Appellate Tribunal not deciding the point about the appellant’s liability to refund the amount?

Court’s Analysis and Observations

Justice Sandeep V. Marne ruled that the responsibilities under RERA do not distinguish between different promoters. The court emphasized several key points:

  1. Joint Liability: Promoters involved in a joint venture are jointly liable for the project’s obligations, irrespective of their internal agreements.
  2. Section 18 of RERA: This section mandates that if a promoter fails to complete or deliver the project on time, they must refund the amount received from the allottee along with interest.
  3. Definition of Promoter: Under Section 2(zk) of RERA, all individuals or entities involved in promoting a project are considered promoters, thus sharing the liability.
  4. Implications of Joint Ventures: The court highlighted that continuing a joint venture post-RERA enforcement implies acceptance of promoter responsibilities, including liability sharing.
  5. Consumer Protection: The judgment reinforces RERA’s objective to protect the interests of homebuyers by ensuring that all promoters are accountable, preventing them from evading liability through internal arrangements.

Court’s Ruling

The Bombay High Court ruled in favor of Vijay Choksi, holding that Wadhwa Group Holding Private Limited, as a co-promoter, is equally liable to refund the amount paid by the allottee along with interest. This decision emphasizes that promoters cannot shirk their responsibilities by citing a lack of direct contractual relationships with the buyers.

Implications

This judgment has profound implications for the real estate sector:

  • Investor Responsibilities: Investors and joint venture partners must acknowledge their liability towards project allottees, aligning with the broader consumer protection goals of RERA.
  • Project Structuring: Real estate projects involving multiple promoters need meticulous structuring to ensure compliance with RERA’s joint liability provisions.
  • Enhanced Consumer Protection: The ruling strengthens the legal framework protecting homebuyers, ensuring that they have recourse in cases of project delays or discrepancies.

In conclusion, the Bombay High Court’s decision in Wadhwa Group Holding Private Limited vs. Vijay Choksi marks a pivotal development in real estate law, reinforcing the joint liability of promoters under RERA and ensuring enhanced protection for homebuyers. This judgment is a reminder for real estate developers to rigorously adhere to their commitments and responsibilities, safeguarding consumer rights in the real estate market.

[1] Wadhwa Group Holding Private Limited vs Vijay Choksi on 26 February, 2024 (indiankanoon.org)