By Fiona Mehta
The Supreme Court of India, vide its order dated 14th February, 2022, in the matter of Union Bank of India vs. Rajasthan Real Estate Regulatory Authority & Ors. while upholding the order dated 14th December 2021 of the Hon’ble High Court of Rajasthan, inter-alia held that the RERA Authority.
The RERA Authority read with the rules and regulations made thereunder (“RERA Act”) has the jurisdiction to entertain a complaint filed by an aggrieved person against the bank as a secured creditor in the event the bank takes recourse to any of the provisions contained in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) provided that the proceedings filed before the RERA Authority have been initiated by the homer buyers to protect their rights.
Background: In a recent writ petition, the division bench of the Hon’ble Rajasthan High Court issued a landmark decision protecting home-buyers’ rights and interests by ruling that secured creditors such as financial institutions and banks fall under the jurisdiction of the RERA Authority, and that home-buyers can file a complaint with the RERA against such secured creditors.
The High Court further held that:
(i) The Real Estate Regulatory Act, 2016 (“RERA Act”) operates retrospectively only in the cases where the security interest is created because of fraud or collusion between banks/financial institutions and developers;
(ii) The RERA Act would prevail over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) in case of a conflict between the two; and
(iii) The RERA has jurisdiction to entertain complaints against secured creditors like banks/financial institutions once they take recourse under Section 13(4) of the SARFAESI Act to enforce their security interest. The High Court judgment has already been discussed in our previous update which can be accessed.
Supreme Court Judgement: The Hon’ble Supreme Court, in its order dated 14th February 2022, resolved one of the outstanding legal questions by concluding that Banking Institutions can be made parties before the RERA Authority and are subject to the RERA Authority’s jurisdiction.
While upholding the Rajasthan RERA authority’s landmark decision, the Hon’ble High Court further ruled that the RERA act will take precedence over the Bank’s recovery actions under the SARFAESI Act. This order of the Hon’ble Supreme Court established that the rights of Allottees are fundamental, and their interests are prioritized over the rights of banking institutions.
In light of the aforementioned judgments, a bank or financial institution taking recourse under Section 13(4) of the SARFAESI Act in response to a developer’s default in payments would be deemed to be a promoter in relation to the secured asset for the purposes of the RERA Act, allowing Allottees to file RERA Act complaints against such bank or financial institution.