Critical issues under hira

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Critical Issues under HIRA
Prepared by Maitri Thakkar

CA Sandesh Mundra
JOURNEY SO FAR (WBHIRA)
May 2008
Concept paper on
regulation of real
estate sector and a
model law for
legislation
prepared
17 October, 2017
Act received
Governor’s Assent
01 June, 2018
The Act is enacted
23 July, 2018
The Authority
was
established
03 August,
2018
Exclusive
Website
Established

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Repugnancy arises in the following manner :
 Mere existence of RERA makes HIRA Repugnant
 The object of RERA and HIRA is identical as apparent from preamble, therefore the State
legislation will be said to be repugnant to the Parliamentary legislation.
 Moreover, HIRA has been passed with the Assent of Governor of West Bengal, pending
President’s assent.
Constitutional Validity

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RERA V/S HIRA
Topic RERA HIRA
Car Parking Not defined Car parking area means such area as may
be prescribed
Garage Means a place within a project having a
roof and walls on three sides for parking
any vehicle, but does not include an
unenclosed or uncovered parking space
such as open parking areas;
Means garage and parking space as
sanctioned by Competent Authority
Selling
open
parking
space
Not Allowed Allowed

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RERA V/S HIRA
Topic RERA HIRA
Force
Majeure
"force majeure" shall mean a case of
war, flood, drought, fire, cyclone,
earthquake or any other calamity
caused by nature affecting the regular
development of the real estate project.
Force Majeure events mean a case
of war, flood, drought, fire,
cyclone, earthquake or any other
calamity caused by nature
affecting the regular development
of the real estate project or any
other circumstances as may be
prescribed
Planning
Area
Means a planning area or a
development area or a local planning
area or a regional development plan
area, by whatever name
called…………………..
No concept of Planning Area. HIRA
applicable to entire West Bengal
(Not mentioned in section 3 also)

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Specific decisions to be made in Pre-Registration Span
• Meaning and decision of Phase ?
– Amount of Penalty
– Additions/Alterations in Plan
– Timeline to complete the project
– Project Accounting
– Marketability of the Phases vis a vis entire Project
– Formation of Association of Allottees phase wise
– Cost factor , Cash Flow and Project Finance requirement
– Implication under Income tax - 80IBA whether a separate phase will be separate project?

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• Meaning and decision of Phase ?
– Implication under GST – Separate Completion date and separate credit reversal and Affordable Housing
Benefits
– Separate Registration of TDR and stamp duty payment for each phase?
– Each phase is a separate project or a separate performance obligation under Ind AS 115?
As per Maharashtra RERA Rule 2(p) - “Phase of a Real Estate Project may consist of a building or a wing of
the building in case of building with multiple wings or defined number of floors in a multi- storeyed
building/wing;”

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• Single registration or phase wise registration ?
o Single sanction plan – Multiple commencement certificates
o Single sanction plan – Single commencement certificate
o Multiple sanction plans
• Ongoing Project…No Advertisement/Booking prior to HIRA...Can be registered as a New Project ?
• Bifurcation of Common Areas between multiple phases ?
• Duplication of Stamp duty on common areas deed ?

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• Is registration required in case of Leasing models :
• Bombay high court in case of Lavasa corporation limited vs. RERA authority and others as reported
in Civil Application No. 683 OF 2018 dated 7th August, 2018 – “The provisions of the RERA
are required to be held as equally applicable to the long term leases(999 years in the case).
'Agreements' between the parties are titled as 'Lease Agreements', in effect, they are agreements
of “absolute sale” and, therefore, the provisions of the RERA will be applicable. “
• Are short term leases covered under RERA? Upto which period leases are considered to be short
term lease ?
Section 27 and Section 269 UA of Income Tax Act – Deemed Owner & Transfer

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Financial Issues
• Credit of cost incurred towards Structural defects under GST ?
• Credits of one project available to other ?
• Does working capital gap increase?
• Repayment of Loan ?

