The prime concern of RERA act is to maintain transparency in Real Estate sector and cutoff the trend of Diversion of funds to different projects or buying new land, so that the money of buyers should not be mutualized by the builders in Industry.
The Real Estate (Regulation and Development) Act, 2016 (the Act) came into effect on 1st May 2017. This act provides for the promotion and development of the real estate sector which is pertinent as it plays a huge role in fulfilling the demand for housing and infrastructure and acts as an essential pillar of the economy, society, and environment.
The implementation of the RERA Act was to fill the previously existing shortcomings. The Act brought about many changes, one such big change was to ensure transparency by the registration of the ongoing projects. Another change in this respect was the radical change from having escrow account to a separate account, as required by Section 4(2)(l)(D) of the RERA Act, 2016 (hereinafter referred to as “the Act”) with has a direct link to the sector’s transparency and the financial bearing on the promoter. As per the section 4(2)(l)(D)of the Act, the promoter is required to submit a declaration along with an affidavit stating that 70% of the amounts realized for the real estate project from the allottees, from time to time, will be deposited in a separate account to be maintained in a scheduled bank to cover the construction cost and the land cost and will be used only for that purpose.
The amount withdrawal to cover the project’s cost can be in proportion to the percentage of completion of the project but only after the same has been certified by an engineer, an architect, and a CA in practice. In order to keep a check on the financial statements of the promoter, the proviso to Section 4(2)(l)(D) needs the auditing by a CA in practice to be carried within 6 months of every financial year. It is pimportant to note that the above mentioned “schedule bank” means a bank included in the 2nd Scheduled to the RBI Act, 1934. These banks comprise Scheduled Co-operative Banks & Scheduled Commercial Banks.
Real Estate Project (Maintenance of Separate Bank Account) Directions 2020[2]:
The web-based RERA system provides for maintaining the account details by the promoter. It is important to note that promoters are not following the procedure laid down for the withdrawal & utilization of the money from the separate bank account. The main motto of implementing provision for a separate bank account was to stop the diversion of funds, however, it is not being adhered to. States are taking proactive methods to counter the situation. For example, the Uttar Pradesh RERA by virtue of Section 34(f) and (g) and Section 37of the Act issued the following regulations on 5/06/2020-
Opening of account-
A promoter will open a separate bank account for every real estate project before applying for their registration. There will be only one Separate Bank Account for a real estate project which shall be a no-lien account. If there are more than one promoter in the project, important contractual or legal arrangements for operating the account shall be made by the principal promoter.
The Promoter, while applying for the registration of the project with RERA, shall submit an affidavit according to the format given in form RA-1, along with a Copy of the Passbook / Bank Statement of the Account.
In case of ongoing projects, the promoter needs to submit an affidavit according to the form RA-2, along with the latest copy of the Passbook or Statement of the bank account and latest copies of the Form-REG-2 (Engineer Certificate), Form-REG-3 (CA Certificate) and Form-REG-4 (Architect Certificate) submitted to the Bank. The promoters who have not complied with this requirement, shall submit the certificates as mentioned above within 30 days of these directions.
Deposits in Account
All the money collected from the allottees from time to time, after deducting the sum of GST, will be deposited in this account. The Promoter shall deposit 100% of project finance availed from any financial/lending institution and shall utilize the seventy percent of that amount construction and development work only. The remaining 30% can be used otherwise and can be transferred to other accounts. The project finance amount deposited in this account shall not be taken into consideration while withdrawing up to 30% of the amount.
Withdrawal from Account
Withdrawal will only be made as per section 4(I)(D) of the Act, rule 5 of the U.P. RERA Rules 2016, ‘ including the payment- of interest from Bank, Financial Institution, NBFC. The interest on the unsecured loan will be permissible at SBI-MCLR Rate for any project where finance availed towards the project construction.
The promoter shall have the three certificates as given in Regulation 3 of the UTTAR PRADESH REAL ESTATE REGULATORY AUTHORITY (GENERAL) REGULATIONS, 2019 – certificates by the engineer, the CA, and the architect will be as per the Forms REG-2, REG-3, and REG-4 respectively of the Regulations.