Concurrent Remedies under RERA and Consumer Protection Act: Which is more effective?

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

Franklin D. Roosevelt, U.S. President                                       

By stating a quote said by the then-former U.S. President, we come to an understanding that owning a house that can be called your own is something that every individual dreams of. But, in most cases, the hurdles that a buyer has to overcome in achieving his dream lead to a lot of financial and mental distress. This distress can be caused by a variety of factors, the most common of which is fraud or cheating by unscrupulous builders and real estate agents. 

Hence, it is vital for a buyer to know about the various legal remedies at his disposal. Furthermore, it is crucial to understand which of the various legal remedies is the best approach. This article analyses the various legal recourses available and the forum that would best redress the buyers’ concerns.

 

The Real Estate (Regulation and Development) Act, 2016

 

RERA prescribes that the promoter shall not accept more than 10% (ten percent) of the total value of the real estate property before entering into the agreement for sale[1]. Further, the promoter is required to maintain a separate account with 70% (seventy percent) of the project funds. If the builder wants to modify the sanction plan under RERA, he requires the consent of two-thirds of the allottees. Under RERA, if any defect is brought to the attention of the promoter within a period of 5(five) years of handing over possession of the property, it shall be the duty of the promoter to rectify the defect[2].

RERA mandates that every real estate project be registered with the Real Estate Regulatory Authority. Without the registration of the real estate project, the promoter is not allowed to book, sell, or invite any person to purchase the project[3]. The applications must be filed addressing it to RERA with the necessary approvals from the local authorities, along with a development plan, proforma of all agreements that are signed by the company, details relating to contractors, real estate agents, architects, structural engineers, and other people concerned with the project, the details of the total carpet area of the apartments for sale in the project and a declaration signed with an affidavit confirming that it is free from all encumbrances. The following provisions bind the promoters as well as the real estate agents, providing the buyers with holistic protection.

Non-compliance or default with any of the aforementioned provisions resulted in a penalty of up to 10% (ten percent) of the total project cost and up to three years in prison[4]. The builders are also mandated to deposit 70% (seventy percent) of the project funds into a separate bank account to avoid the problem of builders diverting the funds of the project to another new project[5].

Grievances with regard to violations of the RERA can be filed on the RERA website, which acts as a single repository for all real estate project data and filing grievances[6]. The Real Estate regulatory authority has been prescribed a resolution time of 60 (sixty) days from the date of receipt of the application[7]. Further, the tribunal can hear appeals of the authority’s rulings within 60 (sixty) days[8]. Any appeal from the tribunal lies before the High Court and must be filed within a period of 60 (sixty) days of the decision. If there is a pending case before the Consumer Forum pertaining to the damages caused by the false advertisements and non-adherence to the project specification, approved plan, or failure to complete the project on the specified date, the case can be withdrawn and filed before the RERA adjudicating officer[9].

 

Overview of the Consumer Protection Act, 2019

 

The Consumer Protection Act of 1986 and the new Act of 2019 were enacted to provide a simple and quick solution to consumers’ grievances against any deficiency in services or defect in goods. It is organised into three levels: the District Forum, the State Commission, and the National Commission (“Consumer Forum”). The Act defines “product seller,” and it includes a seller of immovable property only if that person is engaged in the construction of flats or homes or the sale of constructed homes[10]. As a result, builders and real estate agents are covered by the Act.

Under the said Act, only consumers can file a complaint, the term consumer is defined as a person who buys goods for consideration but doesn’t include a person who obtains such goods for commercial or resale purposes[11]. As a result, for the purposes of this article, those individuals are considered consumers who purchase a home or other property for personal use rather than commercial use.

In case of any defect or deficiency in the product or services, the consumer can file a complaint before the consumer forum within a period of 2 (two) years from the date on which the cause of action arose[12]. The consumer forums have a pecuniary limit. Hence, the District forum entertains complaints where the value of goods and services is not more than 1 crore rupees[13], State Commissions can entertain complaints that are above 1(one) crore and below 10 (ten) crore[14] and all complaints above 10 (ten) crores need to be filed with the National Commission[15].

