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.

generalia specialibus non derogant

 The latin maxim ‘generalia specialibus non derogant’ governs the

Issue of Conflict between two statues. For statutory construction, it means that “for the purposes of interpretation of two statutes in apparent conflict, the provisions of a

general statute must yield to those of a special one.” This was explained by

the Supreme Court in Gobind Sugar Mills Ltd. v. State of Bihar, (1999) 7 SCC 76 as follows:

“… while determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act. With this basic principle in mind, the provisions must be examined to find out whether it is possible to construe harmoniously the two provisions. If it is not possible then an effort will have to be made to ascertain whether the legislature had intended to accord a special treatment vis-à-vis the general entries and a further endeavour will have to be made to find out whether the specific provision excludes the applicability of the general ones. Once we come to the conclusion that intention of the legislation is to exclude the general provision then the rule "general provision should yield to special provision" is squarely attracted.”

Provisions of the special Act always override the provisions of the general law

 In the Matter of M/s Apex Buildwell Pvt. Ltd. V/s Sachin Kumar,Appeal No.240 of 2019 decided on 09.02.2021 before THE HARYANA REAL ESTATE APPELLATE TRIBUNAL it was held that

"We do not find any substance in the contentions raised by learned counsel for the appellant that in order to claim the compensation for delay in delivery of possession, the respondent /allottee was required to establish the loss suffered by him as provided in Section 74 of the Indian Contract Act, 1872. The provisions for grant of damage on account of the breach of contract provided in Section 74 of the Indian Contract Act are the general provisions. Whereas Section 18 of the Act is a special provision dealing with consequences on account of the failure of the promoter to complete the project by the date specified in the agreement for sale. The proviso to Section 18(1) of the Act categorically provides that where an allotee does not intend to withdraw from the project, he shall be paid by the promoter the interest for every month of delay till handing over of the possession at such rate as may be prescribed. Thus, the proviso to Section 18(1) of the Act stipulates that the allottee shall be entitled to interest at the prescribed rate for the delay in delivery of possession beyond the date stipulated in the agreement for sale. It is nowhere mentioned in Section 18 of the Act that in order to claim the interest for delayed delivery, the allottee has to prove the loss. Simple failure of the promoter to deliver the possession by the date specified in the agreement for sale, will make the allottee entitled for the interest provided in the proviso to Section 18(1) of the Act. It is settled rule of interpretation that the provisions of the special Act always override the provisions of the general law. So, the provisions of the Act will override Section 74 of the Indian Contract Act which is the general law."