Which is better RERA or NCLT?

Mr Khurana purchased two flats from a builder in Greater Noida and the date of possession was in 2017. The current status as in 2019  is that the builder is not doing any construction and claiming to have a weak financial condition. He needs help as many others in deciding whether he should approach RERA or NCLT with his case for quick and error-free redressal.

Supreme Court has endorsed the status of home buyers as financial creditors under the Insolvency and Bankruptcy Code (IBC). This means that the home buyers will be treated just like other creditors and can drag developers to NCLT (National Company Law Tribunal)in case of any default from the builder end. This not just empowers home-buyers but also provides them with a new avenue to seek quick redressal. But taking the builder to NCLT may not always be the right choice.

When a case is moved to NCLT, all creditors along with home buyers are entitled to the proceedings and it is possible that home buyers after all expenses may be left with little sum. Whereas, RERA, provides more power and rights to buyers. If the company is solvent, it is wise to approach RERA or even a consumer court and also the proceedings in NCLT are complicated and expensive.

Laws such as RERA are specifically designed to resolve property buyers' problems. UP RERA has taken up delayed projects to complete them. Maharashtra RERA has released many guidelines for home buyer protection. It allows the buyers to remove the developer in case of the delayed possession. 

One such case in Mumbai where Orbit Terraces Co-operative Housing Society approached the high court to take over their project was approved. The buyers even got a fair settlement from the proceedings after the liquidation of the company. If such a case were to be taken to NCLT, home buyers would get little to a fraction of the money they invested to buy the house.

RERA ACT was particularly introduced to address the structured issues with respect to the real estate sector.

RERA and NCLT are different bodies dealing in different sectors. While one in the real estate sector, the other deals in company laws and insolvency. We must understand, that RERA is a body set up to guide and set regulations to regulate real estate sector so now when a judgment is passed against a builder in RERA and the authority passes an order for refund along with the interest, there are chances that builders do not execute that order and the only recourse with homebuyers in this scenario is to file execution application with the authorities which may be a very cumbersome process. Therefore homebuyers prefer to approach NCLT as under IBC law one can file a case before NCLT for debt and recurring default on payments by the builders. NCLT creates much-added pressure on builders and also has shorter datelines for redressal. Once the claim is admitted in the NCLT, the most beneficial effect is that the very next day the board of directors of that company gets suspended and it creates a lot of pressure on them.

Furthermore, if there is no agreement signed between the buyer and the builder there may be no option of getting refund in RERA as section 18 of RERA says that if there is a delay in possession which should be stated in the agreement for sale only then the builder is liable to pay interest and compensation along with refund, if that is the wish of the buyer.  Although RERA is faster in providing relief, such a case could be treated under NCLT as a secured creditor.

Nonetheless, the RERA body has been specifically set up to regulate the real estate sector, therefore, one must approach RERA before approaching NCLT.

For further clarification on NCLT and RERA please feel free to contact us.