Under the Act, the complaint is disposed of within a period of 3 (three) months from the date of receipt of the notice by the opposite parties[16]. The Act empowers the forums to grant compensation for loss incurred and punitive damages in appropriate cases.

 

 

Does RERA Reduce the Scope of CPA?

 

Before the enactment of the RERA, the Consumer Forum used to deal with matters relating to allottees. Following the enactment, the Consumer Forum’s jurisdiction to deal with allottee-related issues was not barred by the RERA. The standing committee also clarified that the jurisdiction of the Consumer Forums was not taken away by the establishment of the Real Estate Tribunal. Further, the consumer also has the discretion to withdraw the complaint pending before the Consumer Forum, with the permission of the said forum, and file an application before the adjudicating officer under RERA[17].

In Experion Developers Pvt. Ltd. v. State of Haryana and Ors.[18] the court referred to Section 71 of the RERA, which enables the consumer whose complaint is pending before the Consumer Forum to withdraw and go before the adjudicating officer. But the court held that the said provision has to be read with Section 88 of the said act, which explicitly states that the provision of RERA is in addition to and not in derogation of any other law. As a result, the court concluded that the complainant was not required to withdraw and transfer the complaint before the adjudicating officer. The complainant was empowered to simultaneously pursue remedies in both the forum on the strength of section 88 of the act.

The Apex Court, in Pioneer Urban Land and Infrastructure Ltd v. Union of India and Ors [19], held that buyers of flats could avail concurrent remedies under Consumer Protection Act and RERA.

In M3M India Pvt Ltd v. Dinesh Sharma[20] the court considered the question of whether the proceedings before the consumer forum can commence after the commencement of the RERA. It was held that the remedies that are provided under RERA and the Consumer Protection Act are concurrent in nature and the jurisdiction of the commission or the Consumer Forum will not be ousted by RERA, specifically Section 79 of the Act.

In Malay Kumar Ganguly v. Dr. Sukumar Mukherjee[21] the Supreme Court held that even though the proceeding in the National Commission is a judicial proceeding, within the definition of the Civil Procedure Code it is not a Civil Court. Although the National Commission has the trappings of a Civil Court, it cannot be termed a Civil Court. Therefore, the bar that has been provided under Section 79 of RERA is not applicable to the Consumer Forum. This judgement was strongly relied on in the below-mentioned judgement.

Further, in M/s Imperia Structures Ltd v Anil Patni & Another[22] Section 79 of the RERA bars the civil court from entertaining any suit or proceeding in respect of any matter over which the Authority, the adjudicating officer or the Appellate Tribunal is empowered by the RERA. The Apex Court held that it did not bar the complainant from filing complaints under the Consumer Protection Act. The section only imposes limitations on the Civil Courts’ ability to try issues that the adjudicating authority is empowered to entertain. As the Consumer Forum is not the same as the Civil Court the limitation does not apply.

Section 18 of the Act states that there is no bar to any aggrieved party from pursuing any other remedy that is available. Section 88 of the Act states that the provisions of the Act are in addition to and not in derogation of any other laws in force. However, on the contrary, Section 89 of the act provides that RERA shall have an overriding effect. The court cleared up the confusion by stating that even though Section 89 states that the Act shall have an overriding effect, the buyers can still approach the other forums under Section 18 of the Act. Thus, it is clear that parallel proceedings in different forums can exist. The court established that the aggrieved party could avail of parallel remedies under RERA as well as under the Consumer Protection Act.

A Comparative Study of RERA and Consumer Protection Act

 

The following are the requisite pointers that can be considered to determine which forum best serves the needs of homebuyers. 

