Untangling The Knot: Resolving The Conflict Between The Interests Of The Allotees And The Financial Institutions Qua RERA And SARFAESI

• Published date: 07 July 2022
• Subject Matter: Real Estate and Construction, Real Estate
• Law Firm: Karanjawala & Company
• Author: Manmeet Kaur, Suditi Batra and Chandan Malav

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:

1. the allottees/homebuyers approach the RERA authority for seeking relief against developers who fail to complete the project in a timely manner; and when
2. 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 .

BACKGROUND-

• 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...