Seperate Account amount to remain intact, not to be used to repay loans

Seperate Account amount to remain intact, not to be used to repay loans
  • General
  • Thursday 25th April 2019
  • Author: Shreya Uppal

Highlights

  • This provision was inserted to address the mischief, earlier being committed by unscrupulous builders to divert money from their projects to other purposes.

  • The builder can use only 30% of the amount collected from allottees to repay loans, not the 70%. HRERA’S Gurgaon Chief KK Khandelwal said that it is probably the first of its kind decision since the RERA is constituted, in which it has asked the police to initate action against the financers of realty project.

As per Section 4(2)(I)(D) of RERA, 2016 the promoter shall maintain a Seperate Account for every project undertaken by him wherein 70% of the money received from the allottees shall be deposited and used for the purpose of Completion of Construction Project and Land Cost.

In a recent case registered in Gurgaon, the local bench of HRERA has directed the police commissioner to register a Criminal case against Indiabulls Housing Finance Limited, Industrial Finance Corporation of India Limited and PNB Housing Finance Limited for violating the provisions of RERA, 2016 thereby using money from the 70% of the amount collected from buyers and allottees in separate account to repay their loans. The builder can use only 30% of the amount collected from allottees to repay loans, not the 70%. HRERA’S  Gurgaon Chief  KK Khandelwal said that it is probably the first of its kind decision since the RERA is constituted, in which it has asked the police to initate action against the financers of realty project. The main intent of this provision was to complete the project, so that any kind of cash crunch or deficit in the business do not cause any halt to the construction project. Khandelwal said that the developer cannot create lien on the project to raise the money for a purpose other than completing construction of the project. This provision was inserted to address the mischief, earlier being committed by unscrupulous builders to divert money from their projects to other purposes.

 An order has been passed by both HRERA and UPRERA that developers should not repay loans taken from banks and financial institutions by using 70% of amount collected in a separate account. UPRERA in a letter to various banks has asked them to ensure strict compliance of the provisions of RERA Act, 2016. It has noted that some banks, especially those which have sanctioned loan to promoters, arbitrarily adjusted the entire amount deposited in the account against the loan of the promoter, instead of transferring 70% of money collected to separate account for the purpose of construction cost and land cost.
HRERA has issued directions to financiers to deposit back the excess amount withdrawn and a SCN (Show Cause Notice) has been issued to the developer, asking why penal proceedings should not be initiated against them in violation of Section 4(2)(I)(D) of the RERA Act, 2016.

 

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