The dissolving of the West Bengal Housing Industry Regulation Act, 2017 (WBHIRA), due to it overlapping with the Real Estate (Regulation and Development) Act, 2016 (RERA), has created uncertainty among real estate players in the State. However, due to the same reason, the enactment of RERA in West Bengal will not lead to any significant changes in real estate practices.

The Supreme Court of India, on May 4, 2021, struck down the West Bengal Housing Industry Regulation Act, 2017 (WBHIRA), deeming it as ‘unconstitutional’. The decision has created uncertainty amongst the real estate fraternity in the State regarding several aspects. To understand how this decision will impact West Bengal’s real estate sector, we have to look at the situation and its results from various angles.

The enactment of the West Bengal Housing Industry Regulation Act, 2017

The Indian Parliament passed the Real Estate (Regulation and Development) Act, 2016, (RERA) on March 15, 2016. The Act aims to protect the interests and rights of buyers and promote standardisation and uniformity of transactions and business practices in the Indian real estate sector.

All the 92 sections of the Act came into force on April 19, 2017. Accordingly, the State governments and Union Territories (UTs) were required to notify their rules on the lines of the Central Act.

Contrarily, West Bengal notified an independent real estate law – West Bengal Housing Industry Regulatory Act, 2017.

The Supreme Court’s judgement

The Supreme Court found the statutory provisions of WBHIRA ‘repugnant’ to the provisions of RERA within the meaning of that expression as per Clause 1 of Article 254 of the Constitution of India, and thus, deemed it unconstitutional.

Repugnancy within the constitutional sense is implicated when the State government legislates on a subject matter upon which the Indian Parliament has already enacted a law, which, in this case, is RERA.

The overlap between the provisions of WBHIRA and RERA was quite significant, with several provisions in West Bengal’s legislation being lifted word-by-word from RERA that repugnance was clearly established.

Previous to the enactment of WBHIRA, the West Bengal (Regulation of Promotion of Construction and Transfer by Promoters) Act, 1993 (West Bengal 1993 Act) was applicable. The Supreme Court clarified that with the striking down of WBHIRA, the West Bengal 1993 Act would not get revived in any manner.

Further, to avoid disruption and uncertainty in West Bengal’s real estate sector, the Court underlined that the annulment of WBHIRA would not affect the sanctions, permissions and registrations previously granted under the same Act, and the same will continue to prevail.

The clarification shall be a relief to the promoters of approximately 1,000 real estate projects approved under WBHIRA.

The impact of the judgement

The government’s follow-up action to the Supreme Court’s judgement will determine whether real estate developers, home buyers, and aggrieved consumers of existing projects will face a period of uncertainty.

The best outcome for the real estate fraternity will be the State government notifying rules under RERA. Other options before the government include filing a review petition, and if that too is dismissed, a curative petition before the Supreme Court would help. The government can also consider amending WBHIRA or even drafting a new one. However, uncertainty will continue to prevail if any of these courses are taken.

Effect on real estate developers

Till the time the West Bengal government does not publish and notify the rules under RERA and establishes an Authority according to its rules, all proposed real estate projects may be stalled due to the inability to obtain approvals and get registered.

Several real estate developers present in the State think that there will not be considerable changes in the sector due to a regime change. Rishi Jain, Managing Director, Jain Group, shares, “It is a significant decision in terms of legal real estate practices. However, both acts are virtually the same, and the long-term impact on real estate will be negligible.”

Nakul Himatsingka, Managing Director, Ideal Group, states, “HIRA and RERA were very similar laws with just small differences in wordings and adjustments to local conditions. We presently follow and shall continue to follow whichever legislation is in force.”

“I think the provisions in both the acts were mostly the same and the Supreme Court has said that older projects will continue to be registered. Hence, I believe this is only a matter of alternative notification and there should not be any effect on buyers or realty projects owing to this decision”, adds Arya Sumant, Managing Director, Eden Realty.

Nevertheless, if RERA is enacted, it will impact two major areas:

Allotment/sale of car parking space: The central legislation only allows the sale of a garage covered by a roof and walls on the three sides. This is unlike WBHIRA, which permits the sale of all kinds of car parking spaces, such as open, covered, and basement. This change shall affect developers’ ability to allot or sell car parking spaces that do not fall under the definition of a ‘garage’ as delineated under RERA.

Force majeure: RERA particularly comprises the ‘Force Majeure’ clause as per which a promoter can defend the non-performance of a contractual obligation. WBHIRA had modified the same provision with the addition of ‘other circumstances as may be prescribed’ clause. This additional grey area provided by WBHIRA may not be available to builders anymore.

Sonam Chandwani, Managing Director, KS Legal and Associates, avers, “It is noteworthy that RERA provides for a force majeure clause; however, it only includes natural calamities; whereas, the WBHIRA prescribes for a more exhaustive provision. The annulment of the latter might severely affect developers in Bengal amid the pandemic.”

Effect on real estate consultants

New real estate agents will have to wait for RERA to be notified to get registered under it. Jitendra Khaitan, Managing Director, Pioneer Property Management Limited, elucidates, “The striking down of WBHIRA shall have a positive impact. I believe that we, as real estate consultants, should also have single registration for conducting business pan-India.”

Effect on stalled projects and aggrieved home buyers

The stalled real estate projects in the State, which were registered under WBHIRA, could not receive aid funding under Special Window for Affordable and Mid-Income Housing (SWAMIH), a category-2 Alternate Investment Fund (AIF). This was because the Central Government-supported fund is only for the RERA-registered stressed and stalled projects.

The same has left many projects in the lurch. Kolkata presently has over 95,000 residential units under construction, out of which approximately 13,000 are excessively delayed.

Still, if the State government enacts RERA in West Bengal and the existing projects are allowed to register under the same, they receive such funding. “The repugnance of WBHIRA would finally remove the stumbling block for real estate developers in West Bengal. The judgement implies that developers shall finally be able to avail AIF benefits which were kept away from the developers in Bengal due to the sole reason that they were not registered under RERA”, adds Sonam Chandwani of KS Legal and Associates.

Regarding the aggrieved home buyers who have complaints pending with WBHIRA, they will have to wait until any further decision regarding setting up a new regulatory authority under RERA is taken.

Overall, the striking down of WBHIRA by the Supreme Court may not significantly affect the real estate sector of West Bengal in the long run as the two acts overlap on all crucial provisions. However, there may be uncertainty in the interim till the West Bengal government decides the future course of action.