Interest of home buyers prevails over banks in case the real estate company fails to borrow money – Supreme Court

The Supreme Court upheld the decision of the Rajasthan High Court through the learned bench of Justices MR Shah and BV Nagarathria, which ruled that the Real Estate Regulatory Authority could lodge a complaint against home buyers against a bank holding a housing project as a secure lender in Union Bank of India vs Rajasthan Real Estate Regulatory Authority (Special Leave to Appeal (C) Nos.1861-1871/2022).

The crux of the case is the Union Bank of India and others had questioned the RERA’s authority to issue any directives against a bank or financial institution seeking security interest on property that is the subject of an agreement between the shareholder and the developer before the High Court of Rajasthan, The bank has argued that it will not be allowed in the RERA-controlled area as RERA can only issue directives against the promoter, allotee or real estate agent and the bank is not related to these organizations, RERA cannot comply with any action against the bank. RERA held that as the bank was handed over to the promoter, it would fall under the supervisor’s definition.

Referring to the definitions of terms such as “promoter”, “assignee” etc. in RERA and the SARFAESI Act, the High Court has found that when a bank takes any action under subsection (4) of Section 13, it begins the legal granting of a consumer’s right to a secure creditor. the issue of the operation of RERA while the SARFAESI Act is also in effect.

1 As held by the Supreme Court in the case of Bikram Chatterji vs Union of India, in the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail

2. 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.

3. RERA authority 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 learned bench comprising Justices MR Shah and BV Nagarathria while dismissing the SLP filed by the Union Bank of India, said that it is complete agreement with the view taken by the High Court. The court, however clarified that sub clause 3 of the act shall be applicable in a case where proceedings before the RERA authority are initiated by the homer buyers to protect their rights

The High Court had also upheld the validity of Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations, 2017. It 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. The Supreme Court agreed with these conclusions as well.

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Judgement reviewed by Himanshu Ranjan

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