PREFACE BY THE EDITOR AND CO-EDITOR
RAMESH S. PRABHU, Editor
Co-Editor and Convenor for Study Group
FROM EDITOR & CO-EDITOR DESK
Dear Friends,
We are happy to share that the 1st Edition of “Karnataka RERA Law & Practice” is prepared by forming the Study group of professionals from Karnataka and other Indian states, RERA Authorities, Industry representatives and the stakeholders. We express our gratitude to Shri. Kishore Chandra H.C., IPS (Retd.), Chairman, Karnataka Real Estate Regulatory Authority and Karnataka RERA team for supporting the publication by sharing the required information, data and inputs. We also appreciate Mr.G Hari Babu, President, National Real Estate Development Council (NAREDCO) for providing the necessary support and co-operation in bringing out this publication.
Karnataka RERA Law & Practice intend to build the capacity of stakeholders and understanding laws related to RERA in Karnataka. Accordingly, a study group was formed and we started interacting with Shri Kishore Chandra H.C, IPS (Retd.), Chairman, Karnataka Real Estate Regulatory Authority and his team and also with Mr.G.Hari Babu, President, NAREDCO and his team about the design and contents of the new RERA manual.
Our special thanks to Shri Rakesh Singh. IAS, Additional Chief Secretary - Urban Development department, Government of Karnataka for congratulating the authors for their dedication under the leadership of CA. Ramesh Prabhu, CA. Vinay Thyagaraj and expertise in compiling this invaluable resource. The study group includes all the real estate stakeholders like promoters, agents, professionals such as CAs, Architects, Engineers, CSs, Valuers, Advocates, Solicitors etc. officials from the Authority and the Appellate Tribunal. The study
CA.
CA. VINAY THYAGARAJ
I-20 PREFACE BY THE EDITOR AND CO-EDITOR
group members volunteered to author the chapters for the RERA manual and volunteered to review and update the RERA manual.
We are thankful to all study group members who have gone extra mile to share their knowledge and expertise, experience and who have interacted and reviewed the chapters to bring the RERA manual to the present form.
The RERA manual has been divided into multiple chapters to address each practice area viz., registration, certification, quarterly updates, annual audits, redressal, other compliances under RERA. It has also been organised to attend to needs of multiple stakeholders, namely, promoters, allottees, regulatory authorities, professionals, bankers, investors, etc. The relevant legal provisions, followed by the procedure, Standard Operating Procedure (SOP), FAQ and the judicial rulings have been included to make the manual simple, relevant, practical and practice oriented. We have tried to make the manual as simple as possible and have discussed the provisions along with Rules, regulations, circulars, notifications etc., Without restricting the contents of the manual to only RERA provisions, the peripheral subjects connected with real estate transactions such as applicability of Income Tax, GST, Insolvency and Bankruptcy, consumer protection, FEMA, PMLA, KOFA.
The Manual attempts to serve as a guide to the new entrants, practitioners in the Karnataka RERA Practice and also as a reference manual to the professionals who are already into real estate practice. Keeping in mind the new area of practice opened by RERA to Chartered Accountants, Architects, Engineers and to Advocates especially to represent before Real Estate Regulatory Authority, adjudicating officer, Real Estate Appellate Tribunal, this manual has covered the legal aspects. The various formats, drafts and specimen are included in the RERA manual as ready references. The Practitioners may accordingly, decide to adapt the drafts considering the facts circumstances and the relief claimed.
The team realised early on that one uniform approach & template cannot be applied for practice and non-practice-oriented topics. We recognised this limitation and this challenge may not have been overcome fully. We hope, that the practice-oriented topics will allow for both beginners and intermediate level practitioners to raise their standards. Limitations in the perceived shortcomings of written word of law should not restrict or bar practitioners in pursuing best practices, enabling them to meet the objectives of RERA simultaneously with that of the needs of the client.
We believe that no tool is ‘omni competent’ and there is no such thing as a master-key that will unlock all doors. Similarly, no manual is perfect and has all answers. For professionally qualified Chartered Accountants & Professionals. It is up to the members to wear their thinking hats and apply their overall skills and specialised knowledge to seek out answers to difficult situations. Yet, professionals advising clients must understand, and be clear that creative paper solution towards compliances cannot be a substitute for timely project completion as envisaged under RERA. When in doubt, revert to the objectives of RERA to get clarity.
