Mandatory RERA Pre-Deposit Cannot Be Diluted By Replacing Statutory Interest Rate With MCLR: Kerala HC

The Kerala High Court has recently held that a builder could not be permitted to calculate the mandatory pre-deposit for pursuing a RERA appeal on the basis of the Marginal Cost of Funds-based Lending Rate (MCLR) instead of the State Bank of India's Benchmark Prime Lending Rate plus 2% prescribed under Rule 18 of the Kerala Real Estate (Regulation and Development) Rules, 2018.

The Court observed that such a course would "render Rule 18 a dead letter."

A Division Bench of Justice Raja Vijayaraghavan V and Justice K.V. Jayakumar allowed a batch of appeals filed by homebuyers against Hoysala Projects Pvt. Ltd.

The bench vacated an interim order of a Single Judge that had permitted the builder to calculate the pre-deposit on the basis of MCLR instead of the rate prescribed under Rule 18.

"We are of the view that the intent of the Legislature was deliberate and the same was to fix a deterrent rate that would compensate allottees/buyers meaningfully and discourage promoter/builder defaults. If the order is allowed to stand, every promoter/builder against whom an order is issued by the RERA would at the stage of filing of the appeal insist on refixation of the pre-deposit with External Benchmark Lending Rate (EBLR), which would lower their burden even further. This would render Rule 18 a dead letter and deprive the provision of certainty and enforceability. ," the Court observed.

The dispute arose from the "Hoysala EVM" apartment project. Homebuyers including Prasanth B., Thusharaa P.V., Emily Easo and others had entered into agreements for sale and construction on October 28, 2013. Under the agreements, the project was to be completed and handed over within 36 months, by October 2016.

The buyers contended before the Kerala Real Estate Regulatory Authority (RERA) that they had paid a total sale consideration of ₹38,24,396. They also contended that the project was not completed within the agreed period.

After issuing legal notices in July 2021, they approached RERA. They sought directions to complete and hand over the apartments, complete the common areas and amenities, and execute conveyance deeds.

RERA found that the buyers had remitted ₹34,02,496 before the assured completion date. It directed the builder to pay simple interest at 16.85% per annum on the amounts paid, calculated from the respective dates of payment.

The builder challenged the orders before the Kerala Real Estate Appellate Tribunal. Along with the appeals, it filed applications seeking exemption from the deposit requirement under Section 43(5).

The Tribunal rejected the request. It held that where an order directs payment of interest, the entire amount payable must be deposited before the appeal can be entertained.

The builder thereafter approached the High Court. During the pendency of the writ petitions, the Single Judge passed an interim order on March 24, 2026. The order directed that the appeals be entertained by calculating interest at the MCLR rate.

The homebuyers challenged that order before the Division Bench. They contended that the Rules expressly prescribe State Bank of India's Benchmark Prime Lending Rate plus 2% as the applicable rate. They argued that another benchmark could not be substituted in its place.

The builder contended that BMPLR had become obsolete after the introduction of MCLR. It argued that MCLR should be adopted instead.

Rejecting the contention, the Court held that the rule-making authority framed the Rules in 2018, nearly three years after the introduction of MCLR. Despite that, it chose to retain BMPLR plus 2% as the benchmark.

"The legislature framed Rule 18 in 2018, three years after MCLR was already the prevailing banking standard, and chose BMPLR+2% anyway," the Court observed.

The Court explained that MCLR was introduced by the Reserve Bank of India to replace the Benchmark Prime Lending Rate system. It noted that SBI's one-year MCLR presently stood at approximately 8.75-9%, roughly half its BPLR.

"Unlike BPLR, MCLR was built on the marginal cost of raising fresh funds, the cost of maintaining mandatory reserves, operating costs, and a tenor premium. Banks were required to publish MCLR across multiple tenors monthly, and most home loans were linked to the one-year MCLR. SBI's one-year MCLR currently stands at approximately 8.75 – 9%, roughly half its BPLR," the Court observed.

The Court noted that on a principal amount of ₹36 lakh over a seven-year delay period, simple interest at BMPLR plus 2% would result in a liability of approximately ₹42-45 lakh. It observed that adoption of MCLR would reduce the liability to about ₹22-23 lakh.

The Court held that the legislature deliberately fixed a deterrent rate that would compensate allottees meaningfully and discourage promoter or builder defaults.

"Diluting the interest rate to MCLR is a direct financial benefit to the defaulting promoter/builder at the expense of the allottee which is against the intent of the enactment," the court held.

The court further held that the relief sought by the builder effectively required the Court to substitute MCLR in place of BMPLR under the Rules. It held that such a course would require the Court to enter the legislative domain.

"This Court cannot rewrite a statutory rule or insert new language into it under the guise of judicial interpretation," the Court observed.

Accordingly, the Division Bench vacated the interim order. It granted the builder two weeks to deposit the entire amount towards interest and compensation in accordance with Rule 18 before pursuing its appeals before the Appellate Tribunal.

For Appellants (homebuyers): Advocates K. Shaj, Beena N. Kartha, Arun Chand, Bharat Vijay P., Kevin James, Gopika Gopal.

For Hoysala Projects Pvt. Ltd.: Senior Advocate E.K. Nandakumar, instructed by Advocate Saijo Hassan.

For Kerala Real Estate Regulatory Authority: Advocate Nandagopal S. Kurup, Standing Counsel.