RERA often failed to protect homebuyers in disputes involving banks, but SC has now ruled banks fall under RERA if they act under SARFAESI. This ensures homebuyers’ rights take precedence.
Home buyers across the country, are finding themselves in quandary as the well-intended Real Estate Regulation Act (RERA), seems to have failed in protecting home buyers rights, in case of tripartite conflict involving homebuyers, builders and banks.
When a builder fails to deliver the project on time, home buyers initiate proceedings against the builder under suitable provisions of RERA. But often it is seen that before RERA could pronounce its judgement, banks enter the scene, taking possession of the project or auctioning it, in turn denying rightful claims of home buyers.
The banks have been advancing arguments that being financial institutions, they do not fall under RERA, and thus the decision of RERA is not binding on them. They also raised a jurisdictional issue around the applicability of RERA.
The thrust of their arguments had been that they are not covered under the ambit of the RERA and also that directions under the RERA, can be issued only against a promoter, allottee or a real estate agent.
In this unending tussle between the two Acts, namely, Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFARESI)and RERA, the home buyers had been the worst sufferers. But the Supreme Court in a judgement in the case of Union Bank of India vs Rajasthan Real Estate Regulatory Authority etc, had held that banks do fall under RERA Act, thereby giving big relief to home buyers across the country.
In this particular case, many home buyers approached RERA against the builder, who failed to give possession of flats on time. 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 favour of the ICICI Bank. According to the allottees, the developer further procured loans from Andhra Bank which later merged with the Petitioner Bank and thus created mortgage in favour 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.
The Petitioner Bank resorted to the contention that it is not covered under the ambit of the RERA Act. RERA rejected the arguments of the bank and ruled in favour of home buyers and held that the bank being an assignee of the promoter is a promoter itself and would squarely fall under the jurisdiction of RERA Authority.
However, not being satisfied with RERA order, the bank challenged it in the Rajasthan High Court. 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 further held that it creates a new set of rights and interest in favour of the Allottees which cannot be retrospective in nature. Another key issue which came up for consideration of the 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 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.
The SC order affirmed the judgment of the Hon'ble Rajasthan High Court. However, it 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.
With this landmark judgement, the apparent conflict between the SARFAESI and the RERA Act as far as the rights and interest of the homebuyers is concerned, stand settled for once and all. It is also very clear 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, 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.
In the backdrop of this judgement, now it can be safely concluded that an aggrieved homebuyer can seek definite remedy under RERA, 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.
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