RERA would prevail over SARFAESI for the rights of home buyers ,the Real Estate Allottees

Hon’ble Apex Court gave a landmark judgment in which banks were brought within the applicability of RERA and also where RERA would prevail over SARFAESI Act in the event of conflict. Homebuyers can approach RERA against the bank which took possession of a real estate project as a secured creditor

Case Law Union Bank of India V Rajasthan Real Estate Regulatory Authority

Decided on 14^th February 2022,

Facts and issues

An agreement entered between a developer and the allottees in the year 2014 for a real estate project ensuring completion of the said project within the stipulated time. The developer failed to complete the project and handover the possession of the property to the allottees.
The promoters subsequently mortgaged the same property with Andhra Bank which is now merged into Union Bank of India for availing finance
Home buyers-initiated Complaints against the bank before Rajasthan RERA to protect their rights.
The Bank argued that the RERA could issue directions only against a promoter, allottee or a real estate agent and that the bank does not come under the purview of RERA as they are not in the category of promoters, and RERA cannot stop the recovery process or cancel the bank auction under SARFAESI Act.
The RERA held in its order that since bank being an assignee of the promoter, it would fall within the definition of promoter. The bank entered into the shoes of promoter has become assignee of promoter. RERA subsequently cancelled the bank auction which bank had initiated to recover loan Amount from the mortgaged project.
The Bank argued that the RERA could issue directions only against a promoter, allottee or a real estate agent and that the bank does not come under the purview of RERA as they are not in the category of promoters, and RERA cannot stop the recovery process or cancel the bank auction under SARFAESI Act
The Bank also challenged the validity of Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations, 2017, Regulation 9 reads as follows:-

“For adjudicating proceedings with respect to complaints filed with the Authority, the Authority may, by order, direct that specific matters or issues be heard and decided by a single bench of either the Chairperson or any member of the Authority The

Further ,the Bank raised an argument with respect to applicability of RERA to the construction projects which have commenced earlier and where the transaction between the borrowers and creditor are completed before the enactment of the RERA Act.

SC . Judgment

Considering several decisions of the Apex Court which included the case of M/s Newtech Promoters and Developers Pvt Ltd (supra), the Hon’ble Supreme court agreed to High Court of Rajasthan that Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations, 2017 is neither ultravires the Act nor invalid and held that 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.

Additionally, the SC Also greed with HIGH Court relied on the case of Bikram Chatterji (Supra) IS APPLICBLE IN THE PRESENT CASE which held that in the event of conflict between RERA and SARFAESI Act, the provisions contained in the RERA would prevail.

The Court also observed that banks would be considered as promoters for the purposes of the RERA Act and RERA 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 Supreme Court agreed with these conclusions as well and upheld the Rajasthan High Court order and ensured to protect homebuyer’s interests.

Critical analysis

This order provided relief to millions of home buyers awaiting delivery which ensured that the interest of home buyers will be protected and has preference over the interest of banks.
present judgment gives banks a greater stress and ensures greater cautious while lending the funds to real estate project, which alternatively impact the development of real estate. A stringent process shall be required for enforcing the recovery proceedings in the event of a real estate builder defaulting in repayment of bank loans and handing over possession of the unit.

Conclusion

Regulation 9 of the Regulations of 2017 is not ultravires the Act or is otherwise not invalid. of M/s Newtech Promoters and Developers Pvt Ltd Vs. State of UP and Orswhere the Supreme Court examined the aspect of delegation of powers in the single member of RERA to decide complaints filed under the Act in respect to the contention of the Bank which challenged the validity of Regulation 9 herein. Even otherwise flows from Section 81 of the Act and such delegation can be made in absence of Regulation 9 also.
In the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail. As held by the Supreme Court in the case of Bikram Chatterji v Union of India where the allottees had contended that in the event of conflict between the RERA and SARFAESI, the provisions contained in the RERA would prevail and the bank being an assignee of the promoter, would fall within the definition of promoter.
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.
RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor

By Dr Prem Lata