This manual does not delve into how ideally the law should function. We are aware that today’s knowledge will not be the same as yesterdays, and will give way to revisions, given the dynamic nature and evolution of RERA, legal pronouncements, as well as constantly changing building regulations.
Referencing and drawing inspiration from the practices and judgments of Maharashtra RERA makes a lot of sense, especially considering its pioneering role in implementing RERA and its extensive experience in real estate development and redevelopment. By including these references, the authors aim to provide readers with a more comprehensive understanding of the subject matter and to showcase practical insights derived from a region with significant exposure to real estate dynamics. This approach not only enriches the content but also allows readers to appreciate the nuances and complexities involved in real estate regulation and development.
Whilst all care has been taken to ensure arranging and organising the chapters and contents in a smooth manner, we are sure, there is enough scope to improve the arrangement as well as contents of the RERA manual. The authors have drawn the judgements of various other states as a reference to the readers. This being the first edition there may be many short comings. In all humbleness, we request the users of this manual to give their feedback and constructive suggestions to improve the manual for revision in the proposed future editions to editors on reramanual@gmail.com
We are thankful to each of the authorities and the dignitaries who have appreciated the manual by giving their message in writing or orally and each of the study group members for their contribution and support in bringing out this 1st edition of “Karnataka RERA Law & Practice” Manual actively supported by NAREDCO and Karnataka RERA. We are also thankful to entire team of Taxmann Publications for agreeing to print and distribute this manual and also for printing this manual in very short time.
Happy readings and our best wishes to build and develop Karnataka RERA Practice.
With regards
CA. Ramesh S. Prabhu, Editor
CA. Vinay Thyagaraj, Co-Editor & Convenor for Study Group
PART 3
AGENT - FROM THE REAL ESTATE AGENT PERSPECTIVE
PART 4
5
ARCHITECTS
PART 6 DISPUTE REDRESSAL - COMPLAINTS, APPEALS, SECOND APPEALS, CONCILIATION
PART 11 CIRCULARS, NOTIFICATIONS OF KRERA
CHAPTER 2.01
PROMOTER UNDER RERA
2.01.1 OVERVIEW
Under the Real Estate (Regulation and Development) Act (RERA), promoters are individuals or entities involved in the development and sale of real estate projects. They play a central role in the real estate sector as they initiate, plan, and execute construction projects, including apartments, plots, or buildings, with the intention of selling or otherwise disposing of the units to buyers, known as allottees.
Promoters are subject to various statutory obligations under RERA to ensure transparency, accountability, and fairness in their dealings with homebuyers. Some key responsibilities and obligations of promoters under RERA include:
1. Project Registration: Promoters are required to register their real estate projects with the respective state’s Real Estate Regulatory Authority (RERA) before advertising or selling any units. This registration process involves providing detailed information about the project, including project plans, approvals, timelines, and financial details.
2. Adherence to Project Specifications: Promoters must develop the project according to the specifications provided in the registered plans and as advertised to the allottees. Any changes to the project plans must be approved by the regulatory authority and communicated to the allottees.
3. Timely Completion: Promoters are obligated to complete the project within the agreed-upon timeline as specified in the registered plans. Delays in project completion may result in penalties and compensation to allottees as per the provisions of RERA.
4. Separate Bank Account: Promoters are required to open a separate bank account for each project and deposit 70% percentage of the project funds into this account. These funds are to be utilized only for project-related expenses and cannot be used for other purposes.
5. Transparency and Disclosure: Promoters must provide accurate and timely information to allottees regarding the progress of the project, construction updates, legal documents, and any other relevant details. They must also maintain transparency in their advertisements and promotional materials.
6. Warranties and Defect Liability: Promoters are responsible for addressing any structural defects or deficiencies in the project for a period specified by RERA, typically five years from the date of possession. They must rectify such defects at no additional cost to the allottees.
