The Gurugram Bench of the Haryana Real Estate Regulatory Authority, on September 11, 2020 in the matter of Deepak Chowdhary v. PNB Housing Finance Limited, had dealt with the issue of whether a lender can be considered as a 'promoter' under Real Estate (Regulation and Development) Act, 2016 ("Act") and whether prior permission of RERA authority is required for auction of a real estate property. 

Facts of the case:

M/s. Sarv Realtors Pvt. Ltd. ("SRPL") was the holder of a license for a group housing project, named 'Hues' by DTCP, Haryana, vide license nos. 106/2013 and 107/2013 for an area admeasuring 27.49 (twenty seven point four nine) acres. Thereafter, SRPL entered into a joint development agreement dated April 25, 2014 with M/s. Supertech Limited ("Respondent no. 2") for developing the said group housing project, without obtaining any approval from DTCP, Haryana. Subsequently, the Respondent no. 2 got the said real estate project registered with the Haryana Real Estate Regulatory Authority, Panchkula, by acting as the promoter. 

Meanwhile, the Respondent no. 2 sold certain units in the said real estate project and was able to collect considerable sale consideration from the allottees. Further, the Respondent no. 2 obtained a construction loan of INR 425 (four hundred twenty five) crores against the said real estate project by way of mortgage, from PNB Housing Finance Limited ("Respondent no. 1"). 

One Deepak Chowdhary ("Complainant") had booked a 2 BHK plus study unit in the said real estate project, and accordingly, entered into a builder buyer agreement with the Respondent no. 2 on November 23, 2018. The Respondent no. 2 had represented to the Complainant that the said real estate project was free from any charge, encumbrances and lien and that housing loan facility was available from several banks and NBFCs. However, on June 8, 2020, the said Complainant came across an e-auction notice with respect to the said real estate project scheduled on July 3, 2020. 

It was the case of the Complainant that the Respondent no. 1 shall be considered as a 'promoter' within the meaning of the Act. It was also the case of the Complainant that the Respondent no. 2 indulged in gross violation of loan covenant and illegally diverted and misappropriated the funds from the said real estate project. 

The Respondent no. 1 argued that the Respondent no. 1 does not fall under the category of 'promoter' under the Act. The Respondent no. 1 also pointed out that on failure of the Respondent no. 2 to repay the loan advanced to them, the Respondent no. 1 had initiated a proceeding under the SARFAESI Act, 2002 ("SARFAESI, 2002") to enforce its security interest. 

Decision of the authority: 

The Learned Authority by relying on Supreme Court's judgment in the matter of Bikram Chatterjee v. Union of India, WP(Civil) 940 of 2017, held that "in the event of diversion of funds, banks cannot be allowed to sell the flats and deprive the allottees, and that the rights of the allottees are not subservient to the rights of the banks, and therefore, in case of failure of the banks to ensure that the funds were applied for the purpose they were granted, banks cannot be allowed to supersede the rights of the allottees". 

The Learned Authority also held that the Respondent no. 1 is a 'promoter' as per Section 2(zk)(i) of the Act, by virtue of being an 'assignee', by stating that "the Respondent no. 1 'caused the project to be constructed' by giving construction loan to the Respondent no. 2 to develop the real estate project which in turn would be sold and the receivables would generate revenue with which the loan could be repaid. Moreover, the Respondent no. 2 assigned its rights over the real estate project to consolidate Respondent no. 1's risk and that the process of assignment was done by way of proper documentation as is provided under the Transfer of Property Act, 1882". 

Further, after receiving clarification from the Respondent no. 1 that they intend to auction unsold units in the said real estate project, the Learned Authority held that the Respondent no. 1 is well-entitled under Section 13(4) of the SARFAESI, 2002 to enforce its security interest, and that the auction with respect to the said real estate project shall be permitted, provided that the Respondent no. 1 obtains prior permission of the concerned RERA authority in accordance with Section 15 of the Act. 

This update has been contributed by Nidhi Arya (Partner) and Avin Sarkar (Associate).