RERA Can Probe Developers' Financial Affairs; Madras High Court Remands Aavisa Township Dispute To TNRERA

The Madras High Court has recently held that authorities under the Real Estate (Regulation and Development) Act, 2016 can examine the “affairs” of promoters (developers), including financial dealings, while dealing with complaints by homebuyers.

It set aside orders of TNRERA and TNREAT and remanded the Aavisa Golf Township dispute for fresh consideration, including whether the Kotak Mahindra entities qualify as “promoters” under the Act.

A Division Bench of Justice R. Suresh Kumar and Justice V. Lakshminarayanan said, “The Act, having been brought to alleviate the grievances of the homebuyers, has conferred extensive powers the RERA. The authority has the power to initiate an inquiry into the affairs of any promoter or allottee or agent. While conducting this inquiry, it has the same powers as that of a civil court, while trying a suit. This power can be exercised either suo moto or on a complaint. The authority is also empowered, at any time, to call upon any promoter, allottee, or real estate agent to furnish such information or explanation relating to its affairs, as the authority may require. In our view, the word “affairs” is expansive enough to include inquiry into financial investigations too."

The court held that the appellate tribunal's view that RERA authorities cannot probe financial dealings was “unsustainable” and that “it amounts to tying itself as well as its subordinate authority with fetters that the Parliament and the rule-making authority have themselves not imposed.”

The dispute arose from complaints by Dr. Vandana Parvez and other allottees in the Aavisa Golf Township project, who alleged incomplete development, substandard construction, and irregularities in the execution of the project.

Their complaint was initially dismissed by TNRERA on November 21, 2019, on the ground that the project had been completed prior to the commencement of the Act and was therefore not maintainable.

On appeal, TNREAT, by order dated September 27, 2021, held that the project was an “ongoing project” and restored the complaint.

IVR Hotels challenged this before the High Court but withdrew the appeal on February 9, 2022. The High Court noted that once an appeal is unconditionally withdrawn, the findings of the lower forum attain finality and cannot be re-agitated, observing that such withdrawal amounts to a voluntary abandonment of a legal remedy and that a litigant does not get a “second chance” to reopen the same issue.

Following remand, TNRERA directed registration of the project but held that the Kotak entities were merely investors and not “promoters” under Section 2(zk) of the Act. Appeals filed by both sides were dismissed by TNREAT on September 27, 2023.

The High Court found that key issues raised by the homebuyers, including alleged financial irregularities and the role of investor entities, had not been examined by the authorities.

It also held that dismissal of proceedings by the National Company Law Tribunal (NCLT) would not bar RERA authorities from examining issues under the Act, particularly when those issues had not been adjudicated in those proceedings.

Setting aside the impugned orders, the court remanded the matter to TNRERA for fresh consideration, directing it to conduct a proper inquiry into the issues raised, including the financial dealings of the project and the role of the Kotak Mahindra entities, and to determine whether they fall within the definition of “promoters” based on their involvement in the affairs of the project.

For Petitioner (Vandana Parvez): Party-in-person Vandana Parvez.

For Respondent (IVR Hotels and Resorts Ltd & Ors.): Senior Advocate R. Parthasarathy for M/s Thriyambak J. Kannan; Advocate N. Ramakrishnan for M/s ARK Law Associates.