Rajasthan RERA Issues Landmark Order to Protect Homebuyers from Financial Institutions
In a significant ruling that strengthens the rights of homebuyers, the Rajasthan Real Estate Regulatory Authority (RERA) has delivered a crucial order. The authority has declared that banks and financial institutions cannot assert rights over flats that were booked by allottees prior to the creation of a loan. This decision marks a pivotal moment in real estate regulation, offering enhanced security to purchasers.
RERA Proceedings Continue Despite Insolvency
The authority further clarified that RERA proceedings can proceed against the directors of a builder company and the landowner, even during ongoing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). This ensures that accountability is maintained, regardless of financial restructuring or legal challenges faced by the developer.
The order was issued by Rajasthan RERA Chairperson Veenu Gupta on February 19 and was officially uploaded on Saturday. It pertains to a case involving the Avalon Royal Park housing project located in Bhiwadi.
Background of the Avalon Royal Park Project
Mohit Khandelwal, counsel representing the allottees association, provided detailed insights into the project's history. "The project was launched in 2012 by M/s G R J Distributors and Developers, with plans for over 1,200 flats. Possession was initially promised by 2017," he explained.
Between 2012 and 2016, more than 700 flats were sold, and approximately 90 percent of the sale amount was collected from homebuyers. Nearly Rs 300 crore was amassed, yet the project remains largely incomplete. Most buildings are only at the structural stage, highlighting significant delays and unmet commitments.
Mortgage and Insolvency Complications
Khandelwal elaborated on subsequent developments: "In 2018, the builder mortgaged the entire project to ECL Finance Limited, securing a loan of Rs 50 crore. Following a default in repayment, insolvency proceedings were initiated before the National Company Law Tribunal in Delhi, with Invent Asset acting on behalf of the lender."
The builder later attempted to terminate RERA proceedings by citing the insolvency. However, the allottees association strongly opposed this move. "We argued that the mortgage was illegal since the flats had already been allotted earlier. The association also alleged misuse of allottees' funds and collusion with the lender," Khandelwal added.
Key Rulings by Rajasthan RERA
RERA's order included several critical determinations:
- The landowner was actively involved in the project and benefited financially from it.
- Insolvency proceedings do not prohibit legal action against former directors and the landowner.
- Most importantly, the bank's charge cannot override the rights of existing allottees and cannot be enforced against flats that were pre-sold.
This ruling underscores RERA's commitment to safeguarding homebuyers' interests, ensuring that financial institutions cannot jeopardize their investments in pre-booked properties. It sets a precedent for similar cases across the real estate sector, reinforcing regulatory frameworks.