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Specific issues relating to Designated Bank Account
• Escrow Account or Separate Bank Account?
• Can the operating bank account of project be registered as RERA Account?
• Any proof required for withdrawal of funds from separate bank account ?
• Can a fixed deposit of excess money lying in the separate bank account be created ?
As per Circular 02/2017 dated 29th July, 2017 and Gujarat RERA Bank Account Directions, 2018
– “The excess monies lying in the Separate Bank Account can be put in fixed deposits with the
bank operating the Separate Bank Account and it should be a no lien Fixed Deposit.“

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Specific issues during Registration under HIRA
• Registration required only for projects situated within Planning Area?
As per Order dated 03rd May, 2018 of Bihar RERA – “All projects being developed or proposed to
be developed beyond planning Area but with requisite approvals from local authority in State
will require Registration with Bihar RERA”
As per Circular TNRERA/001/2017 dated 29th August,2017 of Tamil Nadu RERA - TN RERA is
applicable for entire Tamil Nadu which include both planning area and beyond planning area”
As per Circular 11/35/2017/DMA/RERA dated 17th September, 2018 of Goa RERA – Applicability
of GoaRERA is for “Entire State of Goa”
• Encumbrance Certificate – For land or project ?

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Specific issues during Registration under HIRA
• Registration required for any commercial structure constructed for business purpose? On future
date if decided to be sold, whether registration required? - Implications on HIRA & GST
Towards the promoters who replied that their building are meant for own use and for sale for
general public. Tamil Nadu issued a list of promoters and projects along with the information that
Public may take note that the promoters/developers of these projects are not authorized to sell
any space in the project”
• Registration fees of Common Areas in case of Mixed use of Land ?
As per Circular RERA/ENF/02 dated 23rd January, 2018 of Punjab RERA –
“Common areas  Purely falling within specific area of land  Registration Fees  Rate applicable
to such area.
Common amenities  Common across project Lowest rate applicable to the project shall be
applied”

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Specific issues relating to Advertisement
RERA & HIRA Act - "advertisement" means any document described or issued as advertisement
through any medium and includes any notice, circular or other documents or publicity in any
form, informing persons about a real estate project, or offering for sale of a plot, building or
apartment or inviting persons to purchase in any manner such plot, building or apartment or to
make advances or deposits for such purposes
The West Bengal Municipal (Building) Rules, 2007 - "advertising sign" means any surface of a
structure with characters, letters, illustrations or illuminations applied thereto and displayed in
any manner whatsoever to public view for the purposes of advertising or giving information
regarding, or for attracting the notice of the public to, any place, person, public performance,
article or merchandise whatsoever, and which surface or structure is attached to, forms part of,
or is connected with, any land /or building, or is fixed to a wall, hoarding, frame, post, kiosk,
structure, ground or fence, or is displayed in space or on screen;

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• Advertisement for ongoing projects can be continued after project application ?
• Whether disclaimer of “Nothing on the brochure should be misconstrued as advertising,
marketing, booking, selling or an offer for sale or invitation to purchase a unit in any project
by the Company” suffice as being compliant to Section 3 of HIRA ?
As per Order dated 08th February for Suo Moto Complaint No: 1/2018 of Maharashtra RERA (With
Reference to Section 14(2)) – «Promoter published an advertisement in newspaper without
mentioning website address of MahaRERA. ln addition, advertisement also carried a ‘Disclaimer’
which prima facie violates Section 14(2). Promoter is penalized with a penalty of Rs. 2,00,000.”

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• Does display of board on site amount to Advertisement ?
As Gujarat Comprehensive Development Control Regulations – 2017- “The notice board on site should
be prominently visible, easily readable and should be located next to the primary access to the plot”
As per Circular 20/2018 dated 15th October,2018 of Maharashtra RERA - “The Hon'ble Supreme Court
of India all the Promoters should ensure that Sanctioned plan; Layout plan along with the
specifications approved by the Competent Authority should be prominently displayed at the
respective site.”
As per Direction No-1 of 2018 of Bihar RERA – “Promoters shall display prominently at sites
information like Name of Project, Promoter/ Developer/ Builder, RERA Registration Number/
Application number, Website address of RERA, Names of Registered Real Estate Agent, Date of
Commencement & Proposed date of Completion of project on a large Notice Board/Hoarding having
minimum size of 6’ by 6’.”