7. Compliance with RERA Provisions: Promoters must comply with all provisions of RERA, including those related to advertising, sales practices, pricing, and dispute resolution mechanisms.
Failure to comply with the obligations under RERA can result in penalties, fines, and other disciplinary actions by the regulatory authority, thereby emphasizing the importance of promoters adhering to the legal provisions to maintain high standards of governance and protect the interests of homebuyers.
2.01.2 LEGAL PROVISIONS
SectionsRules & Regulations
2(zk) - Promoter.
2(k) - Carpet area.
3(1) - Prior registration of real estate project with Real Estate Regulatory Authority.
4, 4(2) and 4(2)(1)(D) - Application for registration of real estate projects.
7(1) - Revocation of registration.
11(1), 11(2), 11(3), 11(4)(A), 11(4)(B), 11(4)(C), 11(4)(D), 11(4)(E), 11(4)(F) and 11(4)(G), 11(4)(H), 11(5) - Functions and duties of promoter.
12 - Obligations of promoter regarding veracity of the advertisement or prospectus.
13 - No deposit or advance to be taken by promoter without first entering into agreement for sale.
Rules:
Rule 8A - Agreement for Sale.
Rule 15 - Details to be published on the website regarding real estate projects.
Rule 16 - Rate of interest payable by the promoter and the allottee.
Rule 17 - Timelines for refund.
Regulations: Regulation 3:
1. Architect Certificates –(a) Form 1 and Form 5 (b) Form F1
SectionsRules & Regulations
14(1), 14(2), 14(3) - Adherence to sanctioned plans and project specifications by the promoter.
15(1) - Obligations of promoter in case of transfer of a real estate project to a third party.
17 - Transfer of title.
18(1), 18(2), 18(3) - Return of amount and compensation.
2.01.3 PROMOTER
2. Engineer Certificates –
(a) Form 2 and Form 6
(b) Form F3
3. Chartered Accountants Certificates –
(a) Form 3, Form 4 and Form 7
(b) From B1-A
(c) Form F2
Regulation 29: RERA Bank Account operation
In a normal parlance any person who is involved in the business of real estate development directly or indirectly is considered as the promoter.
1. Definition as per section 2(zk) of the Act:
2(zk)- Promoter:
“promoter” means,—
(i) a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or
(ii) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
(iii) any development authority or any other public body in respect of allottees of—
(a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or
(b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
(iv) an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or
(v) 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; or
(vi) such other person who constructs any building or apartment for sale to the general public.
Explanation.— For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons 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 or the rules and regulations made thereunder;
(1) The analysis of the above definition reveals that the “promoter” includes following persons—
1. Landowner holding land, develops the land into a real estate project by himself.
2. Landowner holding land, develops the land into a real estate project by appointing a developer.
3. Landowner holding land, develops the land into a plot scheme (with or without construction) after developing the necessary infrastructure.
4. Developer who acquires development rights from the landlord by executing development agreement for developing a real estate project.
5. Developer who acquires development rights from the landlord by executing development agreement for development of plot scheme (with or without construction) after developing the necessary infrastructure.
6. Developer who acquires development rights from Co-operative Housing Society by executing development agreement for redevelopment of the Co-operative Housing Society for permanent rehabilitation of existing members and sale of remaining units.
7. Co-operative Housing Society entering into development agreement with developer for redevelopment of their Cooperative Housing Society.
8. Co-operative Housing Society undertaking self-redevelopment scheme.
9. Any other person having right to sale the Apartments/Flats/Shops/ Offices/Plots under development to allottees independently. Landowner under area sharing arrangement, Contractor under barter arrangement, Investor under Financial arrangement, Development Manager can be such examples.
(2) Contractor/Barter
If contractor is working in barter arrangement with a landowner/ developer/Cooperative Housing Society (CHS) whereby Contractor is going to receive certain area in the Real Estate Project as a
consideration and Contractor has the right to sell such area to an intending allottee independent of landowner/developer/CHS by virtue of such arrangement, in that case, Contractor shall be termed as “Promoter” for the purpose of RERA.
Government Institutions set up for the promotion of development of housing and infrastructure like BDA, MUDA, KHB, HUDCO.
