Telangana RERA Holds Sale Agreements Disguised As “Investment Agreements” Cannot Bypass Section 3

The Telangana Real Estate Regulatory Authority on 16 May held that developers cannot evade the mandatory registration requirement under Section 3 of the Real Estate (Regulation and Development) Act, 2016 by disguising apartment sale transactions as “investment agreements”.

Chairperson Dr. N. Satyanarayana and Members Laxmi Narayana Jannu and K. Srinivasa Rao directed R Homes, Hyderabad, to refund Rs. 2.43 crore collected from homebuyers in relation to its “Jai Vasavis Bliss Heights” project at Yamnampet Village, Medchal-Malkajgiri District, along with interest at 10.70% per annum. The Bench observed:

“this Authority deprecates the conduct of the Respondent No.1 in adopting a circuitous and impermissible method by styling the transactions as 'Agreements for Investment' with a view to circumvent the mandatory provisions of the RE (R&D) Act, 2016. Such an artifice is a colourable exercise designed to defeat the object and scheme of the statute.”

A batch of complaints was filed by purchasers, including Narasimhula Upendra, Kollipara Venkateswara Rao, Sanjeev Kumar Thatipally and others, under Section 31 of the Real Estate (Regulation and Development) Act, 2016 read with Rule 34(1) of the Telangana Real Estate (Regulation and Development) Rules, 2017.

The complainants alleged that the developer conducted pre-launch marketing in 2021, circulated brochures, used endorsements and represented the project as approved with assured returns. They stated that buyers were induced to invest on assurances of approvals and commencement of construction.

They further alleged that a Bhoomi Pooja was conducted on 21 April 2022 to create an impression of lawful possession of the project land, while the Agreement of Sale-cum-General Power of Attorney with landowners was executed subsequently. A mediator was also alleged to have circulated a WhatsApp message falsely projecting it as a RERA approval document.

One complainant lodged an FIR before the Economic Offences Wing on 22 November 2024 alleging fraud and cheating in relation to the pre-launch scheme. Despite initial appearance through counsel, the developer and intermediaries failed to participate further and proceeded against ex parte.

After examining the agreements, the Authority held that nomenclature was irrelevant. It found that the documents identified specific units, fixed consideration per square foot, specified amenities, and recorded receipt of consideration, thereby satisfying the characteristics of “agreements for sale” under Section 2(c) of the Act.

It held that R Homes could not avoid statutory obligations by describing the transactions as “Agreements for Investment”. It further held that inducement of the public, acceptance of advances and execution of sale arrangements without registration rendered the acts illegal and void.

An inspection conducted by the Engineering Staff College of India (ESCI) found that only 2.8% of the project work had been completed and no active construction was underway at the site.

The Authority held that pre-registration bookings, continued execution of sale agreements and failure to progress construction constituted a continuing violation of Section 3 and other provisions of the Act.

Allowing the complaints, Telangana RERA restrained R Homes from further marketing, booking, selling or collecting consideration in the project. It directed refund of amounts to the complainants with interest at 10.70% per annum within 60 days.

It also ordered initiation of proceedings under Sections 59 and 60 of the Act and issuance of a show-cause notice for revocation of project registration under Section 7.

Accordingly, the RERA disposed of the case with no costs.

Appearances for complainants: Advocate Avunoori Ramakanth Rao.

Appearances for respondents: Advocate D. Gowri Shanker.