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Circulars and Orders issued by various states for Advertisement
Circular RERA/ENF/01 dated 21st December, 2017 of Punjab RERA (With reference to Section 11(2))–
“Advertisement in Print Media, Hoardings or any other visual shall mention Registration Number in top
right corner and its font should not be less than half of the size used for name of the project. In case of
advertisements on FM or Radio also the registration numbers should be prominently mentioned”
Order dated 05th April in case of Suo Moto Complaint No 16/2018 of Maharashtra RERA (With reference
to Section 11(2)) – Promoter published a front page advertisement in the newspaper and registration
number is mentioned on the 2nd page in a very small font/print. Also registration no. was not
accompanied by the website address of MahaRERA, therefore the Promoter was penalized for
Rs.50,00,000/- (Rupees fifty lakh only).
Order dated 06th March, 2018 in case of Suo Moto Complaint No 15/2018(With reference to Section 3) –
Promoter was penalized with a penalty of Rs. 10,00,000 for advertising an unregistered project with a
registered project.

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Real Estate Agent
• Does the Real Estate Agent include web portal engaged in sale of projects?
• Will marketing and sales staff of Promoter require registration as an agent?
• Is the registration granted to Real Estate Agent valid across the nation? Does the agent need
separate registration for each State/UT?
• The registration granted to real estate agent have a expiry period ?
As per Maharashtra and Gujarat RERA Rules and HIRA Rules - The registration granted under this rule
shall be valid for a period of five years:
• Liability of promoting registered project on agent or liability of getting the project advertised
through a registered real estate agent on promoter ?
• Can a promoter or a real estate agent also file complaint against a buyer?

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A B C
Form of entity
Joint Venture Subsidiary
Land Owner Developer Sub-contract
• Whether sub-contractor liable as co-promoter under RERA?
• In case of Back to Back subcontracting, withdrawal by developer based on the invoice of
subcontractor ? Implications under RERA and IBC.
• Whether transactions between unincorporated joint venture and its members is considered as
taxable supply?
• Whether the unincorporated JV is a separate person in the eyes of law in substance?
A unincorporated Joint Venture B
Land Owner Developer

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Form of entity
A- Holding Co.
subsidiaries
B C D
Land owner Developer Sub-contractor
• Who will termed as co-promoter ?
• Separate bank account for each of them ?
• Developer can charge 18% as works contract from allottee.
• No credit reversal for land deduction for B and credit reversal after
BU only for B ?
• Complexities of related party transactions under Income tax and
under GS.T

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Specific issues faced in progress of the Project
• Whether for the purpose of 70/30 inflow includes GST?
• Receipt of monies in the same account can be treated as composite supplies under GST?
• Whether construction cost will be inclusive of direct and indirect taxes?
As per Circular 02/2017 dated 29th July, 2017 of Gujarat RERA– “Indirect taxes collected by the
Promoter from Allottees is in the nature of GST/Service Tax/VAT etc. can also be deposited in a bank
account,other than the Separate Bank Account “
“Income tax paid by the promoters of a Real Estate Project, shall not be allowed to be claimed as
cost of the Real Estate Project.”
• Withdrawal of Fund – Will it be monthly /quarterly or how?

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• Can statutory auditor of promoter’s enterprise provide Form 3?
Circular 02/2017 dated 29th July, 2017 of Gujarat RERA and Circular 07/2017 dated 04th July, 2017 of
Maharashtra RERA - Certificate from a practicing Chartered Accountant in practice other than the
statutory auditor of the Promoter in Form 3, for the cost incurred on construction cost and the land
cost.
• Land cost as per Form 3 - RERA same as land cost under PGBP?
Circular 11/2018 dated 05th October 2018 of Gujarat RERA – Land Cost for the purpose of Form 3 -
Indexed Cost of Land or Prevailing ASR Value, whichever is higher.
• Can the estimated costs be changed ?
As per Circular 11 dated 05/10/2018 of Gujarat RERA - “The estimated cost of the project is to be
submitted at the time of registration and its cannot be changed throughout the life of the project
unless project Alteration/Addition application is filed”

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• Additional FSI purchased on a construction project at a later stage…Implications? – Consideration
for landowner / Applicability of GST / Applicability of Stamp Duty
• What if an adjoining land is purchased by the promoter….Can he continue with the same
registration?
• Collection received from allottess…Insolvency and Bankruptcy Code, 2016(IBC) Implications?
If an allottee raises sum  Financial debt  Allottees categorized as Financial Creditors 
Allottees can file a petition to start insolvency proceedings against a defaulting builder company.