Limitation Period

RERA has not provided any limitation period within which a complaint needs to be filed. However, according to the Consumer Protection Act, the complaint must be filed within two years of the cause of action. Hence, if the time period since the cause is more than 2 years, then the complainant can’t file a complaint before the Consumer Forum; the only remedy available at the complainant’s disposal is adjudication under the RERA.

Filing of a Complaint

Under RERA, any person who has been aggrieved by the builder or developer can file a complaint. However, under the Act, only a person who is a consumer can file a complaint. As a result, if a person does not fall within the definition of “consumer,” or if he has purchased a property for commercial purposes, or if any other person is dissatisfied with the developer, the only recourse is to approach RERA for adjudication.

Under RERA, the complaints are filed on the RERA website, and the process is simplified with minimal to no opportunity for modification because many States have distinct prescribed methods for filing complaints under RERA (including the format). However, under the Act, the complaint must be submitted in writing to the relevant authorities; it involves a complex procedure and includes documentation evidence; as a result, it appears to be a more time-consuming process. 

Pecuniary Limitations

The Act has prescribed pecuniary limitations based on the value of the property. Suppose the complainant’s property is above Rs. 1 crore, then he has to approach the State Commission and if its above Rs. 10 crores, he has to approach the National Commission for filing a complaint. Whereas RERA does not have any pecuniary limitations based on the value of the property. Hence, the complaint can be filed before the regulatory authority of the state in which the property is situated. Suppose the value of the property is more than Rs. 10 crores, then it is convenient for the buyer to adjudicate the dispute before RERA as the National Commission that is given jurisdiction under the Consumer Protection Act is situated in New Delhi.

Penalty

The Act is empowered only to grant pecuniary compensation. It doesn’t enforce any preventive measures nor does it provide for any specific performance or imprisonment of the defaulting party. RERA, however, is exclusively empowered to provide certain non-compensatory remedies. Further, it is also empowered to impose imprisonment for up to 3 (three) years on the defaulting developers.  If the consumer is only seeking compensatory relief, then the consumer forum is the right forum to approach. But if the buyer is looking for a deterrent remedy, then filing a complaint before RERA is a better option.

Commercial Dispute

The Consumer Forum doesn’t deal with commercial issues. RERA has no such bar on the adjudication of commercial issues. Therefore, if an individual doesn’t fall within the definition of “Consumer” as defined under the Act, then the best and only recourse available in the hands of the buyer is to file a complaint under RERA.

Time Period for Disposal of Dispute

The resolution time specified under RERA is 60 (sixty) days[23]. Similarly, the Act states that every complaint shall be disposed of as expeditiously as possible within a period of 3(three) months from the date of receiving notice from the other party[24].  However, in practice, disposing of matters in both forums takes much longer.

 

Conclusion

 

For regulating the “real estate” sector, the “Real Estate Regulatory Authority Act” is a landmark piece of legislation imposing time-bound obligations on promoters. Consumers’ or homebuyers’ rights are intended to be protected by ensuring fair play.

It is worth noting that RERA has not only been actively involved in maintaining transparency and accountability in the real estate sector, but has also assisted consumers and homebuyers in obtaining possession quickly and easily.

From the above analysis, we can deduce that RERA has finally ended up being an extension of the “Consumer Protection Act” which helps to address the growing need for transparency in favour of consumers as well as builders.

In light of the preceding comparative study and judicial pronouncements, we can safely conclude that it is entirely up to the allottee to choose either a concurrent remedy or a single forum to resolve his or her disputes. But it is a tedious process for a common man to simultaneously approach two different forums, the RERA or the Consumer Forum. 

The concurrent remedy has broadened the range of remedies available to home buyers. Both acts have their benefits and drawbacks in terms of resolving the buyers’ issues. The most effective forum for the buyer to approach for resolving his issue is highly dependent on the facts of the case and the remedy that the aggrieved party is seeking from the respective forum.

Concurrent Remedies under RERA and Consumer Protection Act: Which is more effective?

