Under the Real Estate (Regulation and Development) Act 2016 (“RERA Act 2016”) a complaint is filed under section 31 or 71 depending on the nature of the relief sought if there is a contravention of any of the provisions of the said Act. However, the powers of the Authority to adjudicate under section 31 is itself under challenge before the Hon’ble Supreme Court.
In any event, if an order is passed in favour of the homebuyer I monetary terms then the same becomes enforceable post forty-five days after the pronunciation of the order. The Promoter can file an appeal within 60 days though. However, appeal filing is rigorous for the promoters as they have to deposit the entire amount before the appellate tribunal as may have been directed to be paid by them to the homebuyer.
Post 45 days from order date, a homebuyer has the right to file an execution application. Such execution applications are generally allowed by the RERA Authorities post issuing one show-cause notice to the promoter to show cause why the order was not followed by them. The application is allowed in terms of issuance of Recovery Citation/ Certificate (RC) under section 40(1) of the RERA Act. The RERA does nothing to find out the details of encumbrance free properties of the Promoter, rather just without making any enquiry qua properties, assets etc. of the promoter just issue a Recovery Certificate (RC) addressed to the District Collector requesting it to collect the money as arrears of land revenue under the local revenue law generally the state Revenue code. In Uttar Pradesh, there is UP Revenue Code 2006.
Once, the RC is issued it is enforceable by Collector as arrears of land revenue. The point to be noted here is that the RC is executable ‘as arrears of land revenue’ where the money due against the Promoter is not a land revenue but the procedure that is to be followed to be recovered for the homebuyers shall be as that followed for recovering the land revenue of the state.
Section 163 of the U.P. Land Revenue Code 2006 (ÜPLRC) reads as under:
163 Land revenue to be the first charge. –
(1) The land revenue assessed on any holding shall be the first charge on such holding, and also on trees or buildings standing thereon or the rents, profits or produce thereof.
(2) The claim of the State Government in respect of any other sum recoverable as arrears of land revenue shall have priority over all unsecured claims on any land against the holder thereof.
The aforesaid Section makes a clear distinction between actual arrears of land revenue due on account of land and amounts other than arrears of land revenue which are recoverable as arrears of land revenue under the MLRC. In the former case, the arrears of land revenue due on account of land, amount to a paramount charge on the land in question, which shall have precedence over all other debts. However, in the latter case, the claim of the State Government to monies recoverable as other than arrears of land revenue but in the same fashion, have priority only over unsecured claims and not over secured debts.
While enforcing the Recovery Certificate it is common practice that the Collectors and Tehsildars generally ignore anyone’s claim of a better and secured right over property of the Promoter attached by them for auction as the Collector/ Tehsildar claim rights under subsection (1) of section 163 of the UPLRC claiming that the state government has the first charge on such holding or building where land revenue is pending. Despite service of notices by advocates of the promoters, secured creditors, debenture trustees etc. the Collector and Tehsildars become adamant in auctioning properties having better-secured rights.
It is submitted that amount mentioned in RERA issued Recovery Certificates are only recoverable as arrears of land revenue and are not actually arrears of land revenue hence, sub-section 2 of section 162 of UPLRC is applicable as opposed the view taken by the RERA, Collector or Tehsildar. Under sub-section 2 section 162 the claim of the State Government in respect of sum recoverable as arrears of land revenue on the basis of RERA issued RC’s shall have priority over all unsecured claims on any land against the holder thereof and not against secured creditors, debenture trustees etc.
There are many builders who have taken secured loans through various methods, including english mortgage, debenture deed, etc. from the market where the project land and building are mortgaged as security against the loan taken by them thus making the flats in such properties/ real estate projects to be full of encumbrances. Even if such properties are auctioned by the Collectors, such auctions will not only be illegal but also cause unnecessary trouble to the auction purchaser and the homebuyer.
