The Validity of Sale Agreement Under RERA: The Unresolved Conflict
Ownership over any immovable property should be clear and marketable and it is said to be as such only on execution of sale deed. However, in practice, purchasers execute an agreement of sale as a precautionary in spite of being aware that it does not establish a title over any immovable property. A sale deed is considered as an authentic instrument and also that establishes a clear title over the property because it is a compulsorily registrable document as per Sec 17(1) of Registration Act 1908. However, Sec 13 of the RERA Act 2016 requires a sale agreement to be registered. Although, this is not the case with the Registration Act 1908. Therefore, the validity of the agreement to sell always becomes an unresolved conflict.
What Is An Agreement To Sell?
An agreement to sell is an instrument wherein the seller makes a promise to transfer the property to a buyer on fulfillment of certain conditions however it does not create ownership of the buyer over the property.
Agreement To Sell Vs Sale Deed
In order to understand the conflict between RERA and Registration Act, it is vital to understand the difference between the agreement to sell and a sale deed.
An agreement to sell is an agreement where the seller promises to transfer future ownership of the property to the buyer on the fulfillment of certain conditions.
Sale deed on the other hand is an instrument which creates right, interest and ownership of the property to the buyer.
What Does Registration Act Say About An Agreement To Sell?
Sec 17(2) (v) of the Registration Act 1908 states that “Any document other than the documents specified in sub-section(1A) not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest”
When we analyse the provision, we can understand that the document which it indicates is an agreement to sell. Further it also conveys that the agreement to sell as such fall under the category of Sec 17(2) of Registration Act as a not compulsorily registrable document.
There was a reason behind the insertion of this provision and the reason is that there were certain documents that did not make a greater difference with respect to right, title or interest over immovable property irrespective of the fact whether or not it is registered. So these documents were included in the category under Sec 17(2) as not compulsorily registrable.
What Does RERA Act 2016 Say About Agreement To Sell?
Sec 13(1) of RERA Act 2016 states that “A promoter shall not accept a sum more than ten percent of the cost of the apartment, plot or building as, the case may be, as an advance payment or an application fee from a person without first entering into written agreement for sale with such person and register the said agreement for sale, under any law for the time being in force”.
From this we can infer that this particular provision emphasizes the fact that there are two fundamental duties of a promoter:
- First, the promoter, after taking the advance amount from the prospective buyer, has to execute the agreement to sell.
- Secondly, the agreement to sell should be registered before appropriate authorities.
Which Enactment Shall Prevail For The Purpose Of Agreement To Sell?
In order to answer this question we need to understand that real estate transactions in India are governed by the following enactments:
- Transfer of Property Act 1882 (TPA);
- Indian Contract Act 1872 (Contract Act);
- Real Estate (Regulation and Development) Act 2016 (RERA);
- Registration Act 1908 (Registration Act);
- Indian Stamp Act 1899 (Stamp Act); and
- Indian Easements Act 1882 (Easements Act).
But when we analyse the Sec 13(1) of RERA Act 2016 specifies that an agreement to sell must be registered as per the law for time being in force this means that an agreement to sell is registered as per the provisions of the Registration Act, 1908.
However, Sec 88 of the RERA Act 2016 states that “the act shall be in addition and not in derogation to the law for the time being in force”. This means that the RERA Act 2016 has to be read with the Registration Act 1908. On the other hand, Sec 89 of RERA Act 2016 states that “The provisions of this act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force”. This means the RERA Act 2016 will have an overriding effect.
Applying the provisions of Sec 88 of the RERA Act 2016, when we analyse the provisions of both the enactment, we can observe that Sec 17(2)(v) of Registration Act 1908 negates the RERA Act 2016. Therefore as per Sec 89 of the RERA Act 2016, the provisions of Registration Act 1908 will not be taken into consideration for the purposes of registration of agreement to sell. .
Hence we can say that the provisions of the RERA Act 2016 shall prevail over Registration Act 2016 only with respect to the agreement to sell.
Although, the RERA Act 2016 provides for a non-obstante clause in Sec 89 and as a result of the same RERA becomes applicable over Registration Act 1908. On the other hand, it also gives rise to certain other question i.e. whether an agreement to sell will create a right, title or interest over the property?
This question arises because registration of documents is done usually to ensure clear right and title over the property to the purchaser. An agreement to sell as such does not provide a clear title to the property. The Supreme Court has, in the case of Durgawati Devi v Union of India, held that the execution of sale agreement does not transfer ownership/title of the property and the ownership/title is transferred only by way of conveyance deed.
If the agreement of sale does not create then it gives rise to another question as to whether the remedy can be exercised by the purchaser on breach of the agreement of sale? This has been answered under Sec 18 of the RERA Act which states that the promoter should compensate the purchaser if he was not able to complete the project and hand over the possession of the property within the time frame as specified in the agreement to sell or agreement of sale.
If the promoter fails to do so then he can file a complaint before RERA Authorityand claim compensation. In case he is aggrieved by the order of Authority, then he can file an appeal in the Real Estate Regulatory Appellate Tribunal under Sec 44 of the RERA Act 2016.
Therefore it is appropriate to conclude that the RERA Act 2016 over-rule Registration Act for the purpose of agreement to sell because the agreement to sell does not provide a clear title, however, it can be enforced in the court of law as per the provisions of the RERA Act 2016.
However, we also cannot deny the fact that there are no judicial pronouncements that prove the fact that RERA Act 2016 should prevail over Registration Act 1908. Until there is judicial pronouncement regarding the above mentioned fact, we are unable to come to a proper conclusion regarding the same.
-  Real Estate (Regulation and Development) Act 2016
-  Order dated October 4, 2019 filed under SLP( C) 3479/2016
-  Real Estate Regulatory Authority