MahaREAT Says RERA Has No Jurisdiction Over Banks Lending to Homebuyers, Refuses to Stay SARFAESI Recovery

Case Title: Kamlesh Valji Balsara & Anr. v. M/s Shree Siddhivinayak Infrastructure and Realty & Ors.
Case No.: Appeal No. AT06/01035/2025 and connected appeals

The Maharashtra Real Estate Appellate Tribunal (MahaREAT) has held that the RERA authorities do not have jurisdiction to adjudicate disputes between homebuyers and financial institutions that have extended loans to the homebuyers.

The Tribunal consequently declined to stay recovery proceedings initiated against the homebuyers under the SARFAESI Act, 2002, while restraining the promoter from creating third-party rights in the flats concerned.

Dispute Arising From Subvention Scheme

The appeals arose from disputes involving Kamlesh Valji Balsara and other homebuyers and Shree Siddhivinayak Infrastructure and Realty.

The homebuyers had booked flats in the developer's project under a subvention scheme, under which the promoter was required to bear the pre-EMI obligations until possession of the flats was handed over.

To finance their purchases, the homebuyers obtained loans from a non-banking financial company. The loans were subsequently assigned to an asset reconstruction company.

After the project was delayed and the promoter allegedly failed to fulfil its obligations under the subvention arrangement, recovery proceedings were initiated against the homebuyers under Section 13(2) of the SARFAESI Act.

Homebuyers Approached MahaRERA

The homebuyers had separately approached the Maharashtra Real Estate Regulatory Authority alleging delay in possession and seeking appropriate relief against the promoter.

By a common order dated July 31, 2025, MahaRERA allowed their complaints and directed the promoter either to refund the amounts with interest or pay interest for the delay in possession.

The homebuyers thereafter approached MahaREAT in connection with the recovery proceedings initiated by the financial institutions.

Tribunal Holds RERA Cannot Adjudicate Claims Against Lending Institutions

MahaREAT declined to interfere with the recovery action undertaken by the financial institutions.

The Tribunal distinguished cases where a financial institution lends money directly to a promoter. In such circumstances, RERA authorities may have jurisdiction in appropriate cases, including situations where a lender steps into the shoes of the promoter following a default.

The Tribunal noted that the present case was different because the loans had been advanced to the allottees and not to the promoter.

It therefore held that the contractual arrangements between the homebuyers, promoter and lending institution could not be enforced under the provisions of the RERA Act.

SARFAESI Recovery Not Stayed

The Tribunal consequently refused to grant a stay against the recovery proceedings initiated by the financial institutions under the SARFAESI Act.

However, while declining to interfere with the recovery action, MahaREAT directed that the promoter should not alienate the flats or create any third-party rights in respect of the properties involved until final disposal of the appeals.

RERA Remedy Against Promoter Distinct From Bank Recovery

The decision draws a distinction between remedies available to homebuyers against a real-estate developer under RERA and disputes arising from their independent loan arrangements with financial institutions.

While the homebuyers could pursue their RERA remedies against the promoter for issues such as delayed possession, the Tribunal held that the RERA framework could not be used to adjudicate or restrain contractual recovery proceedings undertaken by lenders against the borrowers.

Key Takeaway

The ruling reinforces the jurisdictional limits of RERA authorities in disputes involving home-loan lenders and borrowers. Where the loan has been advanced to the homebuyer rather than the promoter, disputes arising from the lending arrangement cannot ordinarily be enforced through RERA proceedings.

At the same time, the Tribunal's direction restraining the promoter from creating third-party rights in the flats preserves the homebuyers' interests in the underlying real-estate dispute while the appeals remain pending.

 

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.