References: 

[1] Section 13 of the Real Estate (Regulation and Development) Act, 2016

[2] Section 14(3) of the Real Estate (Regulation and Development) Act, 2016

[3] Section 3 of the Real Estate (Regulation and Development) Act, 2016

[4] Section 59 of the Real Estate (Regulation and Development) Act, 2016

[5] Section 4(d) of the Real Estate (Regulation and Development) Act, 2016

[6] Section 31(1) of the Real Estate (Regulation and Development) Act, 2016

[7] Section 29(4) of the Real Estate (Regulation and Development) Act, 2016

[8] Section 44 of the Real Estate (Regulation and Development) Act, 2016

[9] Section 71 of the Real Estate (Regulation and Development) Act, 2016

[10] Section 1(37) of Consumer Protection Act, 2019

[11] Section 1(7) of Consumer Protection Act, 201

[12] Section 69(1) of Consumer Protection Act, 2019

[13] Section 34 of Consumer Protection Act, 2019

[14] Section 47 of Consumer Protection Act, 2019

[15] Section 58 of Consumer Protection Act, 2019

[16] 38(7) of of Consumer Protection Act, 2019

[17] Section 71 of the Real Estate (Regulation and Development) Act, 2016

[18] Experion Developers Pvt. Ltd. v. State of Haryana CWP No. 38144 of 2018

[19] Pioneer Urban Land and Infrastructure Ltd v. Union of India and Ors 2019 SCC OnLine SC 1005

[20] M3M India Pvt Ltd v. Dinesh Sharma W.P.(C)43/2019

[21] Malay Kumar Ganguly vs. Dr. Sukumar Mukherjee AIR 2010 SC 1162

[22] M/s Imperia Structures Ltd v Anil Patni & Another (Civil Appeal No. 3581-3590 of 2020)

[23] Section 29(4) of the Real Estate (Regulation and Development) Act, 2016

[24] Section 38(7) of the of Consumer Protection Act, 2019

 

Image Credits: Photo by energepic.com

The concurrent remedy has increased the scope of remedy that the home buyer can avail. Both acts have their benefits and drawbacks in terms of resolving the buyers’ issues. The most effective forum for the buyer to approach for resolving his/her issue is highly dependent on the facts of the case and the remedy that the aggrieved party is seeking from the respective forum.

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Consumer Protection (Direct Selling) Rules, 2021 – Tightening the Noose on Pyramid and Money Circulation Schemes

Direct selling entities, multi-level marketing and pyramid schemes have existed for decades across the globe. These entities and direct sellers lure customers into these serpentine schemes by provoking an individual’s desire to become entrepreneurs with minimum investment. In addition, COVID-19 induced lockdown proved to be a fertile ground for a significant increase in the establishment of direct selling/multi-level marketing businesses. While some operated legally, others exploited the grey areas in the regulatory framework or were outright pyramid schemes.

Whilst people were and still are jumping into the direct selling bandwagon, the existing and potential stakeholders must be aware of the caution that the Government has issued[1] and the legal landscape surrounding direct selling/multi-level marketing business. The Consumer Protection (Direct Selling) Rules, 2021 (“DS Rules”), one of the primordial tools to regulate the direct selling industry, is being examined herein.


Brief History of the Regulations on Direct Selling

With the intent to curb the menace of illegal multi-level marketing and pyramid schemes that were masquerading as legitimate businesses, back in 2016, the Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, formulated a set of guidelines titled “Direct Selling Guidelines 2016”. These guidelines were formulated as model regulations,  issued as an advisory that put the onus the State Government and Union Territories for their effective implementation. 

Taking a cue from the Central Government’s advisory, various State Governments enacted their respective direct selling guidelines – The Tamil Nadu Direct Selling Guidelines Order 2018[2], Karnataka Direct Selling Rules, 2019[3], Maharashtra’s Guidelines for regulating the business of ‘Direct Selling’ and Multi-Level Marketing (MLM)[4] enacted in 2019, West Bengal Direct Selling Guidelines, 2018[5]. While some State Governments embraced the central government advisory and implemented guidelines on the lines of the DSG 2016, not all States followed suit, resulting in a lack of uniformity and regulation across the country.

