Karnataka RERA Slaps Up To 5% Penalty Of Project Cost On Mantri Developers For Non-Compliance With Refund Order

Holding that there was “clear and continued non-compliance” with its binding directions, the Karnataka Real Estate Regulatory Authority (K-RERA) recently imposed a penalty of up to 5% of the estimated project cost on Mantri Developers Pvt. Ltd. for failing to comply with its earlier order in favour of homebuyers.

A coram comprising Chairperson Rakesh Singh and Member Gurijala Ravindranadha Reddy further directed the Managing Director and concerned Directors of the company to appear before it and show cause within 30 days as to why proceedings should not be initiated against them for continued non-compliance.

“It is, therefore, crystal clear that the persons who are in charge of and responsible for the conduct of the affairs of the Respondent-company do not attach any value to the letter and spirit of the law. ,” the authority observed.

The complainants had booked an apartment bearing Unit No. K-704 in Tower K of the project “Mantri Webcity 2B” under a Pre-EMI scheme. They paid Rs 14.35 lakh towards the sale consideration, while the remaining Rs 64.17 lakh was financed through a housing loan.

A tripartite agreement was executed between the complainants, the developer, and the lending institution, under which the developer undertook to service the Pre-EMI/interest component and assume liability in case of withdrawal. Possession was promised by March 31, 2017.

However, the project was not completed within the stipulated timeline, and possession was repeatedly delayed. The complainants withdrew from the project by email dated August 31, 2016, which was acknowledged and accepted by the developer on September 1, 2016.

Despite accepting the withdrawal, the developer failed to refund the amounts paid, did not close the housing loan, and did not honor its obligations under the Pre-EMI scheme, forcing the complainants to continue servicing the loan.

Aggrieved, the complainants had earlier approached the Authority, which by order dated April 3, 2024 directed the developer to refund Rs 96.44 lakh along with interest, thereby allowing their complaint

The present proceedings were initiated after the complainants contended that the developer had failed to comply with the directions.

Examining the issue of maintainability under Section 63 of the Real Estate (Regulation and Development) Act, 2016, the Authority held that once the existence of a binding order and lapse of the compliance period are established, the burden to demonstrate compliance lies on the promoter.

It recorded that the developer had neither refunded the amount nor discharged the loan liability nor complied with the earlier directions.

Holding that Section 63 was squarely attracted, the Authority found that the respondent had failed to demonstrate compliance despite sufficient time having elapsed.

On whether penalty proceedings were barred due to availability or pendency of execution proceedings under Section 40, the Authority held that both provisions operate in distinct spheres.

It observed that while Section 40 provides a mechanism for recovery of dues, Section 63 acts as a deterrent to ensure compliance, and therefore, initiation of penalty proceedings is not barred by the availability or pendency of execution proceedings.

On the liability of directors, the Authority held that a company acts through its directors and officers and that the corporate structure cannot be used as a shield to evade statutory obligations, particularly when orders remain uncomplied with for a considerable period.

Noting a pattern of non-compliance with its orders, the Authority held that it was appropriate to invoke Section 69 and call upon the persons responsible for the conduct of the company's affairs to explain their role.

Accordingly, the Authority held the developer liable for non-compliance of its earlier order and imposed a penalty under Section 63, which may extend cumulatively up to 5% of the estimated project cost, payable within 60 days.

It further directed the Managing Director and concerned Directors to appear either personally or through authorised representatives within 30 days and show cause as to why proceedings should not be initiated against them under Section 63 read with Section 69 of the Act.