(3) A person who constructs building/s consisting of apartments for the purpose of selling it to other persons
(a) It is not enough that the person just constructs buildings which consist of apartments for such person to fall within the definition of “promoter” under the Act.
(b) Such person should carry out the construction with the purpose of selling such apartments to other persons for him to fall within the definition of “promoter”.
(c) Further, it is not necessary that all the apartments in the building/s so constructed must be sold to other persons. Even if some of the apartments are not sold, such person who is constructing the apartments shall fall within the definition of promoter.
(4) Assignees of the promoters
Assignees of the person who constructs building/s consisting of apartments shall also fall within the definition of promoter. Therefore, a person who has by way of an assignment obtained the rights to construct building/s consisting of apartments shall also be considered as a promoter under the Act.
(5) Person who causes construction
The Act, inter alia, provides that even a person who causes to be constructed building/s consisting of apartments for the purpose of selling it to other persons shall be considered as a promoter under the Act.
A person who converts an existing building or part thereof into apartments for the purpose of selling it to other persons shall also be construed as a promoter under the Act. Therefore, a person who is re-developing an existing building of part thereof for the purpose of selling it to other persons shall also be included in the definition of “promoter” under the Act.
(6) Person who develops land into a project
Sub-clause (ii) of this definition provides that a person who develops land into a project for the purpose of selling it to other persons shall also be a promoter under the Act. This is irrespective of whether the person who develops such land into a project is the same person who
also constructs structures on any plots for the purpose of selling to other persons. In such an event, both the persons shall be promoters under the Act.
(7) Development Authority
Sub-clause (iii), inter alia, also covers the following persons within the ambit of the definition of promoter:
Any development authority or other public body where buildings or apartments have been constructed on lands owned by such authority/body or obtained from the Government by such authority or body for the purpose of selling it to other persons.
Any development authority or other public body where plots are owned by such authority or body or obtained from the Government for the purpose of selling it to other persons.
(8) Apex State Level Co-operative Housing Finance Society and Primary Co-operative Housing Societies
Sub-clause (iv) brings within the definition of promoter Apex State level co-operative Housing Finance Societies and Primary Co-operative Housing Societies which construct apartments or buildings for its members or for the purpose of selling it to third persons. Again, here the necessary conditions to be satisfied are that such entity should construct apartments or buildings either for its members or for allottees of such apartments or buildings. If neither of the above conditions are met, it cannot be said that such entity falls within the definition of promoter under the Act.
(9) Persons like Builder, Coloniser, contractor etc.
Sub-clause (v), inter alia, provides that any person who acts as a builder, coloniser, contractor, developer, estate developer or by any other name called shall also be considered as a promoter under the Act. Any person who 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 also falls within the definition of promoter/ under the Act. Therefore, if the owners of the real estate project have obtained the permissions from the competent authority and have commenced and completed construction through the medium of a developer, such owners can be said to have caused the construction and shall therefore fall within the definition of “promoter”.
(10) Other persons who constructs and sells apartments
Sub-clause (vi) is the residuary clause and brings any person who constructs any building or apartment for sale to the general public within the ambit of the term promoter. The important condition
here is that such person should have constructed the building for the purpose of sale to the general public.
(11) Persons who constructs and person who sells are two different persons than both are promoters
Where two separate persons are acting in different capacities as the person constructing or converting the building into apartments and the person selling the apartments or plots to other persons, both of them shall be deemed to be promoters, under the Act. Further, such separate persons shall be jointly liable for the functions and responsibilities of the promoter as provided in the Act and as prescribed in the rules and regulations.
2.01.4 LANDOWNERS AND INVESTORS HAVING AREA SHARING OR REVENUE SHARING ARE PROMOTERS
It was observed by the Authority that during the online registration process, the developers (who actually obtain building permissions and construct projects) had entered into arrangements with individuals/organizations such as landowners or investors by which the said individuals/organizations were entitled to area or revenue share in the project.
In light of the object and purpose of the Act, it was observed that such individual’s/organizations are also covered and fall within the definition of “promoter” under the Act and therefore, they were to be held jointly liable for the functions and responsibilities specified in the Act in the same manner as the promoter who actually obtains building permissions and carries out construction.
