Is punitive pressure on homebuyers justified?

Ravi Sinha

If the regulator was mooted out as an ombudsman who could oversee the functioning of the real estate sector and ensure that the buyers are not subject to cheating and market malpractices, then the provision to have jail term for the defaulting buyers seems to balance that advantage point. 

The fine print of the regulatory eco system in one of the most disorganised businesses in this part of the world is yet to roll out, but the said clause has definitely not gone down well with the homebuyers at large. There is a general feeling that this provision would act as a deterrent and the homebuyers will have to think many times before taking the builder to court.

Homebuyers across the country are questioning the need to have a jail term provision for buyers. The common grouse is that there have hardly been cases wherein the homebuyers had indulged in wrong practices. They have been more sinned against. 

Moreover, in case of default of payment also, there is already the provision of penalty in favour of the developer. The critics even question that there can be genuine cases of default in payment as a homebuyer might be under duress due to a sudden financial setback. They ask whether there can be willful default in such a capital-intensive investment like the real estate.

Scary jail term

As per the new regulatory regime, homebuyers who fail to ‘comply with’ or ‘contravene’ any of the orders of the Real Estate Appellate Tribunal can not only be made to pay a penalty of up to 10 per cent of the apartment cost but also get a jail term of one year.

The Union Urban Development Minister Venkaiah Naidu informed the Lok Sabha that, “The Bill will not only make the consumer king but also bring in much-needed regulation and transparency for people involved in the sector. It seeks to create a set of rights and obligations for consumers as well as developers.”

The original version of the Bill that was introduced in Parliament by the previous UPA government in 2013 did not prescribe imprisonment for buyers who failed to comply with the Appellate Tribunal’s order. Under the 2013 Bill, such buyers were ‘liable to a penalty for the period during which such default continues, which may cumulatively extend up to 10 per cent of the plot, apartment or building cost, as the case may be, as determined by the Appellate Tribunal”.

Buyers confused

Rakesh Taneja, a Chandigarh-based homebuyer, who has been cheated by a reputed builder in a plot deal is fighting a legal battle with the said developer for four years now. The builder has got the financial and other resources to keep the case dragging for such a long time. The news of homebuyers getting jail in case of default has come as a shock to him. He feels that the system has let the hapless buyers down and questions whether he would be able to fight with the mighty builder any more.

“Yes, I too have defaulted in payment but only after paying 70 per cent as there was no sign of the said plot being developed for possession by the builder. Moreover, I got the information through the RTI that the builder had not even deposited his EDC (External Development Charges) and IDC (Internal Development Charges) to the  authorities concerned. The DTCP (Department of Town & Country Planning) has also issued notices to the developer. Should I still make payment to be legally safe in my fight in front of the regulator,” questions Taneja.     

Surbhi Singh, a consumer rights activist, says no homebuyer can afford to be a willful defaulter in a deal wherein he has put his whole life’s savings.  According to her, now the developers, too, have got a legal tool to arm twist the homebuyers. The monetary penalty itself is more than enough for the homebuyers , who in any case have their money locked in in case of a default for any given reasons.

“Of course, this provision would ensure that the speculators would be out of the market, which is a good thing. But then it will not only affect the sales of houses, which is already very low, but also lead to homebuyers’ avoiding to come out in the open about the wrong practices of  developers. Overall. this provision dilutes the advantage that the homebuyers would have got with the real estate regulator. There should have been other stringent measures to check the arm-twisting speculators into the housing market,” says Surbhi.

Clarity needed

Supreme Court lawyer, Madhurendra Sharma says that in the absence of clarity over the circumstances under which the homebuyers will be sent to jail, there is a whole lot of confusion about this provision of the new law. According to him, once the dust settles down may be the homebuyers will also understand that the jail term is only a deterrent for certain organised blackmailers and not the bonafide homebuyers. Till then, there will be speculations in the market, as the provision of jail term has not been debated before.

“Complete clarity is needed to make all the concerned parties understand that Appellate Tribunal sending a homebuyer to jail is not the first remedial measure. As a matter of fact, it is the final and extreme measure when all the other possible options have been exhausted and the buyer is still rigid on his stand of non-payment. The non-payment of a few buyers affects the construction timelines and possession for majority of the buyers. But then someone needs to spell it out to the larger audience,” says Sharma.   

The jail term provision will continue to be debated in the public space till the time a regulator takes  office and there is clarity over the provision. 

It is too early to say whether the jail term clause would be a deterrent for blackmailers acting as consumer right activists or it will be a tool in the hands of the developers to harass the homebuyers even further. 

A lot depends upon the regulatory eco system that would evolve. Till then there will be apprehension in the collective consciousness of homebuyers. 

Having said that, the Act itself has given ammunition to critics and there is no doubt that there could have been better ways to deal with the defaults on part of the homebuyers.

— The writer is CEO, Track2Realty