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Revenue Recognition
Revenue
Recognition
GST
RERA
IND AS
Accounting
Standard
Income Tax
Stamp
Duty

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Responsibilities of Promoter
• In case, if additional FSI obtained  change in undivided proportionate share of land and
common areas…New Registered conveyance towards existing allottees?
• Compulsory insurance for Title of Land and Building required?
• Quarterly updation – Financial Quarter or as per project completion?
• Liability of structural defect or any other defects workmanship, quality or provision of services
or any other obligations

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Specific issues relating to Agreement to Sale
• Different forms of entering into Relationship with a Customer:
 Agreement to Sale
 Option Contracts
 Mortgage Contracts
 Investment
• Can the promoter mortgage or create a charge on the apartment, plot or building after
executing ATS?
• Can open parking areas be sold ?
Order dated 13thDecember 2017 in case of Sanjeev Dharkar V/s M/s. Arkade Realty
(CC006000000001135) of Maharashtra RERA -The builder cannot sell open parking space, which
has to be handed over to the legal entity of allottees when it is formed.
• Direct 100% collection received – ATS required ?

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Considerations before forming a Housing Society
• Separate societies for each phase?
• Single society can be created for multiple phases?
• Separate societies for Commercial and Residential allottees in case of Mixed Development
Projects?
• Benefit of GST exemption limit enhanced to Rs 7,500 for monthly charges available to all types of
projects?
• Merger/Demerger of maintenance societies permissible as per West Bengal’s Co-operative
Societies Act ?

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Section 17 of RERA Act : The promoter shall execute a registered conveyance deed in favour of the allottee
along with the undivided proportionate title in the common areas to the association of the allottees or the
competent authority, as the case may be, and hand over the physical possession of the plot, apartment of
building, as the case may be, to the allottees and the common areas to the association of the allottees or the
competent authority, as the case may be, in a real estate project, and the other title documents pertaining
thereto within specified period as per sanctioned plans as provided under the local laws:
Provided that, in the absence of any local law, conveyance deed in favour of the allottee or the association of
the allottees or the competent authority, as the case may be, under this section shall be carried out by the
promoter within three months from date of issue of occupancy certificate.
• Common Areas transferred to Allottees or Association of Allottees or Apex/Federation?

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Maharashtra Real Estate (Regulation and Development)(Registration of real estate projects, Registration
of real estate agents, rates of interest and disclosures on website) Rules, 2017.
“Period for Conveyance of title, by Promoter, to legal entity of allottees in case of single building project. - If
no period for conveying the title of the Promoter to the legal entity of the allottees is agreed upon, the
Promoter shall (subject to his right to dispose of the remaining Apartments, if any) execute the conveyance
within three months from the date of issue of occupancy certificate or fifty one per cent. of the total
number of allottees in such a building or a wing, have paid the full consideration to the promoter,
whichever is earlier”
• Undivided share of land transferred to allotttees within three months of occupancy certificate?
• Conveyance mandatorily required within three months of Occupancy certificate, what if the
allottee does not want to get the conveyance done within the time frame ?

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• Taxability of electricity, payment of taxes by society for its members
• Conveyance required for transferring the common areas ?
• Promoter liable to pay maintenance like other allottees for unsold units?
• Is Society Maintenance outsourcing or handing over to promoter possible ? – Implications of GST
• Maintenance society as a Revenue Model – Implications

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• Date of Completion to be indicated in Form B?
Circular No. 4/2017 dated 16th September of Gujarat RERA - “A real estate project shall mean to be
complete when the promoter has
• Finished the construction
• Obtained occupancy /completion certificate
• Conveyed title of unit to allottee and Common Areas to AOA”
• Any failure on the part of Developer to handover the possession…Mandatory for developer to
pay interest, in case the allottee does not ask for the same and in case of following scenarios?
o Allottees chooses not to withdraw
o Allottees chooses to withdraw
• Collections of unsold units post Completion to be routed through separate bank account ?
Specific issues on receipt of Completion Certificate

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Specific Issues relating to Joint Development Model
• Land Owner or Developer separately liable for project registration?
• If land owner is held as a co-promoter, whether deduction of Section 80IB of Income Tax available
to land owner?
• Implications of credit reversal upon receipt of BU
• Planning's related to unutilized credit balance like Cross charging, composite supply etc.
• Implications of applicability of Section 45(5A) of Income Tax Act ?