With this brief history, let us understand the recently enacted Consumer Protection (Direct Selling) Rules, 2021 under the Consumer Protection Act, 2019, which is intended to operate as a bulwark against pyramid schemes established in India or offer goods and services to customers in India.


Consumer Protection (Direct Selling) Rules, 2021

 

1. Overview 

The Consumer Protection (Direct Selling) Rules, 2021 came into force on December 28, 2021, to prohibit participation and/or promotion of pyramid schemes and money circulation schemes[6]. While the new DS Rules do not define direct selling as compared to the DS Rules, 2016; the term direct selling entity has been defined as “principal entity which sells or offers to sell goods or services through direct sellers, but does not include an entity which is engaged in a Pyramid Scheme or money circulation scheme[7]. The exclusive definition is made to limit the application of the Act only to pyramid or money circulation schemes.

A pyramid scheme has been defined as “a multi-layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly, as a result of enrolment or action or performance of additional subscribers to the scheme, in which the subscribers enrolling further subscribers occupy a higher position and the enrolled subscribers a lower position, resulting in a multi-layered network of subscribers with successive enrolments[8]. And, money circulation scheme is defined as “means the schemes defined in clause (c) of section 2 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (43 of 1978)[9].

The obligations under the DS Rules can be broadly categorized into:

  • obligations of direct selling entities;
  • obligations of direct sellers; and
  • duties of direct selling entity and direct seller.

Before analyzing various obligations under the DS Rules, it is pertinent to note that the DS Rules are applicable to any entity offering goods and services to consumers in India, whether or not such entity is established in India[10] and such an entity is mandated to maintain records such as charter documents, tax registration documents, income tax returns, financials, etc.[11] Further, direct selling entities must comply with the provisions of the DS Rules within ninety (90) days from the date of its publication.[12] It is pertinent to note that, the Consumer protection (e-Commerce) Rules, 2020 apply to both the direct sellers and the direct selling entities[13].


2. Obligations under the DS Rules:

Among other things, every direct selling entity shall[14]:

  • have a physical office in India.
  • Keep their website updated including details of its nodal office, grievance redressal officer and mechanism, management, products information including price and such website shall also explicitly provide name, address, contact details, complaint tracking mechanism, return, refund and warranty, payment-related information.
  • obtain all relevant registrations, including PAN and other tax registrations.
  • obtain a certificate from a company secretary for all information provided on its website.
  • Make just, fair and equitable written contracts with its direct sellers for dealing with the entity’s products and services.
  • ensure its direct sellers have verified identities and physical addresses.
  • comply with the Legal Metrology (Packaged Commodities) Rules, 2011.
  • store personal data within India.

Among other things, every direct seller shall[15]:

  • Provide full information about the direct selling entity, nature of goods and services, terms of purchase, return and refund, warranty, etc.
  • Provide an order form with various details about the direct seller and the direct selling entity.
  • Protect the sensitive personal information provided by consumers.
  • Not approach a consumer without his/her identity card and prior approval, provide literature to prospects without approval, make claims inconsistent with claims as authorized by direct selling entity.

 

3. Duties

Under Rule 7 of the DS Rules, direct seller and direct selling entity shall:

  • ensure terms of offer are clear, make true representations, not use unfair or deceptive trade practices, not indulge in fraudulent activities, not portray direct selling as market research.
  • not indulge in mis-selling products or services to customers.
  • charge any entry or subscription fee.
  • ensure orders are delivered within the proposed delivery date at the time of purchase.
  • follow provisions of the Legal Metrology Act, 2009 and rules framed thereunder.
  • Not induce customers to make purchases based on the representation that they can reduce or recover the price by referring prospective customers to the direct sellers for similar purchases.

