Cracking the whip against diversion of funds by unscrupulous builders from ongoing realty projects, the Uttar Pradesh Real Estate Regulatory Authority (UP RERA) has directed commercial banks to strictly comply with escrow account provisions.
The watchdog took cognisance that some builders/promoters were not complying with the statutory provisions of the Real Estate (Regulation and Development) Act, 2016 and withdrawing funds without submitting the requisite certificate, which UP RERA chairperson Rajive Kumar has termed as, “grave violation of the mandatory provisions of the Act”.
UP RERA has sent letters to the zonal/state heads of all 42 scheduled public and private sector banks and also the Director General of Institutional Finance Directorate for being more vigilant in the operation of escrow accounts maintained by promoters/developers and the compliance of Section 4 (2) (I) (D) of Real Estate (Regulation and Development) Act, 2016.
According to UP RERA secretary Abrar Ahmed, escrow accounts of 2,651 realty projects registered with RERA were being operated in 962 bank branches based in UP and some outside the state too.
Last year, the Supreme Court had observed that diversion of funds collected from investors by real estate developers was a “malady”, which should be stopped. The court noted that if builders were diverting money to complete other projects, it amounted to misappropriation and criminal breach of trust. A bench comprising Justices Arun Mishra and U U Lalit had given this observation while hearing a case related to embattled real estate major Amrapali Group.
Section 4 (2) (I) (D) of the Act stipulates that 70% of the money collected from the allottees from time to time be deposited in a separate bank account to cover the cost of construction and land. However, the promoter could withdraw funds only after being certified by an engineer, an architect and a chartered accountant that the said withdrawal was in proportion to the percentage of completion of the ongoing project.
The Authority had also noticed that some banks, especially those which had sanctioned loans to the promoter, arbitrarily adjusted the entire amount deposited in such accounts against the outstanding loan instead of transferring 70% of the money collected to the escrow account for the purposes of construction and payment of the land cost.
UP RERA has notified the banks’ zonal/state heads that if the branches under their jurisdiction failed to comply with the standing provisions, the matter would be brought to the notice of their top management apart from the union banking secretary for further action.
Recently, UP RERA had also issued notices to Ansal Properties & Infrastructure Limited (Ansal API) for alleged fraud and diversion of more than Rs 600 crore under different sections of the RERA Act, 2016 pertaining to its four projects in Lucknow encompassing 3,151 units.
In October 2018, the Authority had ordered a forensic audit to look into the accounts of Ansal API to find out possible diversion of funds, causes of inordinate delay, assign responsibilities etc. It had appointed Currie and Brown (C&B) for conducting the forensic audit.
The show cause notice was issued after the forensic auditor investigated 91 projects of Ansal API over last three months for alleged financial misappropriation. The auditor claimed that Ansal projects were found to be in breach of RERA compliances, managing separate accounts and a possible diversion of over Rs 600 crore to other purposes.
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