Rights of allottees in Mortgaged Real Estate Projects

In this post we will discuss about the rights of allotees when a project is mortgaged or if the builder files for bankruptcy.

Rights of allottees not subservient to banks in mortgaged realty project: Haryana Rera

Introduction

The Haryana Real Estate Regulatory Authority (HARERA) has ruled that the rights of the allocated persons are not subject to the rights of the bank in a case involving the e-auction of a project by a creditor firm.The order stressed that, in the event of the failure of the banks to ensure that the funds were used for the reason for which they were issued, the banks should not be permitted to circumvent the rights of the allocated parties.

Facts of the case

The matter concerned M/s Supertech Limited, which is neither a licensee nor a partner, approaching GNP Housing Finance Ltd. for a construction loan for the Supertech Hues project, which was duly advanced to M / s Supertech Limited with M / s Sarv Realtors Pvt. Ltd. as the confirming party, by way of a reasonable mortgage on the project land of 33.33 acres, by depositing the title deeds along with the receivables from the mortgaged estate.

ALSO READ- INSOLVENCY AND BANKRUPTCY CODE AMENDMENT, 2019

Legal Standpoint

However, M / s Supertech Ltd. was unable to repay the loans taken and hence became a defaulter. As a result of the said project, the creditor business was placed up for e-auction. Aggried allottee Deepak Chaudhary approached the Authority. The Authority, while hearing the matter on an urgent basis, remained in the e-auction proceeding as it had not obtained prior written approval from the Authority and 2/3 allottees had not been approved and any such transfer by e-auction would have jeopardised the interest of 950 allottees who had invested a total sum of 328.19 crore in the project.

Chairman of HARERA Gurugram, K.K. Khandelwal, said that a peculiar trend has recently been observed in the real estate sector that promoters have mortgaged their project land / structure, as well as all receivables from a sold / unsold inventory to lending organisations / financial institutions / banks / creditors to secure bank loans to finance construction projects. However, in the event that these promoters refused to repay the loans, the financial institutions auctioned the residential or commercial properties that had been agreed to recover the loans from the borrowers by invoking the SARFAESI Act , 2002.

ALSO READ- ALLOTTEES’ RIGHTS NOT SUBSERVIENT TO BANK’S: REAL ESTATE BODY

Conclusion

It claimed that, by this judgement, the Authority had clarified that if a loan has been approved for the construction of a real estate project, then the SARFAESI Act, 2002 must be read in accordance with the RERA Act , 2016, and the lending institution must first reveal all rights and liabilities to the project, including all rights and liabilities of the allocated parties, such as refund amounts, interest, compensation, delayed possession charges, possession of the unit – who have invested money in that particular real estate project.

This post was written by Kasha Doshi

For case specific advice, please contact Punjab Haryana High Court Best/Expert Lawyers Advocates for Real Estate/Rera in Chandigarh Panchkula Mohali.

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