Any contravention of the DS Rules will attract penalties and the legal procedures enumerated under the Consumer Protection Act, 2019[16]. Further, the DS Rules require the State Governments to set up a mechanism to monitor or supervise the activities of direct sellers and direct selling entities, which fortifies the effective implementation of the DS Rules.


Bringing In Uniformity 

 

The Direct Selling Guidelines 2016 were implemented during the time when FTC (Federal Trade Commission) of USA filed a complaint accusing Herbalife Nutrition Ltd. (a multi-level marketing (MLM) corporation) of deceiving consumers about how much money they could make selling its products, noting that most Herbalife distributors make no money at all[17]. The FTC also announced that Herbalife later agreed to pay $200 million to reimburse consumers who lost money on its nutrition supplements and planned a major restructuring of its sales and distribution practices[18].

The Direct Selling Guidelines 2016 which were issued as an advisory by the Central Government, were not implemented by all States resulting in a lack of uniformity, certainty and effective protection from the perniciously proliferating pyramid and money circulation schemes.

The new Rules shall now result in a uniform application of the law across the country, thereby standing in alignment with the legislative intent.  Additionally, by bringing the direct selling entities and direct sellers under the ambit of Consumer Protection Act, 2019, the Central Government has taken a step in the right direction since consumers can now approach the consumer protection forums for effective redressal of grievances.

References: 

[1] RBI cautions Public against Multi Level Marketing Activities: https://www.rbi.org.in/commonman/English/Scripts/PressReleases.aspx?Id=1514, January 01, 2015.

[2]https://upload.indiacode.nic.in/showfile?actid=AC_TN_85_1061_00003_00003_1553515101944&type=rule&filename=trekking_rules.pdf

[3] https://idsa.co.in/resources/media/guidelines/1609826052_Direct%20Selling%20Notification_0.pdf

[4] https://idsa.co.in/resources/media/guidline/1563874609_Maharashtra%20DS%20Guidelines_0.pdf

[5] https://www.idsa.co.in/resources/media/new/1596788872_West%20Bengal%20Direct%20Selling%20Guidelines%202018_0.pdf

[6] Rule 10 of the Consumer Protection (Direct Selling) Rules, 2021.

[7] Rule 1 (d) of the Consumer Protection (Direct Selling) Rules, 2021.

[8] Rule 1 (i) of the Consumer Protection (Direct Selling) Rules, 2021.

[9] Rule 1 (f) of the Consumer Protection (Direct Selling) Rules, 2021.

[10] Rule 2 (2) of the Consumer Protection (Direct Selling) Rules, 2021.

[11] Rule 4 of the Consumer Protection (Direct Selling) Rules, 2021.

[12] Proviso to Rule 2 (1) (d) of the Consumer Protection (Direct Selling) Rules, 2021.

[13] Rule 9 of the Consumer Protection (Direct Selling) Rules, 2021.

[14] Rule 5 of the Consumer Protection (Direct Selling) Rules, 2021.

[15] Rule 6 of the Consumer Protection (Direct Selling) Rules, 2021.

[16] Rule 13 of the Consumer Protection (Direct Selling) Rules, 2021.

[17] https://www.npr.org/sections/thetwo-way/2016/07/15/486174340/herbalife-agrees-to-pay-200-million-to-settle-complaints-it-deceived-consumers

[18] https://www.npr.org/sections/thetwo-way/2016/07/15/486174340/herbalife-agrees-to-pay-200-million-to-settle-complaints-it-deceived-consumers

 

Image Credits:

Photo by Tara Winstead from Pexels 

The new Rules shall now result in a uniform application of the law across the country, thereby standing in alignment with the legislative intent.  Additionally, by bringing the direct selling entities and direct sellers under the ambit of Consumer Protection Act, 2019, the Central Government has taken a step in the right direction the consumers can now approach the consumer protection forums for effective redressal of grievances.

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