In State Bank of Indore v. Regional Provident Fund Commissioner (1964 SCC OnLine MP 45), a mortgage deed was executed by a company, mortgaging its entire immovable property in favour of a bank. That company failed and neglected to pay the employer’s contribution due from it under the Employees’ Provident Funds Act, 1958. The State, pursuant to a provision in the Employees’ Provident Funds Act, 1958 sought to recover the contribution as an arrear of land revenue under the Madhya Pradesh Land Revenue Code, 1959. Despite the bank informing the State of its prior registered mortgage over the property of the company, the State sold the property to recover the company’s provident fund contribution as arrears of land revenue. Setting aside the auction by the State Government, the Madhya Pradesh High Court held that:
“5. In our judgment, the contentions advanced on, behalf of the petitioner must be given effect to. Section 8 of the Act provides, inter alia, that any amount due from the employer in relation to an establishment to which a Scheme under the Act applies, may, if the amount is in arrear, be recovered by the appropriate Government in the same manner as an arrear of land revenue. It does not say that the amount may be recovered as an arrear of land revenue. It merely pwvides the manner of the recovery of the amount mentioned in Section 8. The manner prescribed for the recovery of the amount as an arrear of land revenue does not convert the amount into an arrear of land revenue: nor does it create any charge an any property of the employer for the payment of the amount or give a priority in the manner of payment of the amount There is no provision in the Act in regard to the creation of any such charge or priority for the payment of the employer’s contribution.”
The Bombay High Court recently in IDBI Trusteeship Services Limited, through its Director/Authorized Representative Versus District Collector and Others Writ Petition No. 3417 of 2019 decided on 25.06.2021 has reiterated the finding of the above-noted judgment of MP High Court and quashed the Collectors act of auctioning properties for executing RERA RC where there were secured creditors debenture trustees against the property auctioned. The Court held that:
“Therefore, it is clear that land revenue means amounts payable to the State Government on account of land. In the present case, we are of the opinion that the amounts of compensation and interest which have been awarded by Respondent No. 9 (MH RERA) against Respondent No. 4 (Promoter) and in favour of Respondent Nos. 10 to 15 (Homebuyers) cannot be said to be actual arrears of land revenue. They are not dues payable to the State Government which arise out of any particular land. They are not even claims of the State Government. They are dues payable by a promotor of a real estate project to the flat purchasers under orders passed under the provisions of RERA. The mode of recovery of such amounts is the same as if they were arrears of land revenue under the MH Land Revenue Code. Hence these amounts clearly cannot be governed by Section 169(1) of the MLRC. Therefore, the claims of Respondent Nos. 10 to 15 (Homebuyers) as awarded by Respondent No. 9 (RERA) cannot have priority over the properties of Respondent No. 4 (Promoter) in derogation of the Petitioner’s (Secured Creditor/ Debenture Trustee) secured interest therein. Having held that the Petitioner/ Debenture Trustee is a secured creditor of Respondent No. 4/ Promoter and a Mortgagee in respect of the said Property under the Debenture Trust Deed, we find that the Petitioner has priority in respect of the said Property over the claims of Respondent Nos. 10 to 15/ Homebuyers. In other words, the Petitioner is entitled to have its debts satisfied out of the said Property in priority over Respondent Nos. 10 to 15 (homebuyers).”
The above judgments may give an impression that the Hon’ble High Courts have taken a hyper-technical view and strict interpretation of the statutory provision and did not give a liberal interpretation or applied mischief rule of interpretation to the provisions to meet the welfare objectives of the RERA Act however, I would respectfully submit the money put by the secured creditors for development of real estate projects is also needed to be secured where the law gives precedence to them. I would submit that the RERA Authorities need to exercise their powers more under sub-section 2 of section 40 of the RERA Act and must seek affidavits from promoters not following RERA orders about description and details of their properties both having encumbrances and free from encumbrances of both immovables and movables properties. Once such properties are revealed which are free to be auctioned, their descriptions can be sent to the Collector along with RC. The RERA must not leave everything upon the revenue Collectors putting them on the task of identifying encumbrance free properties of the promoters etc. as they have not only fewer powers than RERA but also resources. Such practice by the RERA will protect the innocent buyers from getting frustrated after such a long and tedious litigation journey just to get their money back to buy their home after failing in a previous attempt.
Thanks for sharing the intrestng blogs .This blog is very useful to Mortgaged Properties of Real Estate Promoters.