Promoter Holds Homebuyers' Funds In Trust, Cannot Retain Common Assets After Handover: K-RERA

The Karnataka Real Estate Regulatory Authority (K-RERA) on 3 June held that a promoter holds money collected from homebuyers in trust and cannot use it for construction activities or personal purposes and that a promoter's obligation to transfer common areas, project assets and funds to the association of allottees continues even after handing over possession.

Chairman Rakesh Singh and Member G.R. Reddy directed Smart Value Homes Private Limited and Tata Value Homes Limited to restore DG-set backup power supply to Jagannathan's apartment, complete the promised amenities, and transfer key project assets, funds and utility infrastructure of the "New Haven Bengaluru Phase 1" project to the authorised association of allottees. The Authority observed:

“The collected funds are held by the promoter in trust. The Promoter cannot utilize this money for construction or personal use. The obligation to transfer common areas and sinking funds is a continuance cause of action.”

The dispute arose from the "New Haven Bengaluru Phase 1" residential project at Dasanapura, Bengaluru. Jagannathan purchased Flat No. 3102 in the project for Rs. 40 lakh. The promoters handed over possession of the flat on 25 February 2017.

According to Jagannathan, the promoters collected deposits towards Cauvery water supply but failed to create the required infrastructure, including dedicated pipelines and storage facilities. He also alleged that they retained corpus funds, maintenance collections and control over common assets.

He further alleged that the promoters disconnected the DG-set backup power supply to his apartment. He also claimed that the disruption caused severe hardship during BESCOM outages because, as a senior citizen, he depended on refrigeration to preserve medicines.

On 1 April 2024, Jagannathan filed a complaint under Section 31 of the Real Estate (Regulation and Development) Act, 2016. He sought restoration of DG-set power supply, transfer of common areas and project assets, rendition of maintenance and corpus fund accounts, and other consequential reliefs.

Smart Value Homes and Tata Value Homes challenged the maintainability of the complaint. They argued that the project received its Occupancy Certificate on 9 November 2016, before the applicable RERA registration provisions came into force, and therefore fell outside the registration framework.

The promoters also contended that the association of allottees had already taken over maintenance. They further argued that the complaint amounted to forum shopping because related proceedings were pending before other forums.

Rejecting these objections, the Authority held that although the project was not required to be registered under RERA, the promoters remained bound by their continuing statutory obligations towards homebuyers.

Referring to Sections 11(4), 17 and 19 of the Act, the Authority held that promoters must provide the promised amenities and transfer common areas, funds and records to the association of allottees. It held that these obligations survive delivery of possession.

The Authority also held that handing over possession without functional amenities does not amount to valid possession. It observed:

“The amenities provided and extra amenities and facilities in the project does not absolve the obligations and responsibilities and the promoter to provide and complete all the amenities assured and propagated in the prospectors.”

Therefore, the K-RERA directed the promoters to restore DG-set power supply, complete the assured amenities, and transfer the land khata, BESCOM meters, water meters, corpus fund, maintenance accounts and escrow balances to the association of allottees within 90 days.

The Authority rejected Jagannathan's remaining claims, including compensation and other consequential reliefs. However, it granted him liberty to seek enforcement of the order in accordance with law if the promoters fail to comply.

Accordingly, the K-RERA partly allowed the complaint.

Appearances for complainant (Yoganandan Jagannathan): Advocates Sarala V.N. and Nagesh N. Naik.

Appearances for respondents (Smart Value Homes (Peenya Project) Private Limited and Tata Value Homes Limited): Advocates M.R.C. Ravi Kumar and Shravani S. Kulkarni.