Hi Assured Returns, Meet RERA

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The Real Estate Regulatory Authority(RERA) is akin to a massive braking system for runaway real-estate-builder-trains and one big reason for the home buyer's sentiment revival is the assurance that RERA brings to the transaction table today. 

The Indian Assured Returns Googly

Here's a quick overview of an old real estate transaction that went haywire for the home buyer. 

Back in 2010, Madhushree Khaitan had booked a unit in Gurugram's Vatika Inxt City Centre project after paying a total price of INR 20 lakh. 

Shortly thereafter, a builder-buyer agreement was signed on September 3, 2010, where the delivery of the unit was promised by the end of 2013.

Almost a year later, an addendum agreement between the two sides was signed, stating the builder will pay a certain amount as assured return every month to Ms. Khaitan till the completion of the project - say hello to the assured returns scheme. 

And The Classic U-Turn

After a little time, without any communication, the builder allotted a different unit to the buyer and stopped paying the assured returns. 

When Ms. Khaitan raised a red flag, the builder claimed protection under the BUDS** Act, which prevents the payment of assured return and stated that the buyer is merely an ‘investor’ and not an ‘allottee’.

** FYI, BUDS is short for Banning of Unregulated Deposit Act, 2019

Haryana RERA Hits It Out Of The Stadium

HRERA passed an order in the case of Madhushree Khaitan vs Vatika Limited in favour of homebuyers for failure of payment of assured returns by the builder.

HRERA directed the blokes at Vatika to pay the amount of assured returns as agreed between the two parties and made it clear that a real estate developer cannot avoid paying the assured returns; 

• either by taking recourse under the BUDS Act - that says that such a pay out is banned, 
• or by rewriting its contractual obligations.

In One Sip

The regulator also reiterated that where the payment of assured return is a part and parcel of the builder-buyer agreement or by way of a clause in a memorandum of understanding or a clause in the addendum, the builder cannot take a plea that it is not liable to pay the assured return.

It clarified that allottees are investors who have chosen a committed return plan.

Before RERA

📌 Just so that we know, before RERA came into the scene, the amounts raised by the developers under assured return schemes had the commercial effect of a borrowing. 

Hence the allottees of such assured returns were treated as financial creditors within the meaning of Section 5(7) of the IBC code.