DEFINITION OF ‘COMPANY’ UNDER RERA COULD CRIPPLE ITS APPLICATION

With the intent of protecting the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects, the Government of India finally introduced the much awaited and highly debated Real Estate (Regulation and Development) Act, 2016 (“RERA”) with the expectation that it would be a game changer legislation.

RERA, under which the States are empowered to have their own set of rules and authorities for its effective implementation, is set to achieve the much needed transparency and accountability of stakeholders in the real estate sector and only with the elapse of time, would one be able to measure its effectiveness. However, at this juncture it would be relevant to cite and interpret a seemingly innocuous anomaly, which appears to be a typographical error.

Nonetheless, its consequence is far reaching and has the effect of restricting the implementation of the legislation to certain category of persons only.

Section 2 (o) of the Real Estate (Regulation and Development) Act, 2016 defines the term ‘Company’ to mean:

“(o) “company” means a company incorporated and registered under the Companies Act, 2013 and includes,—

(i) a corporation established by or under any Central Act or State Act;

(ii) a development authority or any public authority established by the Government in this behalf under any law for the time being in force”

One may note here that under the Real Estate (Regulation and Development) Bill, 2013 which was introduced in the upper house in Parliament refers to the term company as “…a company incorporated and registered under the Companies Act, 1956…”.  The provisions dealing with penalty for offences committed by companies (Section 69 of RERA), however, contain a non-obstante which specifically defines ‘company’ for the purpose of the section to extend to and mean “any body corporate and includes a firm, or other association of individuals”.

The term ‘body corporate’ is not defined under the RERA. In view of the fact that the provisions of RERA are in addition to and not in derogation of any law currently in force, the term ‘body corporate’ then may be interpreted to include even the companies which are not necessarily incorporated under the Companies Act, 2013.

On the other hand, the definition of the term ‘company’ provided under RERA so far as its application thereunder would not permit the applicability of the definition of the term ‘company’ under the Companies Act, 2013 (which includes companies incorporated under any previous law) as (i) the provisions of RERA have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force and (ii) the definition of the term ‘company’ does not refer a company as defined under the provisions of the Companies Act, 2013.

The effect of this anomaly may lead to promoters who are incorporated under the provisions of the Companies Act, 1956, or any previous law, claiming that the provisions of RERA mandating registration are not applicable to them. In arguendo, as all promoters are required to register their real estate projects and the term ‘promoter’ has been defined under Section 2 (zk) to mean “a person……”, a restrictive interpretation is possible. To clarify, the definition of the term ‘person’ under the provisions of RERA amongst other things uses the term ‘company’, which term has already been defined to mean “…a company incorporated and registered under the Companies Act, 2013…” thereby making it applicable to companies which are incorporated under the Companies Act, 2013 as opposed to including companies incorporated under any previous law.

Neither the corrigenda published on March 26, 2016 nor the Real Estate (Regulation and Development) Removal of Difficulties Order, 2016 addressed this anomaly.

If left to the Courts to discern and clarify this anomaly, we can expect it to resort to most fair and rational method for interpreting a statute by exploring the mischief against which the statute is directed. As a statute is an edict of the legislature, in order to construe the same it is relevant to seek the intention of its maker. Courts are duty bound to construe the statute according to the intent of the legislature and if a statutory provision is open to more than one interpretation, the Court has to choose that interpretation which represents the true intention of the legislature. This task is often plagued with difficulties “….in as much as words used may not be scientific symbols having any precise or definite meaning and language may be an imperfect medium to convey one’s thought or that the assembly of the legislatures consisting of persons of various shades of opinion purport to convey a meaning which may be obscure….”. The Courts consider the legislation in a modern state is actuated with some policy to curb some public evil or to effectuate some public benefit. Laws are primarily directed to the problems before the legislature based on information derived from past and present experience. Laws may also be designed by use of general words to cover similar problems arising from future. But the Courts also recognize that it is impossible to anticipate fully the varied situations arising in future in which the application of the legislation in hand may be called for and words chosen to communicate such indefinite referents are bound to be in many cases, lacking in clarity and precision and thus giving rise to controversial questions of construction. Situations such as these can be avoided by taking care while drafting legislations.

Therefore, it is essential to revisit the definition of the term ‘company’ as provided under Section 2 of RERA and introduce adequate changes to give effect to true purport of the legislation.

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