In Karnataka - Circular: KRERA/circular/03/2019 dated 31.10.2019 has clarified that Land Owners having Area/Revenue Share in Real Estate Project to be treated as Promoter (landowner). The Authority inter alia issued directions stating that such individuals/organizations who fall within the definition of “promoter” on account of being landowners or investors, shall be specified as such, at the time of online registration with the Authority. The Authority vide its circular inter alia clarified that the promoters who had filed online registration applications showing and owners, investors as co-promoters shall now be known as promoters (landowners/investors).
2.01.5 LANDOWNERS ARE PROMOTERS – KRERA CIRCULAR
The Karnataka RERA have issued a circular No. KRERA/circular/03/2019 dated 31st October 2019 with a subject line as Land Owners having Area/ Revenue share in the Real Estate Project to be treated as promoter (Landowner).
Further the said circular emphasis that the landowner and developer shall have the express clause in their agreement or joint development agree-
ment by whatever name called and the developer, landowner shall have the responsibility to comply the terms.
Few of the complaints made by the allottees against the promoters of the project, the allottees are including the landowner as respondent. In few of the judgments passed by the Authorities, directed the landowner to complete the pending works and responsible to honor the obligation or promises made by the developers.
In view of the responsibilities under RERA, the landowner shall have proper understanding, implications under Joint Development Agreement. More so important to monitor the progress of the development work in the project. Even though, the landowner’s role in a joint development agreement is crucial in facilitating the utilization of their land for development purposes while ensuring that their interests are protected through appropriate legal and financial arrangements with the developer. However, post RERA it is held in various judgments that Land Owner is equally responsible to the allottees in the project in case of any complaint or short comings or deficiencies.
(a) Seeking Expert Advice: Landowners should consult legal, financial, and real estate experts to fully understand the terms and implications of the joint development agreement. This ensures that they enter into a fair and beneficial arrangement that protects their interests.
(b) Understanding Agreement Terms: Understanding the terms of the JDA is crucial for the landowner to ensure that their rights, obligations, and expectations are clearly defined and documented. This includes aspects such as revenue-sharing mechanisms, project timelines, quality standards, and dispute resolution procedures.
(c) Monitoring Development Progress: Regular monitoring of the development progress allows the landowner to ensure that the project is advancing according to the agreed-upon timelines and specifications. This helps in identifying any potential delays or deviations early on, enabling timely intervention if necessary.
(d) Effective Communication: Open and transparent communication between the landowner and the developer is essential throughout the project lifecycle. Landowners should feel comfortable raising concerns or issues with the developer and seeking clarification or resolution as needed.
(e) Enforcing Agreement Terms: If the developer deviates from the terms of the joint development agreement or fails to meet project milestones, the landowner has the right to demand compliance or take appropriate legal action. This may involve issuing notices, invoking penalty clauses, or seeking arbitration or mediation to resolve disputes.
(f) Protecting Interests: By actively participating in the development process and enforcing the terms of the agreement, landowners safeguard their interests and ensure that they receive the intended benefits from the joint development arrangement. This includes securing their share of revenue or compensation and protecting the value of their land investment.
(g) The RERA Act does not differentiate the landowner or developer. Both are having same responsibility and obligations towards the allotees in the project.
(i) The agreement between landowner or developer (JDA) defines their roles and responsibility. Hence all possible clauses shall be incorporated while drafting JDA, to name few -
(ii) Who is responsible for RERA Registration, Quarterly updates, Annual Audit Compliances, Advertisement Compliances.
(iii) How to open the RERA Separate project Bank Account – who are the signatory to the Bank Account/operation.
(iv) How to collect money from allottees, mandatory depositing of 70 % into RERA Separate bank account including sale proceeds of Landowner units in the project.
(v) How to operate the RERA Separate bank account to protect the interest of both (landowner and developer).
(vi) Withdrawal of money from the RERA Separate bank account, distribution of money so withdrawn between landowner and developer based on the proportion completion of the project.
(vii) Utilisation of money withdrawn for the Project purpose only. (viii) Delay in delivery of the possession of the units to the allottees.
