Penalties for non-compliances under RERA and Recent penalties levied by Karnataka RERA
Introduction
The Real Estate (Regulation and Development) Act, commonly known as RERA, enacted in 2016, aims to regulate the real estate sector, safeguarding the interests of homebuyers. This article delves into the penalties for non-compliance under RERA, along with recent instances of penalties levied by Karnataka RERA authorities.
The Real Estate (Regulation and Development) Act, commonly known as RERA, legislation enacted in 2016 to regulate the real estate sector and one of the objectives is to protect the interests of homebuyers. One of the key provisions of RERA is, requirement for real estate promoters to ensure transparency and accountability.
The real estate sector plays a catalytic role in the infrastructural development in the country. Currently, the Consumer Protection Act, 1986 exists as a forum for the buyers in the real estate market. The recourse, however, is only curative and not the preventive measure, further it does not adequately address all the concerns of both the allottees and the promoters. Therefore, there is a need for regulating the real estate sector today.
The RERA attempts to balance the interests of consumers and promoters by imposing certain responsibilities on both.
The preamble to RERA says that it is a welfare legislation and its paramount duty is to protect the interests of consumers of the real estate sector. It also envisages to promote, regulate and boost investment into the sector. The RERA has been introduced in the public interest of the consumers and in order to address existing shortcomings of the system
Compliance under RERA is to ensure the funds collected from homebuyers are being utilized and are in line with the progress of the development / construction project. These compliances help the stakeholder to get the confidence and ensure that the promoters are completing their projects within the stipulated timelines.
RERA Act 2016, Chapter VIII deals with Offences, Penalties and Adjudication –
| SECTIONS & DETAILS |
| 59: Penalty for non-registration under section 3 of the RERA Act 2016 |
| 60: Penalty for contravention under section 4 |
| 61: Penalty for contravention other provisions of the Act |
| 62: Penalty for non-registration and contravention under section 9 and section 10 |
| 63: Penalty for failure to comply with orders of Authority by promoter |
| 64: Penalty for failure to comply with orders of Appellate Tribunal by promoter |
| 65: Penalty for failure to comply with orders of Authority by real estate agent |
| 66: Penalty for failure to comply with orders of Appellate Tribunal by real estate agent |
| 67: Penalty for failure to comply with orders of Authority by allottee |
| 68: Penalty for failure to comply with orders of Appellate Tribunal by allottee |
| 69: Offences by companies |
| 70: Compounding of offences |
| 71: Power to adjudicate |
| 72: Factors to be taken into account by adjudicating officer |
Karnataka RERA Authorities have initiated the penalties under various sections of RERA Act 2016 for noncompliance to the provisions of RERA Act 2016 or non-adherence to the orders of the RERA Authority and collected the penalties. Following are the instances of penalties levied –
1. Violation of Section 3 – Prior Registration of Real Estate Project –marketing, collection of money before RERA Registration, the authority has levied penalties after issuing the Show Cause Notices to the promoters. The penalties are ranging for 1 % to 10 % of the Real estate Project
2. Non-Compliance of Section 4 of the RERA Act 2016 –
a. Non-Deposit / short deposit of money realised from the allottees of the project. Non-Compliance of Section 4(2)(L)(D) of the RERA Act 2016 read with RERA Bank Account Directions 2020
b. Change of Bank RERA designated bank account without prior approval of RERA Authority – Section 4(2)(L)(D) of the RERA Act 2016 mandates the promoter to open, maintain the RERA designated bank account. Such RERA designated bank account shall be intimated along with RERA Registration. The promoter shall obtain prior permission for changes in RERA designated bank account. Failing which the authority may levy the penalty.
c. Non-Submission of Quarterly Update– Section 11 read with Karnataka RERA Rule 15 D mandates the promoters to submit the Quarterly progress report with in 15 days from the end of the respective quarters. The Authority has levied Rs.20,000/- per quarter per month delay for the period up to Dec 2019. Many promoters have remitted penalty’s ranging from Rs.20,000/- to Rs.35,00,000/-
d. Non-Submission of Annual Audit Report under RERA –Section 4(2)(L)(D) of the RERA mandates the promoters to obtain and submit the Annual Audit under RERA Act 2016 with in due date / extended due dates. Further the authority has notified Form 7 (new format of Audit Report) and provided sufficient time to promoters to submit the Annual Audit Report for the Financial Year 2021-22. Show Cause notices were issued for the non-filing of the Annual Audit Report. Finally, the authority has levied the penalty of 0.5 % of the estimated project cost as penalty in the Month of Dec 2023.
Summary of the Penalty levied for non-submission of Annual Audit for the FY 2021-22 is as follows –
| Penalty | Number of Projects | Total Penalty Levied |
| < 1 Lacs | 143 | 66,88,171 |
| > 1 and < 10 Lacs | 205 | 7,28,50,286 |
| > 10 and < 25 Lacs | 52 | 8,47,50,491 |
| >25 and < 50 Lacs | 24 | 8,43,62,281 |
| > 50 Lacs Lacs | 16 | 15,55,10,928 |
| Grand Total | 440 | 40,41,62,157 |
Source – https://rera.karnataka.gov.in/viewAllProjectOrders
e. Failure to Mention the RERA Registration number in the advertisement – Section 11 mandates the promoters of the real estate projects to mention the RERA Registration number on all the advertisement materials etc., the authority has levied the penalty for not mentioning of the RERA Registration.
3. Further the Authority has a power to levy the penalty for any other non-compliances under the RERA Act 2016
4. Further the authority is collecting the penalty’s before they consider and approve any new registration, extension, change application of the promoter or the group etc.
5. Penal action may be initiated by the Authority against professionals who have issued certificates for withdrawals or audits which are not in compliance with the Act, Rules, Regulations, Circulars, orders etc.
The Authority, in addition to taking penal actions as contemplated in the Act and the Rules, shall also take up the matter with the concerned regulatory body of the said professionals of the architect, engineer or chartered accountant, for necessary penal action against them, including dismemberment, if the forms 4/5/6/7 issued by the professionals reveals that:
a. any certificate issued by the project architect, engineer or the chartered accountant has false or incorrect information and
b. the amounts collected for a particular project have not been utilized for the project and
c. the withdrawal has not been in compliance with the proportion to the percentage of completion of the project
To conclude the penalties under RERA are very high, the Act empowered the RERA Authorities to levy the penalty’s upto 10 % of the Estimated Cost of the project. The promoters and professionals shall understand the importance and timelines for submission of documents or details to comply with various provisions of the Act.
Conclusion
The penalties prescribed under RERA are stringent, reflecting the Act’s intent to ensure transparency and accountability in the real estate sector. Stakeholders must comprehend and adhere to the Act’s provisions to avoid financial repercussions. Compliance not only safeguards against penalties but also fosters trust and confidence among homebuyers.
The rigorous enforcement by Karnataka RERA underscores the importance of regulatory compliance. Promoters and professionals must prioritize timely submission of documents and adhere to statutory requirements to navigate the complex regulatory landscape effectively.
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The Author is a partner at M/s. Venu & Vinay, Chartered Accountants, can reach the author at vinay@vnv.ca for further clarifications
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