RERA Prevails Over SARFAESI ; Homebuyers Can Move RERA Authority Against Bank's Recovery Actions : Supreme Court

The Supreme Court upheld a Rajasthan High Court judgment which held that Real Estate Regulatory Authority can entertain complaints by home buyers against the bank which took possession of a real estate project as a secured creditor(Union Bank Of India vs Rajasthan Real Estate Regulatory Authority).

Before the Rajasthan High Court, the Union Bank of India and others had questioned the authority of RERA to issue any directions against a bank or financial institution which claims security interest over the properties which are subject matter of agreement between the allottee and the developers. The bank had contended that it is not amenable to jurisdiction of RERA since RERA can issue directions only against a promoter, allottee or a real estate agent and the bank being none of these entities, RERA cannot entertain any proceedings against the bank. [The RERA had held that since bank being an assignee of the promoter, it would fall within the definition of promoter] 

Referring to the definitions of the terms like "promoter", "assignee" etc in RERA and also SARFAESI Act, the High Court had observed that the moment the bank takes recourse to any of the measures under sub-section (4) of Section 13, it triggers statutory assignment of right of the borrower in the secured creditor. The High Court also considered the issue of applicability of RERA while SARFAESI Act is also activated. It had held thus:

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.

While dismissing the SLP filed by the Union Bank of India, the bench comprising Justices MR Shah and BV Nagarathna said that it is complete agreement with the view taken by the High Court. The court, however clarified that (3) 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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