Lenders as Promoters under RERA regime - Analysing Haryana Real Estate Regulation Authority’s recent Order in Supertech Hues case


The Haryana Real Estate Regulation Authority (“HRERA”) has recently delivered an unprecedented order in the matter of Deepak Chowdhary Vs PNB Housing Finance Ltd. & Ors. (“Supertech Hues case/ Order”)[1]. This Order will have implications on banks and other financial institutions, which provide credit to real estate companies, while also bringing into focus, the conflict between the rights of such banks and financial institutions vis-à-vis the rights of allottees of such projects. Despite the Real Estate (Regulation and Development) Act, 2016 (“RERA/Act”), contemplating mortgage loans to be the “first funders” of a real estate project[2], the HRERA has passed an order, which may have implications on secured lenders when it comes to exercising their rights to enforce their security.

In order to protect the interests of home buyers, the HRERA has equated a lender as a promoter and tasked the lender with overseeing the interests of home buyers of a defaulting developer. This essentially casts the duties of a promoter on a lender, under RERA, seeking to pursue remedies for enforcement of its security interests under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”). By imposing such an obligation on a lender seeking to enforce its security, the HRERA Order has been rendered susceptible to challenges by lenders, due to reasons stated hereinafter.

Factual background

Supertech Hues Pvt. Ltd., the developer of Supertech Hues, a group housing project (“Project”) in Gurugram (registered with HRERA) along with M/s Sarv Realtor Pvt. Ltd. (“Sarv”), as the confirming party, had obtained a loan of INR 275 crore from Punjab National Bank Housing Finance Ltd.  (“PNBHFL”) to complete the Project in 2017. This amount was secured by the developer in favor of PNBHFL, by creating equitable mortgage of the project land, by deposit of the title deeds along with receivables from the mortgaged Project. Subsequently, the complainant booked his flat in the Project and entered into a Builder Buyer Agreement.

On account of discrepancies on the part of the developer while registering the Project, PNBHFL filed a complaint with RERA against the developer, alleging, inter alia, misappropriation and diversion of funds and sought several reliefs, including conducting forensic audit, which was granted by the HRERA through an order dated November 29, 2019. Shortly, thereafter, the developer defaulted on its loan and accordingly, PNBHFL classified the account as a Non-Performing Asset and issued a notice u/s 13(2) of the SARFAESI, and proceeded to take steps to enforce its security under the SARFAESI, including e-auction of the mortgaged Project. Accordingly, the complainant prayed for urgent HRERA intervention by submitting that if the Project is auctioned, it shall jeopardize the fate of more than 900 allottees who have invested their hard-earned money in the Project.

Key takeaways

Though the HRERA has categorically stated in the Order that “it is not against the right of the lender to auction the Project”, it has simultaneously attempted to strike a balance between the lenders’ right to pursue actions under the SARFAESI and the interests of allottees, and has acknowledged the fact that the interests of allottees cannot be subservient to the interests of the lenders. While proceeding to treat the lenders as promoters under RERA (even though for a limited purpose), the HRERA has also affixed the liability on the lenders to ensure proper utilization of the disbursed funds.

It has also relied on the Hon’ble Supreme Court’s judgment in the matter of Bikram Chatterjee v. Union of India (“Amrapali”)[3], to hold that “in the event of diversion of funds, banks cannot be allowed to sell the flats and deprive the allottees, and that the rights of the allottees are not subservient to the rights of the banks, and therefore, in case of failure of the banks to ensure that the funds were applied for the purpose they were granted, banks cannot be allowed to supersede the rights of the allottees“.

By way of the Order, the HRERA has inter alia, passed the following key directions-

  1. Lenders that take over real estate projects due to non-payment of loans by developers, would be treated as “promoters” under RERA (for the limited purpose of mediating a transfer) by virtue of it falling under the ambit of assignee u/s 2(zk)(i) of RERA and they would be obligated to secure the interests of home buyers; and
  2. Lenders have been directed to make all necessary disclosures with respect to outstanding liabilities in the project while auctioning the property; and
  3. In case a developer fails to repay loans to a financial institution and if the institution intends to auction the mortgaged property, then the institution would have to seek prior written approval from HRERA.

Can a lender, a Housing Finance Company (“HFC”) be asked to step into the shoes of a promoter?

Promoter under RERA has been defined u/s 2(zk)(i) of the Act as a person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees.

As an assignee is not defined under RERA, HRERA incorporated the general principle of assignment to mean transfer of rights or obligations held by one party to another party, and held that the lender qualified as a promoter as it ‘caused the project to be constructed’ by giving loan to develop the project which in turn would be sold and the receivables would generate revenue with which the loan of the lender could be repaid. The HRERA also held that the developer assigned its rights to the lender by virtue of the mortgage deed and hence, was a promoter.

