RERA TN (2025.06.25) in P. Rajendran & Ors. Vs. M/s. Arul Constructions & Ors. [IA.Nos.74,75, 76,77, 78/2025 in CCP Nos.61,62,293/2021 and 248,344/2019] held that;
Clauses (a), (b) and (c) of sub-section (4) of Section 13 vest power in the secured creditor to take all steps as the borrower himself could take in relation to the secured asset. Clause (d) goes a step further and enables the bank to recover its dues directly from a debtor or the borrower who has acquired any of the secured assets.
For all purposes thus the secured creditor steps in (58 of 60) [CW-13688/2021] the shoes of the borrower in relation to the secured asset. This is thus a case of assignment of rights of the borrower in the secured creditor by operation of law. In other words the moment the bank takes recourse to any of the measures under sub-section (4) of Section 13, it triggers statutory assignment of right of the borrower in the secured creditor. Till this stage arises the bank or financial institutions in whose favour secured interest may have been created may not be in isolation in absence of the borrower be amenable to the jurisdiction of RERA.
However the moment the bank or the financial institution takes recourse to any of the measures available in sub-section (4) of Section 13 of the SARFAESI Act, RERA authority would have jurisdiction to entertain the complaint filed by an aggrieved person.”
Therefore, this Authority is of the opinion that the 3rd Respondent Bank has assumed the role of the promoter the moment they initiate action under sub section (4) of Section 13 of the SARFAESI Act as held by the Hon’ble High Court of Rajasthan, Jaipur.
Excerpts of the order;
INTERIM ORDER
The Complainants have filed IAs in CCP Nos.61 & 62 of 2021, 248 & 344 of 2019 and 293 & 294 of 2021 to implead the Authorized Officer, Asset Recovery Managements Branch, Indian Overseas Bank, Anna Salai as Respondent-3. The Respondents-1 and 2 have not filed counter to the IAs to implead 3rd Respondent, till date in spite of the directions to them to file counter vide Day Orders dated 07.02.2025, 14.02.2025, 25.03.2025 and 06.06.2025.
# 2. It is admitted fact that the proposed Respondent-3 is assignee of the promoters. Hence he is a necessary party in this proceeding. Therefore, the Authority decided to implead the proposed Respondent-3 namely the Authorised Officer, Asset Recovery Managements Branch, Indian Overseas Bank as 3rd Respondent in these proceedings.
# 3. Earlier, during the hearing on 07.02.2025, the Complainants filed IAs to stay the proposed e-auction of the schedule property by the 3rd Respondent scheduled on 17.02.2025 based on the publication dated 30.01.2025 in Dinamani and Indian Express newspapers pending disposal of the complaints in CCP. Nos. 61, 62 of 2021 & CCP Nos. 248, 344 of 2019 and CCP No. 293 of 2021.
# 4. The Respondent-3 has filed Counter and represented by Mr. Arjun Makuny, Advocate.
# 5. The Authority, after hearing all the parties, had granted stay for the e-auction proposed by the 3rd Respondent on 17.02.2025.
# 6. In the meantime, the 3rd Respondent Bank has published another notice in Dinamani and The New Indian Express newspapers on 11.06.2025 for auction of the schedule property on 27.06.2025. The Complainants have filed IA No.74, 75, 76, 77 and 78 of 2025 and stay petitions to stay the e-auction proposed by the 3rd Respondents on 27.06.2025.
# 7. The Applicants/Complainants mentioned before the Authority during hearing on 13.06.2025 that they want to file advance hearing petition in the matter for the reason that the Respondent-3 has proposed to conduct e-auction of the schedule property on 27.06.2025 when the stay already granted, by this Authority, is in force.
# 8. The Authority allowed the Applicants/Complainants to file advance hearing petition and the Authority posted the hearing on 24.06.2025.
# 9. The Authority heard the matter on 24.06.2025 and adjourned it to 25.06.2025 for further hearing.
# 10. Today (25.06.2025) the Authority heard the Counsel for the Complainants, the Respondents-1, 2 and 3.
# 11. The averments of the Applicants/Complainants is that while the stay granted by the Authority is still in force, the Respondent-3 has issued fresh e-auction notice. The Counsel for the Applicants/Complainants further submitted that in the first e-auction proposed on 17.02.2025 the reserved auction price was fixed asRs.12,65,40,000/- However, the e-auction was not conducted in view of the interim stay granted by the Authority.
# 12. It is further submitted by the Applicants/Complainants that now the Respondent-3 has published a fresh e-auction notice in Dinamani and The New Indian Express dated 11.06.2025 proposing auction of the schedule property on 27.06.2025. The reserved price for the proposed e-auction has been reduced and fixed as Rs.10.66 crore by the 3rd Respondent as against the reserved price of Rs.12,65,40,000/- fixed for the e-auction proposed earlier on 17.02.2025.
# 13. It is orally submitted by the Counsel for the Applicants/Complainants that the 3rd Respondent Bank has colluded with the 1st and the 2nd Respondents which is evident from the fact that the reserved price has been reduced drastically and if the auction is allowed, petitioners will not get their refund. He also submitted orally that the 3rd Respondent Bank has suspended three of their officials for collusive and fraudulent action of sanctioning loan to the Respondents.
# 14. The Counsel for the Applicants/Complainants prayed this Authority to stay the fresh e-auction proposed on 27.06.2025 by the 3rd Respondent.
