Author: Sarthak Bhansali , S S Bhansali & Co LLP
ABSTRACT
In an unprecedented enforcement action, the Gujarat Real Estate Regulatory Authority (GujRERA) has ordered the freezing of bank accounts belonging to 1000+ Real Estate developers.1 This news article states that the action arose due to the promoters' failure to comply with Quarter-End (Q-E) Compliance requirements, underscores the regulatory authority's commitment to ensuring adherence to the Real Estate (Regulation and Development) Act, 2016 (RERA) mandates. The RERA Act mandates strict obligations on promoters, including timely project completion declarations and quarterly updates to RERA. Failure to comply can lead to penalties and, ultimately, project registration revocation under Section 7 of RERA. Additional actions may include financial penalties, public disclosure, and freezing of project bank accounts, aimed at protecting homebuyers' interests and maintaining financial integrity of the projects. This article explores the actions taken by the Authority and the powers provided by the Act for doing so.
KEY WORDS: GujRERA, Quarter End Compliances, RERA, Penalties
QUARTER-END COMPLIACES AND EXTENSION OF PROJECT
The Real Estate (Regulation and Development) Act, 2016 (RERA) imposes obligations on promoters to ensure the timely completion of the real estate projects. Section 4(2)(l)(c) of the Act mandates that promoters submit an affidavit cum declaration, specifying the time period within which they shall complete the project, commonly known as ‘project end date’ of a project.
The registration of the project granted under Section 5 shall be valid for a period till the time period declared under Section 4(2)(l)(c) by the promoter. Hence the promoter is required to complete the project within this stipulated time frame; failing which the registration shall lapse. The completion of a real estate project under Section 17 read with circulars issued by the Gujarat RERA Authority, mandates completion of construction, obtaining the necessary
occupancy certificate or completion certificate from the competent authority, and conveying the title of the unit to the allottees, as well as handing over the common areas to the association of allottees. This holistic definition ensures that all critical aspects of project completion are addressed, thereby protecting the interests of the allottees and ensuring timely completion and handover of the project. It is vital to remember that Quarterly End filings must be completed before the specified deadline i.e. before the project end date.
In instances where promoters are unable to complete the project within the end date declared, Section 6 provides a mechanism for project extension. Promoters may apply to the regulatory authority for an extension of the project’s registration period. If granted, this extension modifies the promoter’s obligations, specifically relating to filing of the Quarterly End compliance and allows compliance till such extended period.
The promoters in the given cases of 1000+ projects as mentioned in the article have failed to do both – file Q-E compliance and failed to apply for extension prior to the project end date.
POWERS OF THE AUTHORITY
Now, with respect to the current scenario where accounts have been frozen, let us examine the powers of the RERA Authority to do so.
In case the Authority considers it expedient to do so, the authority under Section 35 of RERA has the power to call for information and conduct investigations. In the present scenario no such notice was issued nor any information was sought from the promoters. Further, no interim orders were passed under Section 36 of the Act.
The RERA Act under Section 37 grants to the Authority, the power to issue directions to the promoters, allottees or real estate agents which shall be binding on them. While this provision grants wide powers under this provision, it is imperative to analyse that, can the RERA Authority issue directions to banks to freeze the accounts under the said provision?
Further, Section 38(1) empowers RERA to impose penalty or interest in case of contravention of obligations cast on the promoters. However, no such penalty was imposed by the RERA authority in the current case.
Furthermore, Section 61 of the RERA Act stipulates penalties for non-compliance with the provisions of the Act which may extend up to 5% of the estimated cost of the real estate project. This provision underscores the financial repercussions of non-compliance.
The powers to freeze the bank account of a promoter may be derived from Section 7 (4) of the Act.
FREEZING OF PROMOTERS’ BANK ACCOUNTS
Now the Authority instead or in addition to levying penalties or issuing directions under various provisions may, under Section 7(1) of RERA Act, revoke the registration of the project. Upon revocation under Section 7, RERA is empowered to undertake several decisive actions. Firstly, the promoter is barred from accessing project-related information on RERA’s website, and their name is prominently listed as a defaulter, accompanied by their photograph on the website. This public disclosure mechanism aims to enhance transparency and deter future instances of non-compliance.
In addition to the above measures, RERA is required under Section 7(4)(c) to freeze the project’s bank account to safeguard remaining funds for completion.
Moreover, RERA may issue necessary directions under this provision to protect the interests of allottees and uphold public interest.
In the absence of notices issued to promoters for freezing of their bank accounts, it is difficult to ascertain under which provisions the said stringent actions are taken. However, it can be said that the actions in the present scenario appears to be undertaken deriving power from Section 7(4)(c) of the Act. Since the registration of the project has already been lapsed beyond the project end date provided, can the project registration be treated as “revoked”? Consequently, it could be said that the GujRERA under the wide range of powers granted by Sections 7, has directed the State Level Banking Committee (SLBC) to freeze the accounts of these noncompliant developers.
The legal implications of this action are significant. Developers with frozen accounts are restricted from accessing project funds and collecting amounts for allottees. Further, if the assumption that the freezing of bank accounts implies revocation of registration is true, can these promoters still sell units or market the project and if such actions are undertaken by such promoters will it violate the provisions of Section 3?
Additionally, in the future, the Authority may also debar the defaulting developer from accessing its website and may publish a list of defaulters as required under Section 7(4) of the Act.
CONCLUSION & ROAD AHEAD
GujRERA's enforcement action of freezing developers' accounts is a dynamic exercise of the legal powers vested in it by the RERA Act and the Rules. This action not only ensures accountability and transparency in the real estate sector but also reinforces the regulatory authority's commitment to compliances and increasing transparency in the real estate market.
However, this proactive stance raises crucial considerations for promoters in light of freezing of bank accounts and potential registration revocation under Section 7 of RERA due to noncompliance with Quarter-End (Q-E) Compliance.
CA Sarthak Bhansali
CA Sarthak Bhansali is a practicing Fellow Chartered Accountant and a RERA Expert. He is qualified LLB and FCA. He is a partner at M/s S S Bhansali & Co LLP and area of expertise is real estate laws. He can be reached at ssbhansalico@gmail.com
Adv Naman Shah
Adv Naman Shah is a qualified advocate from Alliance University Bangalore and is currently working as a legal associate at S S Bhansali & Co LLP. He handles litigation and legal documentation in real estate laws and can be reached at legal2@ssbhansalico.com
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