However, it appears that the HRERA did not take into account the extant laws governing the functioning of HFCs in India, whose primary function is to transact or has one of its principal objects, the transacting of the business of providing finances for housing, whether directly or indirectly[4]. The HFCs are regulated by National Housing Bank presently.[5] None of these laws envisage an HFC stepping into the shoes of a promoter in respect of real estate activities, even in a limited capacity. Therefore, to impose the obligation of a promoter on a lender is not legally tenable. It is also noteworthy that the end use of borrowed money does not put the lender in the borrower’s shoe, rather it may create an absurd outcome as the lenders may then be understood to be doing any and every activity they finance.

HRERA itself recognises the distinction between a Promoter and a Lender in its circular dated 29.6.2020 (“Circular”)[6]

On 29.6.2020, HRERA released a Circular prescribing procedures to be adopted for effectuating transfer of rights and obligations of a real estate project under Section 15 of the Act[7], by a promoter (Part 1), as well as by a third party such as banks, either by operation of law or by enforcement of security (Part II). While Part 1 requires the promoter to obtain the consent of two-third allottees as well as an order from HRERA before effectuating a transfer, a similar provision does not exist in Part II. In fact, Part II does not contemplate that the third party itself would be categorised as a promoter due to any existing mortgage; rather it would merely facilitate the transfer of right from erstwhile promoter to the intended promoter.

Under Part II, the Banks are required to simply intimate the allottees and HRERA about the enforcement of security and requires it to apply for necessary correction in registration details. It does not envisage prior written approval of HRERA as directed in the Order. Therefore, this Order, which imposes additional obligations on the lenders to obtain prior written approval from HRERA, goes contrary to the Circular itself and is susceptible to challenge in this regard.


The HRERA has passed the Order with misplaced notions and is based on an incorrect interpretation of law. In fact, the jurisdiction of HRERA itself to pass the Order is liable to be challenged in light of the clear bar that exists under Section 34 of the SARFAESI[8], which has been upheld by the Hon’ble Supreme Court in several cases and very recently in Authorised Officer, State Bank of India v/s Allwyn Alloys & Ors[9]. This order is a fit case for reversal and requires to be set aside so that it does not become a dampener for real estate financing at a time when the sector needs significant support from financiers.

[1]Order dated 11.9.2020 in Complaint case no. 2145 (earlier 2031) of 2020 available at https://haryanarera.gov.in/assistancecontrol/viewOrderPdf/NDM0MjU=

[2] Section 11(g) of RERA deals with interaction between repayment to secured creditors and rights of allottees and states that monies received from allottees should be utilized for payment to secured creditors.

[3] Judgment dated July 23, 2019 in W.P. (Civil) No. 940 of 2017 available at https://main.sci.gov.in/supremecourt/2017/30157/30157_2017_4_1501_15413_Judgement_23-Jul-2019.pdf

[4] Section 2(d) of the National Housing Bank Act, 1987.

[5] The Central Government had, with effect from August 09, 2019, transferred regulatory powers of the HFCs from the National Housing Bank to the Reserve Bank of India. The final regulations to be applicable to HFC’s have not yet been released by the RBI, and therefore presently, the HFC’s continue to be regulated by the National Housing Bank.

[6]Circular no. No. 01/ RERA/GGM Circular 2020 regd. procedure for transferring or assigning of promoter’s rights and liabilities in a real estate project to a third-party u/s 15 of the RERA available at  https://haryanarera.gov.in/login/viewPdf/NzAw

[7] Section 15 of RERA deals with obligations of promoter in case of transfer of a real estate project to a third party and states as follows-

  • The promoter shall not transfer or assign his majority rights and liabilities in respect of a real estate project to a third party without obtaining prior written consent from two-third allottees, except the promoter, and without the prior written approval of the Authority:

Provided that such transfer or assignment shall not affect the allotment or sale of the apartments, plots or buildings as the case may be, in the real estate project made by the erstwhile promoter.

[8] Section 34 of SARFAESI provides that no civil court can exercise jurisdiction to entertain any suit or proceeding in respect of any matter, which the Debts Recovery Tribunal or Debts Recovery Appellate Tribunal is empowered to determine by or under the SARFAESI Act.

[9] 54 (2018) 8 SCC 210, Judgment dated May 17, 2018, available at https://main.sci.gov.in/supremecourt/2016/35457/35457_2016_Judgement_17-May-2018.pdf