Redefining co-promoter liability under RERA: A landmark judicial precedent

Posted On - 7 May, 2024 • By - Vivek Jain

In the intricate tapestry of real estate law, a recent judgment by the esteemed Bombay High Court has illuminated the path forward, particularly in delineating the parameters of co-promoter liability under the Real Estate (Regulation and Development) Act, 2016 (RERA). This ruling profoundly impacts the dynamics of such complex real estate transactions. The Hon’ble Bombay High Court has held that the term ‘promoter’ covers a co-promoter even if he hasn’t got money from flat buyers and is jointly liable under Real Estate (Regulatory and Development) Act (RERA) to refund the amount, with interest, for delays. It said under the 2016 Act, which came into effect in 2017, ‘promoter’ has “been so widely defined that it virtually includes every person associated with construction of the building”, and it is not necessary that there has to be an agreement between every promoter and a flat buyer.

Deciphering Section 18 Of Rera

At the heart of this discourse lies Section 18 of RERA, a pivotal provision that embodies the essence of buyer protection in real estate transactions. Mandating developers to furnish refunds or compensation in the event of project delays or non-compliance with contractual obligations, this provision serves as a cornerstone of regulatory oversight in the real estate sector. However, the delineation of co-promoter liability within the ambit of Section 18 has remained a contentious issue, subject to interpretation and judicial scrutiny.

Landmark Ruling: Wadhwa Group Housing Pvt. Ltd vs. Vijay Choksi and SSS Escatics Pvt. Ltd

On February 26, 2024, Justice Sandeep V Marne of the Bombay High Court delivered a seminal judgment in the case of Wadhwa Group Housing Pvt. Ltd vs. Vijay Choksi and SSS Escatics Pvt. Ltd. The crux of this ruling lies in its assertion that co-promoters share equitably in the liability for refunds in instances of possession delays, irrespective of contractual arrangements delineated in joint development agreements. This pronouncement not only clarifies the contours of co-promoter liability but also underscores the overarching supremacy of RERA in regulating real estate transactions.

Key Tenets Of The Ruling

Central to the ruling are several salient points:

  1. Joint Liability Principle: The court unequivocally affirmed that all promoters, including co-promoters, bear joint liability under RERA, transcending any contractual stipulations to the contrary.
  2. Primacy of RERA: The judgment emphatically underscores the paramount importance of RERA’s provisions, positing them as sacrosanct and overriding any contractual arrangements between developers.
  3. Retroactive Application: Importantly, the ruling elucidates the retroactive applicability of RERA to ongoing projects, thereby ensuring comprehensive coverage and accountability for all stakeholders involved.

Implications And Ramifications

The ramifications of this landmark ruling are manifold:

  1. Structural Realignment: Developers and investors are compelled to reassess their joint venture structures, aligning them with the principles elucidated in this judgment to mitigate legal risks and ensure compliance with RERA.
  2. Augmented Buyer Safeguards: The ruling fortifies buyer protection measures, safeguarding the interests of purchasers by precluding promoters and co-promoters from evading their statutory obligations under RERA.
  3. Legal Clarity and Certainty: By offering lucid interpretation and application of RERA provisions, the judgment engenders legal clarity and certainty, thereby fostering a conducive environment for such real estate transactions.

Conclusion

In conclusion, the ruling in Wadhwa Group Housing Pvt. Ltd vs. Vijay Choksi and SSS Escatics Pvt. Ltd represents a watershed moment in real estate jurisprudence, heralding an era of accountability, transparency, and legal clarity. As stakeholders navigate the complex terrain of real estate transactions, adherence to the principles espoused in this judgment will serve as a guiding force toward more prudent and compliant practices.