RERA Authority Can Award Statutory Interest Even If Allottee Withdrawing From Project Claims Lower Rate: Kerala High Court

The Kerala High Court recently ruled that interest rates payable to allottees withdrawing from a project should be as per Rule 18 of the Kerala Real Estate (Regulation and Development) Rules, 2018 while clarifying that claiming a lesser interest rate does not preclude allottees from receiving the statutory rate.  

Justice A. Badharudeen added that while Rule 18 specifies the standard interest rate formula for both promoters and allottees, there can be a deviation from this rate, only when both parties mutually agree to it.

"...the legal position is no more res-integra and payment of interest by the promoter to the allottee or by the allottee to the promoter, as the case may be, shall be the State Bank of India's Benchmark Prime Lending Rate plus two percent interest and shall be computed as simple interest as provided under Rule 18 of the Kerala Real Estate (Regulation and Development) Rules, 2018. However, payment of interest by the allottee to the promoter as provided under Section 19(7) of the Kerala Real Estate (Regulation and Development) Act, 2016, can be one in deviation from the Rule 18 and the interest can be reduced when mutually agreed to between the promoter and the allottee and not in any other manner". 

The appeals were filed against the orders issued by the Kerala Real Estate Appellate Tribunal, Ernakulam, and the Kerala Real Estate Regulatory Authority, Thiruvananthapuram.

The main question was whether the Kerala Real Estate Authority is bound by the provisions in Rule 18, regarding the rate of interest payable when an allottee wishes to withdraw from a real estate project and recover the amounts they have paid.

The dispute originated when allottees sought a refund of their payments with interest due to the promoter's failure to complete construction as agreed upon. The Regulatory Authority granted interest at the rate of 14.75% (Benchmark Prime Lending Rate plus 2%) in excess of the amounts claimed by the allottees in their complaints.

Senior counsel appearing for the appellants argued that the Regulatory Authority should have confined the interest rate to the amount claimed by the allottees when it is less than the statutory interest rate.

However, the respondents argued that Rule 18 grants the Regulatory Authority wide powers to make orders in accordance with the law and rules. Therefore, the Authority has the power to grant the statutory interest rate even if the allottee claims a lower rate.

The court examined Section 18 of the Kerala Real Estate (Regulation and Development) Act along with Rule 18 of the Kerala Real Estate (Regulation and Development) Rules. These provisions stipulate that the interest payable by the promoter to the allottee or vice versa should be the State Bank of India's Benchmark Prime Lending Rate plus 2%, computed as simple interest.

The court also considered a judgment from the Apex Court in Newtech Promoters and Developers Pvt. Ltd v. State of UP, where it was emphasized that the statutory interest rate must be granted as prescribed by law, leaving no discretion to the Regulatory Authority.

"When evaluating the intent behind the legislation, it has to be held that, when a party if fails to claim the statutory interest entitled, the same shall not be a ground to hold that the party who claimed lesser interest than the statutory interest is not entitled to get the statutory interest. In view of the matter, it is held that the statutory interest is liable to be granted by the Authority and claim for a lesser amount as interest shall not bar the allottee from getting the statutory interest". 

The interest rate can be reduced from the standard rate prescribed in Rule 18, but this reduction must result from a mutual agreement between the promoter and the allottee, and it cannot be unilaterally imposed in any other manner.

The court concluded that the Regulatory Authority has the power to grant the statutory interest rate even if the allottee claimed a lesser amount. It held that the grant of interest at the rate of 14.75% was in accordance with the law and did not require interference. 

Therefore, both appeals were dismissed, affirming the Regulatory Authority's decision to grant interest at the statutory rate of 14.75%.

Counsel for the Appellants: Senior Advocate G. Shrikumar, and Advocates Aneesh James, Jijo Thomas, and M.D. Beena

Counsel for the Respondents: Advocates Saji Varghese and Sherry George Cherian

Citation: 2023 LiveLaw (Ker) 532

Case Title: NBCC India Ltd. & Anr. v. Joshy Varghese and connected matter

Case Number: MSA NO. 13 OF 2023 and MSA NO. 14 OF 2023

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