(ix) In Case of non-compliance, if penalty levied, who will responsible and comply with it.
(x) All other compliances under RERA.
In summary, landowners play a pivotal role in joint development projects and must proactively engage in understanding, monitoring, and enforcing the terms of the agreement to protect their interests and ensure the successful execution of the project.
2.01.6 JUDICIAL RULINGS: THE ASSIGNEE IS A PROMOTER
In the case of Samruddhi Developers v. Kiran Vasanf Verekar, by and under a deed of assignment, the respondent developer had assigned the development rights in respect of the project property in favour of the appellant. The appellant placed reliance on section 15 of the Act and submitted that since
prior written consent from 2/3rd allottees, except the promoter, and prior written Approval of the Authority under the provisions of the Act was not obtained by the respondent developer for transfer or assignment of their majority rights and liabilities in respect of the project to the appellant, the said deed of assignment was not enforceable and thus the appellant was not liable to pay interest to any of the allottees under the said deed of assignment. It was inter alia held by the Bombay High Court that section 15(2) of the Act read with definition of “promoter” under section 2(zk) of the Act clearly indicates that promoter includes his assignees and is required to independently comply with all the pending obligations of the original promoter under the provisions of the Act and the rules and regulations made thereunder as well as comply with the pending obligations under the agreement for sale entered into between the respondent developer with the allottees on transfer or assignment of a project. In view of the definition of “promoter” under section 2(zk) of the Act, the respondent developer having assigned the project in favour of the appellant, the appellant was held to be the promoter within the meaning of section 2(zk) of the Act.
2.01.7 JUDICIAL RULINGS: CO-OPERATIVE HOUSING SOCIETY, THOUGH LANDOWNER WHO APPOINTS A DEVELOPER FOR REDEVELOPMENT IS NOT THE PROMOTER
In the case of Goregaon Pearl CHSL v. Seema Mahadev Paryekar and, the Bombay High Court inter alia observed that section 18 of the Act requires promoters to discharge their obligations and provides remedies for the purchasers, without prejudice to the purchasers’ other rights, in the event of the promoters’ failure to discharge the obligations. Further, section 19 of the Act entitles the allottee to obtain possession of the flat or apartment. Any grievance of the purchaser under the Act is redressed by the regulatory authority appointed under it. In view of the same, the Bombay High Court inter alia held that none of these provisions either make the owner of the freehold or leasehold interest in the land, who enters into a development agreement with a developer (who, in turn, enters into flat purchase agreements with third parties on the basis of such development agreement), liable for complying with the obligations of the developer under the Act. If there is any doubt in respect of the position of landowners vis-a-vis development projects registered under the Act, particularly where such land owners are entitled to a share in the total revenue generated from sale of apartments, the same has been clarified by the Authority that only such individuals/ organizations would fall within the definition of ‘promoter’, on account of being land owners, as would be specified as such at the time of online registration with the Authority.
2.01.8 JUDICIAL RULINGS: THE PERSON WHO PROVIDES THE APARTMENTS ON LONG LEASE IS ALSO A PROMOTER
In the case of Lavasa Corporation limited, the question in consideration was whether the definition of the term ‘Promoter’, as provided under section 2(zk) in the Act, would include a ‘Lessor’, and whether the remedy provided to allottees under section 18 of the Act can be available only against the promoter or, in that sense, also against a ‘Lessor’. The agreements entered into between the appellants and the respondents were titled as ‘Agreements of Lease’, however, they were replicas of ‘Agreement of Sale’. It was observed by the Bombay High Court that the definition of ‘allottee’ also includes the ‘Lease Agreement’ though it may not include such agreement, when the apartment is in real sense given purely on rent and it is, in reality, an ‘Agreement of Rent and Lease’ and not, in effect, a transaction of sale.
