Introduction

In a welcome step towards ensuring that rights of Homebuyers remain protected, the Hon'ble Supreme Court of India vide an Order dated 14.02.2022 passed in Union Bank of India v. Rajasthan Real Estate Regulatory Authority Etc.1 ("SC Order"), inter alia held that RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank, in a case where proceedings before the RERA Authority are initiated by the home buyers to protect their rights.

The SC Order was pronounced in a Special Leave to Appeal, challenging the judgment dated 14.12.2021 of the Hon'ble Rajasthan High Court in Union Bank of India and Ors. Vs. Rajasthan Real Estate Regulatory Authority and Ors.2 ("HC Judgment"). The Supreme Court affirmed the law laid down in the HC Judgment.

Pertinently, the HC Judgment had ended the seemingly undying tussle between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI") and Real Estate (Regulation and Development) Act, 2016 ("RERA Act"). The HC Judgment resolved this tussle through a two-fold conclusion. Firstly, it held that the banks/secured creditors are amenable to the jurisdiction of RERA Authority when the rights/interests of the Homebuyers are under consideration. Secondly, it brought end to an important controversy- that in an event of conflict between SARFAESI & RERA Act; the RERA Act being a subsequent legislation shall prevail over SARFAESI.

Background

Aggrieved by the failure of developers to hand over the possession on time, many allotees instituted Complaints before RERA. The Complaints pertained to a Project comprising of 38 flats, which was launched in the year 2014.

The allottees procured loans from the ICICI bank on the basis of a tripartite agreement which led to the creation of charge in favor of the ICICI Bank. According to the allottees, the developers further procured loans from Andhra Bank which has now merged with the Petitioner Bank and thus created mortgage in favor of the Petitioner Bank.

The allottees alleged before the RERA Authority that these loans were illegally sanctioned. On the other hand, the Petitioner Bank contested the allegation of the allottees by raising a jurisdictional issue around the applicability of RERA when SARFESI Act is also in the picture. In quintessence, the Petitioner Bank resorted to the contention that it is not covered under the ambit of the RERA Act and directions under the RERA Act can be issued only against a promoter, allottee or a real estate agent. However, the argument of the Petitioner Bank did not meet approval of RERA Authority as it held that the bank being an assignee of the promoter is a promoter itself and would squarely fall under the jurisdiction of RERA Authority. In doing so, it referred to the definition of promoter provided under Section 2 (zk) of the RERA Act.

Observations of the Hon'ble Rajasthan High Court

The Hon'ble Rajasthan High Court observed that Section 35 of the SARFAESI as well as Section 89 of the RERA Act are similar in nature, which provide for the overriding effect of the respective legislations to any other law for the time being in force. The Hon'ble High Court while dismissing the Petition filed by the Petitioner Bank held that the RERA Act has an overriding effect on SARFAESI as in the event of direct conflict between the two central legislations, ordinarily the subsequent legislation would prevail.

The Hon'ble High Court after relying upon Section 11(4)(h) of the RERA Act further held that it creates a new set of rights and interest in favor of the Allottees which cannot be retrospective in nature and has a prospective effect. Thus, the RERA Act will have no applicability on the secured creditors whose interest has been created prior to the introduction of the RERA Act.

The Hon'ble High Court further interpreted the judgment of the Hon'ble Supreme Court of India in Bikram Chatterji (supra) to hold that in absence of fraud or collusion, the provisions of the RERA Act cannot be applied retrospectively to the banks and financial institutions in whose favor the security interests have been created prior to the enactment of the RERA Act.

Another key issue which came up for consideration of the Hon'ble Rajasthan High Court was if RERA has jurisdiction to issue directions against banks/financial institutions claiming security interest over properties which are subject matter of the agreement between the Allottee and the promoter.

The Hon'ble Rajasthan High Court deliberated upon the issue and observed that Clause (i) of Section 2 (zk) of the RERA Act uses the term "means and includes" that has extremely wide ambit that takes into its' sweep, the assignees of the promoter as well. Furthermore, the Court relied upon Section 13 of the SARFAESI to adopt harmonious construction of statutes to harmonize the two legislations i.e. SARFAESI and the RERA Act in order to facilitate the furtherance of rights and interests of the Allottees/Buyers. Thus, the court held that once the banks take recourse of any of the provisions enshrined under Section 13 (4) of SARFAESI, it assumes the role of a borrower in terms of the RERA Act as well. Thus, once the bank initiates steps under Section 13 (4) of SARFAESI, it shall also become amenable to the jurisdiction of the RERA Authority under the RERA Act.

Decision by the Hon'ble Supreme Court of India

The SC Order affirmed the judgment dated 14.12.2021 of the Hon'ble Rajasthan High Court. However, the Hon'ble Supreme Court clarified that the RERA Authority shall have jurisdiction against banks or the secured creditor when it takes a recourse under Section 13(4) of the SARFAESI only when the proceedings before the RERA Authority are initiated by the homebuyers to safeguard their rights.

Conclusion

The Judgment of the Hon'ble Supreme Court of India is a welcome step in the modern day Real Estate jurisprudence by ensuring that rights of homebuyers are not watered down. The law as laid down by the Hon'ble Supreme Court of India effectively neutralizes the apparent conflict, between the SARFAESI and the RERA Act as far as the rights and interest of the homebuyers in concerned. The judgment also reaffirms that the modus operandi of financing of the project does not stand in the way of rights of homebuyers in procuring their legitimate reliefs under the law. In other words, the Hon'ble Supreme Court of India, by harmoniously interpreting the SARFAESI & the RERA Act, has affirmed that the dispute between the banks/investors and the promoters shall not have any bearing upon the rights and title of the homebuyers. The Judgment of the Hon'ble Supreme Court is expected to bring relief to Home Buyers across the country as it now entails that an aggrieved homebuyer shall now have a remedy to approach the RERA Authority when recovery proceedings have been initiated by the bank/financial creditor against the promoter, where the properties belonging to the Homebuyers may be subject to attachment.

Footnotes

1. Special Leave to Appeal (C) Nos.1861-1871/2022

2. DBCWP No. 13688/2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.