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Submitted by Ekta Jha

I. Introduction

During the times preceding 1961, there was existence of malpractices, sundry abuses, and difficulties relating to the promotion of the construction and the sale and management and transfer of flats taken on ownership basis. In 1963 The Maharashtra Ownership Flats (Regulation of the Promotion, Construction, Sale, Management and Transfer) Act, 1963 (“the MOFA”) was therefore passed for the regulation of basis in the State of Maharashtra. By virtue of the provisions of the Act and the Notifications issued this Act is made applicable to the Areas within State of Maharashtra.

The Maharashtra Ownership Flats (Regulation of the Promotion, Construction, Sale, Management and Transfer) Act, 1963 (“the MOFA”) has been enacted to regulate the promotion, construction, sale, management and transfer of flats sold on an ownership basis within the State of Maharashtra. The MOFA is an important piece of legislation as it lays down the responsibilities of real estate developers / builders in respect to flats sold by them and conversely the rights of flat purchasers within the State. It was introduced in the Legislative Assembly, which aims at protecting the interest of flat purchasers and show in transparency and discipline in transaction of flats by putting a check on malpractices.

II. Definition of Flat : Section 2(a)

A separate and self-contained premises, which is used or is intended to be used as a Residence, Office, Show-room, Shop, Godown, carrying on any industry or business including a Garage and the premises forms part of a building. The term flat also includes an apartment. The Explanation to the definition provides that even if a separate bathing, washing, sanitary, etc. arrangement is made between two or more premises, they shall be deemed to be separate and self-contained. Thus, in order to be construed to be a flat, all the above ingredients must be fulfilled.This is an important definition because if any premise is not regarded as a flat the provisions of the MOFA do not apply.

III. Who is a Promoter?

The second most important definition is that of the term “promoter”. A promoter is a person who constructs or causes to be constructed a block or building of flats or apartments for selling all or any of them to a Company, Co-operative Society and Associations of Persons. The term promoter includes his assignees and thus, if a person assigns his interests in the land to another person then the assignee would become a promoter. In the event that the builder and the person selling the flats are different, then both of them will be considered as promoters.

IV. Responsibilities / Liabilities of the Promoter

Section 3 of the MOFA casts onerous responsibilities upon a promoter who constructs a building of flats which are to be “taken on ownership basis”. It is strange that though the term “ownership basis” has been used in the MOFA it has not been defined anywhere.

The responsibilities of the Promoter under Section 3 are as follows:

1. Make a full and true disclosure of his title to the land along with a title certificate including all encumbrances on the land, all outgoings for the property rates, municipal taxes etc.

2. Give inspection on 7 days notice of the approved plans and specifications.

3. Disclose the nature of fixtures, fittings, and amenities and provision for one or more lifts provided or to be provided.

4. Disclose on reasonable notice or demand if the promoter is himself the builder, the prescribed particulars with respect to the design and the material to be used in the construction of the building and if the promoter is not the builder he shall disclose all the agreements entered into him with the architects and contractors regarding the materials and construction of the buildings on such notice or demand.

5. Specify in writing the date by which possession of the flat would be handed over the precise nature of organization of flat purchasers to be formed to which the title would be conveyed, e.g., company, co-operative society.

6. Maintain a list of flats taken or agreed to be taken with prescribed details.

7. Cannot give possession until a Completion Certificate is received from the Municipal Corporation.

8. Make a full and true disclosure of such other information and documents and give on demand true copies of such of the documents.

9. When the flats are advertised for sale the following particulars should be disclosed in the advertisement :
i. The extent of carpet area of the flat including the area of the balconies which should be shown separately.
ii. The nature, extent ,and description of the common areas and facilities.
iii. The nature , extent and description of limited common areas and facilities .
iv. The price of the flat including the proportionate price of the common areas and facilities which should be shown separately to be paid by the purchaser of the flat and the intervals at which the instalments has to be paid.

