India: RERA 70% Account Cannot Be Changed To Another Bank/Branch Without MahaRERA's Consent

Background

In terms of Section 4(2)(l)(D) (defined hereunder) of the Real Estate (Regulation and Development) Act, 2016 ("the Act") a promoter is required to deposit seventy percent of the amounts realized for the real estate project from the allottees in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose.

The abovementioned "schedule bank" means a bank included in the Second Schedule to the Reserve Bank of India Act, 1934. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks. The objective of implementing the provision for a separate bank account was to stop the Promoters to diverge the funds collected from the allottees.

Circular issued by MahaRERA on 20th February 2023

In relation to this account, MahaRERA issued a Circular dated 20th February, 2023 bearing reference No. MahaRERA/Secy/File No. 27/239/2023 ("Circular").

In terms of the Circular, any change or transfer of the separate designated bank account in which 70% of receivables are to be deposited, to another bank or another branch can be permitted only with the approval of MahaRERA.

The Circular also sets out the procedure required to be followed for obtaining such approval and uploading details of the new bank/branch on the project webpage.

The Circular also requires promoters to upload all compliances regarding their project on the project webpage before making any submissions for changing banks.

Takeaway:

Often promoters change/transfer the 70% bank account to a different bank for several reasons, including requests by lenders with whom receivables are hypothecated.

Since such a change usually involves a change in the master collection account as well, promoters anyway need to inform all existing allottees of the change in the bank account details. The Circular now mandates an additional precondition of obtaining the MahaRERA's approval if such account is to be opened with a new bank or a different branch of the same bank.

As long as the promoter maintains a separate account with a scheduled bank as required under the Act, there seems no reason for MahaRERA to actually deny granting approval and in that sense, this would remain a technical and procedural requirement. However, in view of the Circular, promoters and lenders should account for the time taken to obtain this approval before deciding to change the bank holding the 70% RERA Account.

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