Banks can’t claim rights over flats booked to allottees: RERA

Jaipur: In a significant order protecting homebuyers, Rajasthan Real Estate Regulatory Authority (RERA) ruled that banks and financial institutions cannot claim rights over flats that were booked to allottees before the creation of a loan.The authority also held that RERA proceedings can continue against the directors of a builder company and the landowner even during insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).
The order was passed by Rajasthan RERA chairperson Veenu Gupta on Feb 19, and the order was uploaded on Saturday in a case related to the Avalon Royal Park housing project in Bhiwadi. "The project was launched in 2012 by M/s G R J Distributors and Developers and proposed over 1,200 flats, with possession promised by 2017. Between 2012 and 2016, more than 700 flats were sold and around 90 per cent of the sale amount was collected from homebuyers. Nearly Rs 300 crore was collected, but the project remains largely incomplete, with most buildings only at the structural stage," said Mohit Khandelwal, counsel appearing on behalf of the allottees association. He argued that in 2018, the builder mortgaged the entire project to ECL Finance Limited and raised a loan of Rs 50 crore. "After default in repayment, insolvency proceedings were initiated before the National Company Law Tribunal, Delhi, through Invent Asset acting for the lender," he added. The builder later sought termination of RERA proceedings, citing insolvency. "We strongly opposed this, arguing that the mortgage was illegal as flats were already allotted earlier. The association also alleged misuse of allottees' funds and collusion with the lender," he added. RERA held that the "landowner was actively involved in the project and benefited financially". It ruled that "insolvency proceedings do not bar action against former directors and the landowner". Importantly, RERA declared that the bank's charge cannot override the rights of existing allottees and cannot be enforced against pre-sold flats.