The intention of the legislature while enacting the provisions of the Act will to protect those persons like allottees, who have invested substantial amounts in the real estate. Hence, they are required to be called as ‘consumers’ or ‘Allottees’ and if they are excluded. The definition of ‘Allottee’ and thereby from the protection given under the Act, by giving restrictive meaning to the term ‘Allottee’, it would be a case of unjust enrichment on part of the appellant and the very object of the Act would stand frustrated. The remedy provided to the ‘Allottees’ under section 18 of the Act can be available against the ‘Lessor’ because the definition of ‘Promoter’ under section 2(zk) of the Act will also include the ‘Lessor’.
2.01.9 LENDERS AS PROMOTERS UNDER RERA REGIME
Promoter under RERA has been defined u/s 2(zk)(i) of the Act as a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees.
As an assignee is not defined under RERA, HARYANA RERA (HRERA) incorporated the general principle of assignment to mean transfer of rights or obligations held by one party to another party, and held that the lender qualified as a promoter as it ‘caused the project to be constructed’ by giving loan to develop the project which in turn would be sold and the receivables would generate revenue with which the loan of the lender could be repaid. The HRERA also held that the developer assigned its rights to the lender by virtue of the mortgage deed and hence, was a promoter.
The Haryana Real Estate Regulation Authority (“HRERA”) has delivered an unprecedented order in the matter of Deepak Chowdhary v. PNB Housing Finance Ltd. (“Supertech Hues case/Order”) (Order dated 11.9.2020 in Complaint case No. 2145 (earlier 2031) of 2020 available at https://haryanarera.
gov.in/assistancecontrol/viewOrderPdf/NDM0MjU=) This Order will have implications on banks and other financial institutions, which provide credit to real estate companies, while also bringing into focus, the conflict between the rights of such banks and financial institutions vis-à-vis the rights of allottees of such projects.
Though the HRERA has categorically stated in the Order that “it is not against the right of the lender to auction the Project”, it has simultaneously attempted to strike a balance between the lenders’ right to pursue actions under the SARFAESI and the interests of allottees, and has acknowledged the fact that the interests of allottees cannot be subservient to the interests of the lenders. While proceeding to treat the lenders as promoters under RERA (even though for a limited purpose), the HRERA has also affixed the liability on the lenders to ensure proper utilization of the disbursed funds. It has also relied on the Hon’ble Supreme Court’s judgment in the matter of Bikram Chatterjee v. Union of India (“Amrapali”), to hold that “in the event of diversion of funds, banks cannot be allowed to sell the flats and deprive the allottees, and that the rights of the allottees are not subservient to the rights of the banks, and therefore, in case of failure of the banks to ensure that the funds were applied for the purpose they were granted, banks cannot be allowed to supersede the rights of the allottees”.
By way of the Order, the HRERA has inter alia, passed the following key directions—
(1) Lenders that takeover real estate projects due to non-payment of loans by developers, would be treated as “promoters” under RERA (for the limited purpose of mediating a transfer) by virtue of it falling under the ambit of assignee u/s 2(zk)(i) of RERA and they would be obligated to secure the interests of home buyers; and
(2) Lenders have been directed to make all necessary disclosures with respect to outstanding liabilities in the project while auctioning the property; and
(3) In case a developer fails to repay loans to a financial institution and if the institution intends to auction the mortgaged property, then the institution would have to seek prior written approval from HRERA.
From the above, it can be seen that, in order to protect the interests of homebuyers, the HRERA has equated a lender as a promoter. HRERA has tasked the lender with overseeing the interests of homebuyers of a defaulting developer. This essentially casts the duties of a promoter on a lender, under RERA, seeking to pursue remedies for enforcement of its security interests under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”). By imposing such an obligation on a lender seeking to
enforce its security, the HRERA Order has been rendered susceptible to challenges by lenders, due to reasons stated hereinafter.
(4) RERA under section 11(4)(g) cast the statutory responsibility on promoters to repay the mortgage loans availed along with interest from the amount realized from the allottees.
(5) It appears that the HRERA did not take into account the extant laws governing the functioning of HFCs in India, whose primary function is to transact or has one of its principal objects, the transacting of the business of providing finances for housing, whether directly or indirectly-(Section 2(d) of the National Housing Bank Act, 1987).
