Supreme Court Upholds RERA Jurisdiction Over Banks in Union Bank Case

New Delhi: The Supreme Court has upheld the Rajasthan High Court’s ruling that banks and other secured creditors can come within the jurisdiction of the Real Estate Regulatory Authority (RERA) when they take enforcement action against real estate projects under the SARFAESI Act.

The case arose from a dispute involving Union Bank of India and the Rajasthan Real Estate Regulatory Authority, following proceedings concerning the stalled Sunrise real estate project. The Rajasthan High Court had clubbed the bank’s petition with 69 other connected writ petitions involving similar legal questions.

The High Court delivered its judgment in D.B. Civil Writ Petition No. 13688/2021 & 69 other connected Writ Petitions on December 14, 2021, and Union Bank subsequently approached the Supreme Court through SLP (Civil) Nos. 1861–1871.

Dispute over bank recovery and homebuyer rights

The dispute involved a conflict between two important regulatory frameworks — the Real Estate (Regulation and Development) Act, 2016 (RERA) and the SARFAESI Act, 2002, which enables secured creditors to enforce security interests and recover outstanding dues.

According to the case record, the developer had obtained financing by creating security over the real estate project. The project subsequently remained incomplete and the developer defaulted on its loan obligations. The bank then initiated recovery proceedings under SARFAESI, including action against properties in the project.

Homebuyers approached the RERA authority to protect their interests, leading to a dispute over whether RERA could exercise jurisdiction against the bank as a secured creditor.

Rajasthan High Court's key conclusions

The Rajasthan High Court held that RERA would prevail over SARFAESI in the event of a conflict between the two statutes, relying, among other things, on the Supreme Court's earlier ruling in Bikram Chatterji v. Union of India.

The High Court also held that RERA would generally not apply to a borrower-bank transaction where the security interest had been created by mortgage before RERA came into force, unless the creation of the mortgage or the transaction was found to be fraudulent or collusive.

At the same time, the court held that the RERA authority could entertain a complaint against a bank acting as a secured creditor when the bank invoked Section 13(4) of SARFAESI, subject to the circumstances identified by the court.

Supreme Court dismisses Union Bank's challenge

On February 14, 2022, a Supreme Court bench comprising Justice M.R. Shah and Justice B.V. Nagarathna heard Union Bank's SLPs.

The Supreme Court recorded that it was “in complete agreement” with the view taken by the Rajasthan High Court and dismissed the petitions. However, it added a specific clarification to the High Court's conclusion concerning RERA jurisdiction over secured creditors.

The Supreme Court clarified that the High Court's finding concerning Section 13(4) of SARFAESI would apply where proceedings before RERA are initiated by homebuyers to protect their rights.

Significance for stalled real estate projects

The ruling establishes an important legal intersection between homebuyer protection, RERA and bank recovery proceedings.

In practical terms, a bank exercising its statutory recovery powers over a real estate project cannot simply be treated as outside the reach of RERA when homebuyers approach the authority to protect their rights, subject to the limitations identified by the courts.

The judgment also preserves an important distinction for pre-RERA mortgages. The High Court's conclusion, affirmed by the Supreme Court, states that RERA does not ordinarily apply to the borrower-bank transaction where the security interest was created before the introduction of RERA, unless the mortgage or transaction is found to be fraudulent or collusive.

Relevance to stalled-project resolution

The judgment is particularly relevant to stalled real estate projects where three interests can collide: homebuyers seeking completion or protection of their units, developers facing financial defaults, and banks seeking recovery of secured loans.

The decision does not mean that every dispute between a borrower and a bank automatically falls within RERA. Rather, the Supreme Court's order confirms the High Court's framework concerning secured creditors and specifically ties the relevant RERA jurisdiction to proceedings initiated by homebuyers for protection of their rights.

The ruling has subsequently been cited in later real-estate and insolvency proceedings concerning the relationship between RERA protections for homebuyers and the enforcement rights of secured creditors.

Even if the Project is completed with occupancy Certificate and does not require Rera Registration, even then the Promoter is bound by the responsibilities assigned under the act.

In the Matter of Raghunath MS vs. Esteem Group Complaint no. CMP/180620/0000936  decided on 14.11.2019 before  Karnataka Real Estate Regulatory Authority

In this case, the project was completed and conveyed to the association of allottees prior to the commencement of the Act. The allottee had purchased the unit from an erstwhile allottee. The developer contended that since the project was completed before the commencement of the Act and the occupancy certificate was obtained, they cannot be bound by the provisions of the Act. Referring to the Preamble of the Act, Karnataka RERA held that even if the project was completed prior to the commencement of the Act, the developer is bound by the provisions of the Act. Accordingly, Karnataka RERA directed the developer to hand over all documents and execute a registered deed to include civic amenities in favour of the association of allottees.

RERA to have jurisdiction even where agreement for sale is cancelled prior to RERA ; Scope of RERA also extends to disputes arising prior to RERA, where consideration paid to developers was still with them, even after RERA came into force

 In the Matter of Champatlal Jain, Parvin Dumasia and 6 Others vs Suriti Developers Private Limited Complaint no. decided on 04.06.2018 Before Maharashtra Real Estate Regulatory Authority

The Complainants had purchased apartments in Respondent's project Universal Paradise in Mumbai, between 2007 and 2013.The Complainants stated that registered agreements for sale (Agreements for Sale) were entered into with the Respondent for purchasing the apartments and that sometime in February 2017, the Respondent unilaterally cancelled the Agreements for Sale. Aggrieved by the termination notices, the Complainants approached the MahaRERA seeking that the Agreements for Sale ought to be declared valid, legal, subsisting and binding.

The Complaint was disposed of by the MahaRERA stating That though the Agreements for Sale were cancelled by the Respondent before the RERA came into force, in view of the fact that the consideration paid by the Complainants was still with the Respondent, the MahaRERA had complete jurisdiction to hear and adjudicate the complaint. if the Complainants chose to continue, both parties should execute the Agreements for Sale in accordance with Section 13 of the RERA and in addition, do so within 45 (forty-five) days from the date of the Order.

The Order has clarified that the scope of RERA also extends to disputes arising prior to RERA, where consideration paid to developers was still with them, after RERA came into force.