Odisha REAT Holds Builders Cannot Retain Maintenance Funds Without Audited Accounts

The Odisha Real Estate Appellate Tribunal (REAT) has held that a builder cannot withhold residents' funds unilaterally without maintaining transparent accounts supported by authenticated records or audited statements to justify utilisation of maintenance funds.

A Bench comprising Chairperson Justice P. Patnaik and Members S.K. Rajguru and Dr. B.K. Das directed NBCC (India) Ltd. to refund the Interest Free Maintenance Security (IFMS) amount of Rs. 2,32,54,200 to the NBCC Imperia Residents' Welfare Association (NIRWA). It observed:

“The appellant-promoter having failed to produce proper accounts of the collected maintenance charges and expenditures there from together with supporting documents, his claim that the maintenance account had been exhausted and therefore the excess expenditure of Rs.35,14,094.76 towards maintenance had to be made from a total deposit of Rs.2,32,54,200/- in the corpus fund account and accordingly he is liable to refund only a corpus fund deposit of Rs.1,96,38,904.34 to the respondent not.1-association, is not acceptable.”

The dispute arose from the NBCC Imperia Residential Complex in Bhubaneswar, developed by NBCC (India) Ltd. on land leased from the Bhubaneswar Development Authority.

After issuance of a part occupancy certificate on 4 January 2020 and handover of possession on 16 July 2022, a joint audit revealed defects in common infrastructure including transformers, fire-fighting systems and sewerage treatment plants.

NIRWA, formed on 30 June 2022, alleged that NBCC refused to refund the corpus fund of over Rs. 2.45 crore, citing maintenance expenditure, and also raised issues of seepage, non-functional lifts, and sharing of common facilities with an EWS tower.

The appeal arose from an order dated 8 June 2023 passed by the Odisha Real Estate Regulatory Authority directing refund of Rs. 2.45 crore and issuing other compliance directions.

NBCC contended that the maintenance agreement permitted utilisation of corpus funds for major expenditure and that the account stood exhausted. NIRWA disputed this and argued that no audited records or proof of expenditure were produced.

The Tribunal found that NBCC failed to produce audited accounts, invoices, bank statements, or payment proofs, and noted that figures introduced at the appellate stage lacked evidentiary backing before ORERA.

The Bench accepted the corpus figure of Rs. 2,32,54,200 but held that no deductions could be allowed without proof of utilisation. It reiterated that the burden lay on the developer to establish lawful use of funds collected from allottees. It held:

“On perusal of the maintenance agreement, it is seen that almost all the liability clauses therein are for the buyers and the maintenance agency has not been made accountable for any issue relating to maintenance. There is absolutely no term as to how the maintenance charges received from the allottees and the expenditures made there from for maintenance are to be maintained in a fair manner. There is absolutely no clause providing safeguard for a fair management of the maintenance account.”

The Tribunal further noted that certain ORERA directions had become infructuous as NBCC had already provided electricity connections, parking, and a park in accordance with the sanctioned plan. It therefore directed NBCC to refund Rs. 2,32,54,200 to NIRWA from the statutory deposit.

It further directed rectification of structural defects in common areas and handover of authenticated copies of the sanctioned plan and occupancy certificate. It set aside directions relating to construction of a community hall and installation of video door phones, holding that these were not part of the approved plan.

Accordingly, the REAT partly allowed the appeal.

Appearances for appellants (NBCC (India) Ltd.): Advocate M.K. Das.

Appearances for respondent (NBCC Imperia Residents' Welfare Association): Advocate S.N. Das.