RERA Prevails over SARFAESI & can entertain complaints by home buyers against bank: SC

Union Bank of India Vs Rajasthan Real Estate Regulatory Authority (Supreme Court of India)

The Supreme Court upheld  Rajasthan High Court judgment and held that RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fraudulent or collusive. If further held that RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act.

Union Bank of India has challenged the validity of Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations, 2017 in which a single member of RERA had passed certain directions in favour of the promoters of housing projects which issued directions against Union bank which claims security interest over the properties which are subject matter of the agreement between the allottee and the developers. Union Bank argues that RERA has no jurisdiction over the said matter since RERA can issue directions only against a promoter, allottee or a real estate agent and that the bank was neither.

The objections of the bank were turned down by RERA by referring to the definition of promoter contained in Section 2 (zk) of RERA Act. RERA was of the opinion that the bank being an assignee of the promoter, would fall within the definition of promoter  In the case of Bikram Chatterji v. Union of India, Supreme Court held that RERA has jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act –

This shall be applicable in cases where proceedings before the RERA authority are initiated by the home buyers to protect their rights. It was also held in the same case that in case of conflict between SARFAESI Act and RERA, provisions of RERA would prevail and Supreme Court also stated that Regulation 9 of Rajasthan Real Estate Regulatory Authority Regulations, 2017 is valid and not ultra vires.

The above case was referred to when giving the judgement for this case. In this case it was held that the delegation of powers in a single member of RERA to decide complaints filed under the Act even otherwise flows from Section 81 of the Act and such delegation can be made in absence of Regulation 9 also.

RERA would not be applicable in to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property if it is found that the creation of such mortgage or such transaction is fraudulent or collusive.

Also Read Rajasthan High Court Order: RERA Authority can entertain complaints by home buyers against bank: HC

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

We have heard Shri Tushar Mehta, learned Solicitor

General appearing on behalf of the petitioner/Bank and Shri Ritin Rai, learned senior counsel appearing on behalf of one of the respondents/Caveator/one of the home buyers.

We are in complete agreement with the view taken by the High Court by which the High Court has ultimately concluded in para contd..

36, as under –

“36. Our conclusions can thus be summarised as under:-

(i) Regulation 9 of the Regulations of 2017 is not ultra vires the Act or is otherwise not invalid.

(ii) The delegation of powers in the single member of RERA to decide complaints filed under the Act even otherwise flows from Section 81 of the Act and such delegation can be made in absence of Regulation 9 also.

(iii) As held by the Supreme Court in the case of Bikram Chatterji (supra) in the event of conflict between RERA and SARFAESI Act the provisions contained in RERA would prevail.

(iv) RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fradulent or collusive.

(v) RERA authority has the jurisdiction to entertain a complaint by an aggrieved person against the bank as a secured creditor if the bank takes recourse to any of the provisions contained in Section 13(4) of the SARFAESI Act.”

However, it is clarified that para 36(v) reproduced hereinabove shall be applicable in a case where proceedings before the RERA authority are initiated by the homer buyers to protect their rights. With this, the Special Leave Petitions are dismissed.

Pending application(s) shall stand disposed of.

(Republished with amendments)