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• Collection received through a single mode towards land and construction ? – GST implications
• Power of Attorney in lieu of Joint Development Agreement ? Compulsory to be registered?
• Cost of Land – Value of land + 6% interest – whether simple Interest or Compound Interest ?
• Details of project launched by him in past 5 year
o Partnership/Company created for land owner and developer
o Only development agreement entered into between land owner and developer

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Area Sharing Model
– Cost of constructing units of land owner…to be treated as…..Cost of land/Construction?
– Realizations in Kind, i.e. Development Rights considered for assessment of amount to be
deposited in separate bank account ?
– Resale of to third party by land owner…….whether third party protected under RERA ?
– Notification 4/2018 implications
– Savings in stamp duty for landowner retained land
– Accounting under Ind AS – How to value cost of land?
Revenue Sharing Model
– Estimated Revenue which may fall to share of landowner………Cost of land or Construction ?

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• Separate Bank Account for each co-promoter ?
Gujarat RERA – Gujarat RERA Bank Account Directions, 2018  Only one bank account for the
project
Maharashtra RERA – Circular 12/2017 dated 04/12/2017  Separate Bank Account in case of
Area Sharing Model
Goa RERA - 11/35/2017-DMA/3390(A) dated 13/08/2017  Separate Bank Account in case of
Area Sharing Model
• Separate Form 3 required for each co-promoter? Which to be uploaded for Compliances ?

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• In case if JDA has payment terms which is combination of Area sharing, Revenue sharing and
upfront cash payment by developer ?
• Are the co-promoters severally and equally liable towards all the responsibilities ? In case of
penalty in future, how to be divided amongst the co-promoters?
Final order dated 26th March, 2018 of Maharashtra RERA in case of Shakuntala Omprakash
Zanvar Versus Vishwajeet Jhavar, Nitin D. Nyati – “Both the promoters was shall be deemed
promoters and shall be jointly liable and land owner cannot escape the liability.”

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• In case of Redevelopment, registration of entire project or only additional units ?
• If AOA decides to redevelop a society, will AOA be considered land owner or developer?
Maharashtra RERA in case of Kunal Parmar Versus Amex Developer (Amex Residency) - ”The
owners and tenants have collectively taken the decision to 'cause it' to be constructed. Hence, the
complainant(tenant) comes in the definition of promoter.
• Will Government be considered promoter in case of Slum Rehabilitation?
• Taxability and valuation of free slum component under GST
• Applicability of GST Notification 4/2018 to Redevelopment transactions
• Whether stamp duty is applicable on units allotted to existing unitholders?
• Taxability of projects where redevelopment right given pre GST and units allotted post GST
Redevelopment/ Slum Rehabilitation

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Miscellaneous Issues
• If the project has applied for registration but not received Registration Number required to
comply with audit provisions of Section 4(2)(l)(D)?
As per Direction No.02 of 2018 dated 25th September, 2018 of Bihar RERA - All Promoters/
Developers who have either registered their projects or applied for registration with the authority
should submit audited statement of accounts of each project duly signed and certified by a
Chartered Accountant in practice enclosing therewith a verification report”
• Are projects not requiring registration covered under the scope of this legislation?
Haryana RERA in case of Simmi Sikka versus Emaar MGF - “The projects may be taken out the
registration requirement of Section 3(2) but are not out of the purview of other provisions of the
Act.”

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Miscellaneous Issues
• Whether accounts audited as per Companies Act’2013 will be sufficient for RERA Audit?
Whether insertion of notes to accounts confirming verification of amount would suffice?
• Dispute Redressal Platform:
Type/Status of Project National Consumer Dispute
Redressal Commission (Consumer
Protection Act)
Real Estate Appellate
Tribunal (RERA)
Completed (CC received)
Ongoing Projects
Upcoming Projects

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• THANKS

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