Builder Liability for Agent Fraud in Unregistered RERA Real Estate Projects

Builder Liable for Agent Fraud Without RERA Registration

In the complex world of real estate development in India, homebuyers often face misleading promises from agents acting on behalf of builders. A pressing question arises: Can a builder (promoter) be held responsible for fraud committed by an agent, even if the project is not registered under RERA? This issue is critical for buyers seeking justice and developers navigating compliance. This article explores the legal landscape, drawing from RERA provisions, the Consumer Protection Act, and judicial precedents. Note: This is general information based on legal interpretations and not specific legal advice. Consult a qualified lawyer for your situation.

Understanding Promoter Liability Under RERA

The Real Estate (Regulation and Development) Act, 2016 (RERA) defines a 'promoter' broadly under Section 2(zk), encompassing not just builders but also agents, power of attorney holders, and even separate sellers. As per the provision: any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale 2024 0 Supreme(Bom) 274.

The Explanation to this section is pivotal: where the person who constructs or converts a building into apartments or develops a plot for sale and the person who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act 2024 0 Supreme(Bom) 274. This joint and several liability means promoters, including agents, share responsibility for project-related actions, such as sales and marketing, even extending to investors entitled to sell shares: even a person who is merely an investor in the project alongwith the Promoter and who is entitled to benefit in the real estate project is also covered by definition of the term ‘Promoter’ 2024 0 Supreme(Bom) 274. Section 2(zk) is consistently reinforced across rulings 2019 5 Supreme 3.

While Section 3 mandates registration for ongoing projects before sales, liability isn't confined to registered projects. Unregistered projects violate RERA, but promoter status persists, triggering accountability for fraudulent acts by agents 2024 0 Supreme(Bom) 274 2019 0 Supreme(SC) 843. A promoter remains a promoter regardless of registration status—what is registered is the project, not the promoter: A promoter would remain always a promoter under RERA. ... What is registered under Section 3 of RERA is a project and not a promoter 2022 0 Supreme(All) 454 2017 0 Supreme(Bom) 1982.

RERA's Supplemental Nature: Beyond Registration Requirements

Crucially, RERA does not override other laws. Section 88 states: the provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force, and Section 89 ensures RERA's overriding effect only where inconsistent 2019 0 Supreme(SC) 843. Thus, even for unregistered projects, remedies under parallel statutes remain available.

Judicial interpretations affirm RERA's prospective application for ongoing projects without completion certificates, allowing fresh timelines upon registration, but non-registration doesn't erase promoter duties 2021 0 Supreme(Bom) 804. Assignee developers also step into the promoter's shoes: the said M/s.Rebuilt Developers having assigned the Real Estate Project in favour of the appellant herein, the appellant is the promoter within the meaning of Section 2(zk) of the said RERA and thus is bound to comply with all the obligations under the said RERA 2019 0 Supreme(Bom) 1515. This underscores enduring liability chains.

Section 31 permits aggrieved allottees to complain against promoters, supplementing other forums 2019 0 Supreme(SC) 843 2023 0 Supreme(Bom) 1354. However, locus standi under RERA is limited to project-connected persons, like allottees, not unrelated parties 2023 0 Supreme(Bom) 1354.

Fraud by Agents: Vicarious Liability and Consumer Protection Act

Independent of RERA, the Consumer Protection Act, 2016 (CPA) holds builders accountable for agent fraud. Builders are service providers, and allottees are consumers. False or misleading representations constitute 'deficiency in service': If a builder of a house uses sub-standard material in construction of a building or makes false or misleading representation about the condition of the house then it is denial of the facility or benefit of which a consumer is entitled to claim value under the Act 2008 5 Supreme 76.

Agents' actions within the scope of authority bind the principal via vicarious liability. A landmark principle: The only difference, in my opinion, between the case where the principal receives the benefit of the fraud, and the case where he does not, is that in the latter case the principal is liable for the wrong done to the person defrauded by his agent acting within the scope of his agency; in the former case he is liable on that ground and also on the ground that by taking the benefit he has adopted the act of his agent; he cannot approbate and reprobate 2017 0 Supreme(Cal) 568. This applies even if the principal benefits indirectly from sales proceeds.

No joint venture or shared control exempts the builder; direct accountability persists 2008 5 Supreme 76. CPA claims proceed without RERA registration prerequisites, offering a robust avenue for fraud akin to misrepresentation.

Exceptions, Limitations, and Strategic Considerations

While liability is broad, caveats exist:- RERA Complaints: Restricted to allottees; unconnected parties must use other channels 2023 0 Supreme(Bom) 1354.- Unregistered Projects: Primary recourse shifts to CPA or civil courts, as Section 3 breaches invite penalties but don't negate other remedies 2019 0 Supreme(SC) 843 2024 0 Supreme(Bom) 274.- Criminal Aspects: Focus here is civil/regulatory; IPC fraud may apply separately, but minors/non-parties face limits 2008 4 Supreme 269.- Pre-Deposit in Appeals: Promoters must comply with Section 43(5) pre-deposit, affirming their status post-enforcement 2022 0 Supreme(All) 454.

For part-completed projects with occupancy certificates pre-RERA, registration may be exempt, limiting RERA jurisdiction 2021 0 Supreme(Bom) 804.

Practical Recommendations for Stakeholders

Homebuyers: Document agency (e.g., PoA), gather misrepresentation evidence, and file under CPA for deficiency or RERA (if applicable) for joint liability. Civil suits for damages/specific performance complement these.
Builders/Promoters: Ensure agent oversight, clear PoAs, and register projects promptly to mitigate risks. Train agents on compliant marketing.

In unregistered scenarios, CPA provides swift consumer forums without high costs.

Key Takeaways

Promoters bear joint liability for agents under RERA's expansive definition, persisting beyond registration 2024 0 Supreme(Bom) 274 2019 5 Supreme 3.
RERA supplements CPA, enabling fraud claims irrespective of registration 2019 0 Supreme(SC) 843 2008 5 Supreme 76.
Vicarious liability imputes agent fraud to builders, reinforced by precedents 2017 0 Supreme(Cal) 568.

Real estate transactions demand vigilance. Stay informed on RERA evolutions and seek tailored advice to protect interests.