The Indian Real Estate industry is one of the largest growing sectors in the Country. The contribution of the Real Estate sector to India's GDP (Gross Domestic Product) is estimated to be around 6 to 7 percent1. Real Estate plays an important role in fulfilling the needs and demands of housing and infrastructure in the Country. To facilitate transparency in the home buying process, and to protect the interests of the homebuyers among other objectives, Real Estate (Regulation and Development)Act 2016 (RERA)2 was enacted.
Any aggrieved person can file a complaint to the Real Estate Regulatory Authority under Section 31 of the RERA. The RERA authority has wide powers to issue directions to varied individuals and groups. However, RERA does not specifically clarify the position with respect to the Financial Institutions.
There is a grey area when it comes to enforcing the rights of allottees/homebuyers of a Project under the RERA and enforcing the rights of Financial institutions as a Secured Creditor under SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002.
The RERA authority has been at loggerheads in situations where:
- the allottees/homebuyers approach the RERA authority for seeking relief against developers who fail to complete the project in a timely manner; and when
- Financial Institutions who approach the Debt Recover Tribunal (DRT) under the SARFAESI Act to recover the loan amount disbursed by them to developers.
The Hon'ble Apex Court by its Judgement dated 14.2.2022 reported as "Union Bank of India vs Rajasthan Real Estate Regulatory Authority & Ors' 3 has upheld the decision of the Hon'ble High Court of Rajasthan4 with regard to the rights of the allottee(s) and Financial Institutes on the secured assets .
- Proceedings were instituted before RERA on complaints filed by the allottee(s) of residential units in a complex which was being developed by the promoters on account of failure to complete the project and hand over the flats within the stipulated time period.
- Allottees had obtained loans from ICICI Bank against their allotment on the strength of a Tripartite Agreement between the developer, Bank and the allottee.
- In addition, the developer procured a loan from Andhra Bank (later merged with Union Bank of India), by way of creation of a mortgage in favour of the Union Bank of India. According to the allottee(s) this was done without verification of existing charge on properties in question and therefore the loan was sanctioned fraudulently.
- Developer failed to repay the loan to Union Bank of India, and its account was declared as Non-Performing Asset (NPA). Thereafter, the Union Bank of India started the recovery proceedings against the developer under SARFAESI Act.
- Allottees approached the DRT and thereafter DRAT (Debt Recovery Appellate Tribunal) to prevent the Bank from auctioning the properties. Allottee(s) approached the authority under RERA for taking suitable action against all concerned including the Bank.
- Union Bank of India objected to the jurisdiction of the RERA authority to issue directions against it.
FINDINGS OF THE HON'BLE RAJASTHAN HIGH COURT
The Hon'ble High Court of Rajasthan held that the Bank being an assignee of the promoter is a promoter itself and would be squarely covered under the definition of a promoter provided under Section 2 (zk) of RERA.
The Hon'ble High Court justified the said interpretation by observing that the legislature has intended to define the term "promoter" in an expansive manner. The said definition of promoter includes not only the person who constructs or causes to construct a project also its assignee(s). The Hon'ble Court further relied on the findings of the Hon'ble Supreme Court in the matter of Bikram Chatterji & Ors. Vs. Union of India5 whereby the Hon'ble Supreme Court noted that RERA being a Special Act, created in favour of the buyers to insulate them from fraudulent actions shall prevail over SARFAESI Act.
The Hon'ble Court further held that in case the Secured Creditor takes resort to initiate the proceedings under Section 13(4) of SARFAESI, RERA authority can entertain a complaint filed by the aggrieved person against such Secured Creditor/Financial Institution. The Hon'ble Court was pleased to pass the following directions which were upheld by the Hon'ble Apex Court (Supra):
"36. Our conclusions can thus be summarised as under:-
(i) Regulation 9 of the Regulations of 2017 is not ultra vires the Act or is otherwise not invalid.
(ii) The delegation of powers in the single member of RERA to decide complaints filed under the Act even otherwise flows from Section 81 of the Act and such delegation can be made in absence of Regulation 9 also.
(iii) As held by the Supreme Court in the case of Bikram Chatterji (supra) in the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail.
(iv) RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fraudulent or collusive.
(v) RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act."
The findings of the Hon'ble Rajasthan High Court as upheld by Hon'ble Apex Court on the conditions under which the Banks and Financial Institutions become amenable to the jurisdiction of the authority under RERA goes a long way in ensuring the protection of rights of the allotees as envisaged under the RERA.
1. India Brand Equity (IBEF) report
2. ACT No. 16 of 2016
3. Union Bank of India vs. Rajasthan Real Estate Regulatory Authority & Ors. SLP (C) Nos. 1861-1871/2022
4. Union Bank of India vs. Rajasthan Real Estate Regulatory Authority & Ors. D.B. Civil Writ Petition No. 13688/2021 decided on 14.12.2021
5. (2019) 19 SCC 161
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