Jail term for homebuyers balances regulator advantage

News Point: 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 & existing market malpractices, then the provision to have jail term for the defaulting buyers seem to balance that advantage point.

Jail, Imprisonment, Jail to homebuyers, Regulator in Real Estate, Defaulting homebuyers, India real estate news, Indian property market, Track2Realty, Builders exploiting homebuyersThe fine prints of the regulatory eco system in one of the most disorganized business in this part of the world is yet to roll out, but the said clause has definitely not gone down well in the psyche of the homebuyers at large.

The homebuyers across the country are questioning the need to have a jail term provision for buyers. The common grouse is that there has hardly been cases of homebuyers been catalyst to wrong practices in the sector. There is a general feeling that the introduced provision would act as a deterrent where the homebuyers will have to think many times before taking the builder into legal battle.

Moreover, in case of default of payment also, there is already 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 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 will not only imposed 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 fail 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 into 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 shocker to him. He feels being let down by the system 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 and been witness to the fact that there was no sign of the said plot being developed for possession. Moreover, I got the information with the RTI that the builder has not even deposited his EDC (External Development Charges) and IDC (Internal Development Charges) to the concerned authorities. 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 business that costs your life 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 has his money locked in if at all one defaults 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’ resisting to challenge the wrong practices of the developers. This provision overall dilutes the advantage that the homebuyers would have got with the 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 with the Regulator Bill. According to him, once the dust settles down may be the homebuyers will also understand that the jail term is only a deterrent for the organized 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.

“A thorough 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 are closed and the buyer is still rigid with 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 the office and there is clarity over the provision. It is too early to say whether the jail term clause would be deterrent to 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 evolves with the time and till then there is apprehension galore in the collective consciousness of the homebuyers. Having said that, the Bill itself has given ammunition to critics and there could have been better ways to deal with the defaults on part of the homebuyers.

By: Ravi Sinha 

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