Defaulting Allottees and the Developer’s Dilemma under RERA: The Limbo of “Dead Stock” Units

The recent pronouncements of the Real Estate Regulatory Authority, Maharashtra (“Authority”), in the Gera Developments Private Limited matters bring into focus a recurring and complex issue in real estate regulation: that of defaulting allottees who, having executed registered agreements for sale, fail to discharge their payment obligations and subsequently decline to cooperate in executing deeds of cancellation.

In these matters, the Authority recorded clear findings of default on the part of the allottees. The Order dated 25th August 2023 passed by the Chairperson of the Authority expressly noted that “the Respondents were duty bound to make the payments as per their respective agreements for sale in accordance with the timelines mentioned therein” and that “the Respondents have failed to perform their duties of paying instalments on time as envisaged in Section 19(6) of the said Act.”

This finding was reaffirmed in the subsequent Non-Compliance Order dated 29th January 2024, where the Adjudicating Officer of the Authority recorded that the allottees “have defaulted in making timely payment in accordance with their respective agreement for sale,” and that “the steps taken by the complainant for termination or cancellation of the agreement for sale are proper, legal and valid under law.” These observations unequivocally establish that the allottees had failed to perform their statutory and contractual obligations, leaving the developer unable to regularize title to the affected units.

Invoking Sections 11(5) and 19(6) of the Real Estate (Regulation and Development) Act, 2016 (“Act”), the Authority held that the promoter was entitled to terminate the allotments in accordance with the agreement. By its Order dated 25th August 2023, the Chairperson of the Authority directed the defaulting allottees to execute deeds of cancellation within thirty days. Upon continued non-compliance, the Adjudicating Officer of the Authority, by Order dated 29th January 2024, directed the jurisdictional Sub-Registrar to make an appropriate entry/note in the concerned register to the effect that the respective agreements for sale stand terminated and cancelled.

While granting relief in its Order dated 29th January 2024, the Authority made reference to Section 31 of the Specific Relief Act, 1963, which empowers a competent authority to declare a written instrument void and order its cancellation where its continued subsistence may occasion injury. While these directions undoubtedly provide practical assistance to developers, questions remain as to their enforceability. Under Section 37 of the Act, the Authority can issue directions only to promoters, allottees, or real estate agents, and under Section 35 it is vested with the powers of a civil court limited to matters of evidence and procedure.

Following these orders, the Inspector General of Registration and Controller of Stamps, Maharashtra issued a communication to the Joint District Registrars across Maharashtra stating that the Authority is not vested with powers to direct the Sub-Registrar to unilaterally cancel registered documents and that no such cancellations should be recorded pursuant to orders passed by the Authority.

It is also pertinent that, under Section 57 of the Act, only orders of the Appellate Tribunal are deemed to be “decrees” and are executable by a civil court. Orders of the Authority or its Adjudicating Officer do not enjoy the same standing and therefore cannot directly be executed as decrees. Consequently, the ability of a developer to enforce such directions, particularly against registration authorities, remains uncertain in law.

Proceedings under the Specific Relief Act for cancellation of an agreement for sale can be time-consuming and may take years to conclude, effectively prolonging the developer’s inability to deal with the affected units. Further, when a special legislation such as the Act exist, covering all aspects of sale and purchase of real estate unit, the need to seek such relief under the Specific Relief Act should ideally not arise. As an alternative, developers may consider invoking the writ jurisdiction of the High Court, which could potentially afford quicker and more effective relief compared to a protracted civil suit, particularly where issues of administrative inaction or jurisdictional conflict are involved.

These orders mark a thoughtful step toward resolving the challenges developers face with defaulting allottees. With greater procedural clarity, such measures can pave the way for a more balanced and efficient regulatory framework.