10. Sell the flat on the basis of carpet area only.

V. Registration of Agreements

Section 4 of the MOFA states before accepting any payment as advance payment or deposit from a flat purchaser,the Promoter has a liability to execute a written agreement in the prescribed format with every flat purchaser and to get this agreement registered under the Registration Act. Further, the amount of deposit or advance cannot exceed 20% of the sale price.

Section 4A of the Act states that even if any agreement is not registered under section 4 of the MOFA, it will be admissible as evidence in a suit for specific performance or as evidence for part performance under section 53A of the Transfer of Property Act. This section was inserted to overrule the Bombay High Court’s decision in the case of Association of Commerce House Block Owners v. Vishnidas Samaldas that non-registered agreements are wholly invalid and void ab initio and create no rights between the parties.

Section 5 of the act states that the Promoter is required to maintain separate bank accounts of sums taken as advance or deposit and he shall hold them for the purpose for which they were taken.

The Bombay High Court’s decision in the case of Ramniklal Kotak v. Varsha Builders, AIR 1992 Bom 62 stated that “To prevent bogus sales being effected by a Promoter and to put a check to malpractices indulged in by the Promoters in regard to sales and transfer of flats, the Legislature has put the restrictions. The provisions of section 4 are mandatory and not directory in nature.”

Section 5A of the act states that state govt by notification in the official gazette appoint an officer not below the rank of district deputy registrar of Cooperative Societies to be the competent authority for an area or areas to be specified in such notification and different officers may be appointed as competent authorities for different local areas for the purpose of exercising powers under Section 5,10 and 11 of the Act.

Section 7 of the Act states that the Promoter is responsible for paying all outgoings including taxes in respect of the flats until he transfers the property to the flat owners/ society / company, etc.

Once the approved plans and specifications are disclosed to the flat purchasers, the promoter cannot without the purchasers’ previous consent make any alterations or additions in the structures of the flats.

In case the flat purchaser notifies any defect in the building / materials used / any unauthorized changes, etc. within 3 years of taking possession, then the promoter shall, if possible, rectify the same free of cost.

Section 8 of the Act states that if the promoter fails to give possession of the flat as per the date specified in the agreement or any further agreed date or in case of any reasons beyond control within a further extended time of 6 months, then the promoter shall be liable on demand to refund the amounts received by him along with 9% interest per annum till the date of refund.

Section 9 of the Act states that after execution of the agreement for sale, the promoter cannot create any mortgage/charge on the flat without the consent of the flat purchaser.

VI. Conveyance of title (Section 10 and Section 11)

Under section 10 of the MOFA, as soon as the minimum number of persons required for forming a co-operative society or a company have taken flats, the promoter must within 4 months submit the application for formation of a co-operative society or a company. This section recognizes a company as a valid form of organization as opposed to a society.

The promoter must then under section 11 convey his title to such an organization of the flat takers within 4 months of the date of formation of the society or the company (provided no date has been agreed upon).

VII. Liability as a Flat-Taker(Section 12)

Section 12 of MOFA states that :

1. Every person who has executed an agreement to take a flat shall pay at the proper time and place the price, his proportionate share of the Municipal taxes, water and electricity charges, ground rent (if any) and other public charges in accordance with his agreement with the promoter and where the co operative society or company of persons taking the flats is to be constituted, co-operative in the formation of such society or company, as the case may be.

2. Any person who has executed an agreement to take a flat and who, without reasonable excuse, fails to comply with or contravenes sub section (1) shall, on conviction, be punished with fine which may extend to two thousand rupees.

VIII. Offences (Section 13)

Any promoter guilty of contravention of section 3 (general liabilities), section 4 (registration of agreement), section 5(maintenance of separate accounts for deposits), section 10 (formation of society or company) or section 11 (conveyance of title) shall, on conviction, be punished with a term up to 3 years and/or a fine.

Any promoter who commits a criminal breach of trust in respect of any advance or deposit given to him for specified purposes shall, on conviction, be punished with a term up to 5 years and/or a fine. The penalty for contravening any other provision of the Act, on conviction, is a term of up to 1 year and/or a fine of up to Rs. 10,000.

Submitted by Ekta Jha

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