(6) The HFCs are regulated by Reserve Bank of India and supervised by National Housing Bank presently. None of these laws envisage an HFC stepping into the shoes of a promoter in respect of real estate activities, even in a limited capacity. Therefore, to impose the obligation of a promoter on a lender is not legally tenable.
(7) It is also noteworthy that the end use of borrowed money does not put the lender in the borrower’s shoe, rather it may create an absurd outcome as the lenders may then be understood to be doing any and every activity they finance.
HRERA under Part II of Circular No. 01/RERA/GGM Circular 2020 has prescribed the procedure for transferring or assigning of promoter’s rights and liabilities in a real estate project to a third-party u/s 15 of the RERA by a mortgage lender. As per this, the Banks are required to simply intimate the allottees and HRERA about the enforcement of security and requires it to apply for necessary correction in registration details. It does not envisage prior written approval of HRERA as directed in the Order. Therefore, this Order, which imposes additional obligations on the lenders to obtain prior written approval from HRERA, goes contrary to the Circular itself and is susceptible to challenge in this regard.
2.01.10 JUDICIAL RULINGS : THE LENDER WHO TAKES THE PROJECT UNDER SARFAESI IS THE PROMOTER
(a) Maha RERA in the case of JVPD held that the mortgage lender who has taken the possession of the real estate project steps into the shoes of the promoter and it is the lender responsibility to protect the interest of the allottees.
(b) KRERA vide circular issued for transfer of projects u/s 15 of RERA clarified that the lenders who have acquired the project under “SARFAESI”, do not require the consent of 2/3rd allottees to change the promoter.
(
c) KRERA vide circular No. 8/2019 dated 28th March, 2019 clarified that when the project has lapsed registration or revoked under section 7 and requires completed as per section 8 of RERA by transferring the same to association of the allottees or to any other persons, then the secured lenders also will be heard by the Authority before passing any orders.
2.01.11 JUDICIAL RULINGS: DEVELOPMENT MANAGER IS A PROMOTER – SHAPOORJI PALLONJI/NIRMAL DEVELOPERS
(a) Maha RERA said the DM would be considered a ‘promoter’ of the project along with the builder Nirmal Developers. It directed that the SP subsidiary be added as promoter on the web page of the project within 30 days of the order.
(b) The order said “the terms of agreement clearly show the Development Manager has authority to supervise and control all activities of planning, selling, funding and constructing the project”.
Karnataka RERA | Law & Practice
AUTHOR : RAMESH S. PRABHU, VINAY THYAGARAJ
PUBLISHER : TAXMANN
DATE OF PUBLICATION : JUNE 2024
EDITION : 2024 EDITION
ISBN NO : 9789357787512
NO. OF PAGES : 1616
BINDING TYPE : PAPERBACK
Rs. 3995 | USD 53
Description
Karnataka RERA | Law & Practice is an authoritative guide for real estate regulation and development in Karnataka. It covers key practice areas like registration, certification, and compliance, including legal provisions, SOPs, FAQs, and judicial rulings for practical utility. Additionally, it addresses related subjects such as Income Tax, GST, and consumer protection laws, enriching practitioners’ knowledge and application in real estate transactions.
This manual is a guide and reference tool designed for new and seasoned practitioners, especially for those representing clients before regulatory authorities and tribunals.
The Present Publication is the 1st Edition, authored by a study group of industry experts and stakeholders and edited by esteemed Chartered Accountants Ramesh Prabhu and Vinay Thyagaraj. The noteworthy features of the book are as follows:|
u [Content and Structure] Multiple chapters covering:
Registration
Certification
Quarterly Updates
Annual Audits
Other RERA Compliances
u [Practical Tools] Includes:
SOPs
FAQs
Judicial Rulings
u [Dynamic Content] Adaptable legal aspects, formats, drafts, and specimens for specific circumstances.
u [Legal and Peripheral Subjects] Covers related areas such as Income Tax, GST, Insolvency and Bankruptcy, consumer protection, and FEMA, enhancing practitioners’ understanding of real estate dynamics.
u [Practical Application] Provides formats, drafts, and specimens for ready reference and adaptation.
u [Inspiration from Other Regions] Includes comparative analyses and references to Maharashtra’s RERA implementation for broader understanding.