The Maharashtra Real Estate Regulatory Authority (MahaRERA) has directed real estate developers to file a separate declaration about having a separate bank account, also known as escrow or designated account, exclusively for depositing 70 percent of amounts dedicated for a particular real estate project.This decision was taken by MahaRERA as it said it has noticed that a separate account is not maintained exclusively for a project or the amount deposited is not as per the mandate under RERA Act.
“It has been noticed by MahaRERA that in some cases the separate bank account is not an exclusive bank account and/or has an attached lien on the same and/or the amounts deposited in the said account is not in accordance with the provisions of Section 4 (2) (1) (D) of the Act and/or the amounts deposited is withdrawn and used contrary and in violation of the above mentioned provision, Rule 5 of the Rules, Regulation3 of the Regulations as well as the Orders and Circulars of MahaRERA,” the directive said.
What is an escrow account? As per Section 4 (2) (D) of RERA Act, 2016, promoters are required to open a separate account in a scheduled bank exclusively for the project. Under the RERA regime, 70 percent of the amounts realised from real estate project allottees (buyers) is to be deposited in a separate RERA designated no-lien no-charge bank account to cover the cost of land and construction for the given project.
What is the circular of MahaRERA? MahaRERA, in its circular issued on July 27, has said that it has been noticed that in several cases separate accounts are not being maintained, and even when there is a separate account, it is not exclusively being maintained for a particular project. It has also said that the amount in these separate accounts are deposited or even withdrawn and used contrary and in violation of the RERA Act. Due to this, MahaRERA has issued a declaration sheet that has to be signed by the developers at the time of the registration that will mention about them complying to the rules of RERA Act that mandates having separate accounts for each project. The circular issued on July 27 reads, “Every promoter (developer) at the time of registration of a real estate project in addition to providing the bank details of the separate bank account in the application for registration shall provide a Declaration about the separate bank account for the real estate project on the letterhead of the promoter in the manner as detailed in Format ‘A’ annexed hereto.”Format of declaration to be submitted by developers during registering a real estate project.
Strict compliance will curtail diversion of funds by developers Satish Dedhia, a lawyer actively practicing with MahaRERA, said, “There are cases where the project loan is obtained, the finance providers insert clauses relating to operating of RERA-designated bank account, that are contrary to provisions under RERA. In many cases, promoters do not withdraw the amounts as per the applicable RERA rules. This new circular number 34 of MahaRERA is issued to check such practices. If strictly implemented, a promoter would not be able to divert funds for purposes other than the development of the project. This, in turn, will ensure timely completion of the project being the main objective of RERA Act. MahaRERA also needs to impose obligations on banks in case of fund diversion.”
What is the track record of MahaRERA? In Maharashtra, since the inception of MahaRERA in May 2017, more than 36,000 real estate projects have been registered. This was followed by more than 17,000 complaints against promoters of these real estate projects, of which over 11,000 have had orders passed. Further, more than 900 cases have been handled by the conciliation forum of MahaRERA.