Rajasthan RERA Restrains Secured Creditor From Acting Against Homebuyers Who Bought Flats Before Project Mortgage

The Rajasthan Real Estate Regulatory Authority (RERA) has recently restrained Invent Assets Securitisation and Reconstruction Pvt. Ltd. from initiating or continuing recovery proceedings against homebuyers who acquired their flats before the Avalon Royal Park project was mortgaged.

The authority refused to declare the mortgage deed dated February 14, 2018 as void. It held that adjudication on the legality or validity of a registered mortgage falls outside its jurisdiction.

However, Chairperson Veenu Gupta observed that statutory protections under the RERA Act cannot be ignored. “This Authority cannot be a mute spectator where the statutory rights of allottees, expressly protected under the RERA Act, are threatened,” the order said.

It directed that the secured creditor “shall not initiate or continue any coercive action, recovery proceedings, or enforcement of security interest” against allottees who acquired rights prior to 14.02.2018.

The matter arose from an application filed by the Avalon Royal Park Homebuyers' Association during pending suo motu proceedings against the developer, GRJ Distributors and Developers Pvt. Ltd.

The project was launched in 2012–13. Agreements for Sale were executed with several buyers. On February 14, 2018, the developer mortgaged the entire project land and building in favour of ECL Finance Ltd. to secure a Rs 50 crore loan. The debt was later assigned to Invent Assets.

The Association argued that once Agreements for Sale were executed, the promoter could not create a charge affecting the rights of allottees. It contended that the mortgage extended to sold units without the consent of buyers.

The secured creditor opposed the plea. It cited insolvency proceedings initiated against the developer before the National Company Law Tribunal and the moratorium under Section 14 of the Insolvency and Bankruptcy Code.

It argued that RERA does not have the power to proceed against banks and financial institutions. It also submitted that an Agreement to Sell, by itself, does not confer ownership rights unless a registered sale deed is executed.

The Authority referred to Section 11(4)(h) of the RERA Act. It said that once an Agreement for Sale is executed, any subsequent charge cannot override the allottee's rights.

It clarified that the secured creditor is free to recover its dues in accordance with law from the promoter, corporate debtor or guarantor, but not in a manner that prejudices bona fide homebuyers.

The authority further stated that its directions are protective in nature. They do not amount to adjudication or execution of monetary claims against the corporate debtor.

The application was disposed of. 

For applicant (Avalon Royal Park Homebuyers' Association): Advocate Mohit Khandelwal.