It was a Valentine’s Day with a difference as a Supreme Court division bench upheld a Rajasthan High Court judgment from December last year.
What was the case?
Union Bank of India v. Rajasthan Real Estate Regulatory Authority & Ors.
What is the conflict all about?
A collision in provisions of the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act) 2002 and RERA 2016.
Here’s how:
1️⃣ The Supreme Court gives RERA jurisdiction in cases where a complaint is filed against a bank (secured creditor) if the bank seeks relief under provisions of the SARFAESI Section 13 (4).
2️⃣ This section deals with secured debt recovery measures allowed for banks, including taking possession of secured assets/sale, taking over business management, appointments for managing these assets, etc.
3️⃣ RERA was aimed at safeguarding homebuyer interests against promoters. SARFAESI sole aim is safeguarding banks against defaults of realty promoters. Now, banks will be considered promoters, subject to RERA jurisdiction.
Bones of contention:
➕ Lenders cannot easily recover debts from developers.
➕ The provisions of RERA will prevail in case of a conflict with SARFAESI.
➕ RERA will have no retrospective effect on financial institutions.
What’s ahead?
🔖 Promoter responsibilities under RERA for banks.
🔖 Difficulties in filing Section 13 (4) cases.
🔖 Delays in recovering developer debts.
🔖 Prior consent for selling mortgaged properties.
What this creates is a yawning legal vacuum between RERA, SARFAESI and even IBC. RERA as the infringer? While you decide, the homebuyer can rejoice.