# 15. The Counsel for the 3rd Respondent submitted that this Authority does not have any jurisdiction over this matter as the initial loan agreement between the borrower namely the 1st Respondent and the 3rd Respondent Bank was entered in the year 2011 itself and subsequently the supplementary agreement was also entered between the Respondent-1 and Respondent-3 well before the Real Estate (Regulation and Development) Act, 2016 (hereinafter to be referred as ‘RE(R&D)’ Act came into force.
# 16. Therefore, as per Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter to be referred as ‘SARFAESI Act’), no Civil Court or other authority shall have jurisdiction over this e-auction. The Counsel for the Respondent-3 has also cited the judgments of the Hon’ble Supreme Court of India dated 14.02.2022 in the matter between Union Bank of India versus Rajasthan Real Estate Regulatory Authority and others stating 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 RERA Act.
# 17. Further, the Counsel for the Respondent-3 submitted that in the instance case the property was mortgaged well before the enactment of the RERA Act, i.e. the loan agreement was entered between the Respondents-1 and Respondent-3 in the year 2011 itself. Therefore, RE(R&D) Act would not apply in this matter.
# 18. The Counsel for the Respondent-3 relied upon (i) the judgment of the Hon’ble Supreme Court of India in 2022 SCC Online SC 1885 dated 14.02.2022 in the case between Union Bank of India versus Rajasthan Real Estate Regulatory Authority and others and (ii) the judgment of the Hon’ble High Court of Rajasthan, Jaipur Bench dated 14.12.2021 between the Union Bank of India, Jaipur and others versus Rajasthan Real Estate Regulatory Authority Jaipur and others. In the judgment of the Hon’ble High Court of Rajasthan, Jaipur Bench dated 14.12.2021, the Hon’ble Court has held in para-3 that:
“since the Developer has failed to repay the dues to the bank, the bank treated the account as NPA and tried to recover its unpaid dues by resorting to provisions of SARFAESI Act. Some of the allottees approached the DRT and thereafter DRAT to prevent the bank from auctioning the properties and thereafter approached RERA for taking suitable action against all concerned including the bank. Before RERA the bank raised several contentions including that RERA has no jurisdiction to entertain any complaint against the bank and that in view of the proceedings, which are pending before DRT and DRAT, the complaints should not in any case be entertained. The objections of the bank were turned down by RERA. Referring to the definition of promoter contained in Section 2(zk) of RERA Act, the Authority was of the opinion that bank being an assignee of the promoter, would fall within the definition of promoter”.
# 19. The Counsel for the Respondent-3 contended that the case in hand has no jurisdiction for the Authority to entertain the IA Applications filed by the Complainants for the reason that the transaction between the Respondent-3 and other Respondents took place in the year 2011 itself.
# 20. The Authority has examined all the documents and citations submitted by the parties and proceeded to pass the following orders in IA Nos. 74 to 78 of 2025 in CCP Nos.61 & 62 of 2021, 248 & 344 of 2019 and 293 of 2021.
# 21. This Authority is not inclined to entertain the IAs filed by the Applicants/Complainants and interfere with the proposed e-auction of the schedule property scheduled on 27.06.2025 as the mortgage was created and transaction between the 3rd Respondent and other Respondents took place before RE(R&D) Act coming into force.
# 22. At the same time this Authority cannot ignore the plea of the Applicants/Complainants as the reserved price in the e-auction proposed on 27.06.2025 has been brought down by nearly Rs.2 crore without any market discovery of the price. It shows haste on the part of the 3rd Respondent to dispose the schedule property.
# 23. The Applicants/Complainants are also apprehensive that they may not get any refund if the auction is conducted in a haste and by reducing the reserve price.
# 24. The Authority would like to examine the status of the 3rd Respondent in the matter on hand. The definition of the ‘promoter’ has been given under Section 2(zk) of RE(R&D) Act.
The "promoter" means,—
(i) 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; or
(ii) a person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or
(iii) any development authority or any other public body in respect of allottees of— (a) buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or (b) plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or
(iv) an apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings; or
(v) any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or
(vi) such other person who constructs any building or apartment for sale to the general public.
Explanation.— For the purposes of this clause, where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder;
# 25. The Hon’ble High Court of Rajasthan, Jaipur Bench has held in its order dated 14.12.2021 that:
“29. ……………………………………………By couching this clause in "means and includes" language the definition of a term "promoter" is extended by including within its fold not only a person who constructs or causes construction of independent building but also his assignees.
30. The term "assignee" has not been defined anywhere in the Act. We would therefore have to interpret the term as it is ordinarily understood in the legal parlance in the context of the provisions of RERA Act. The Advance Law Lexicon by P. Ramanatha Aiyar expands the term "assignee" as to grant, to convey, to make an assignment; to transfer or make over to another the right one has in any object as in an estate. It further provides that an assignment by act of parties may be an assignment either of rights or of liabilities under a contract or as it is sometimes expressed an assignment of benefit or the burden of the contract. The rights and liabilities of either party to a contract may in (55 of 60) [CW-13688/2021] certain circumstances be assigned by operation of law, for example when a party dies or becomes bankrupt.
31. With this background we may refer to a relevant provision under the SARFAESI Act. As is well known this Act defines the term "security agreement" to mean an agreement, instrument or any other document or arrangement under which security interest is created in favour of secured creditor. The term "secured asset" is defined as to mean the property in which security interest is created. The term "secured creditor" has also been defined as to the institution in whose favour security interest is created by any borrower for repayment of any financial assistance.
32. Chapter III of the SARFAESI Act pertains to enforcement of security interest. Under said Chapter sub-section (1) of Section 13 provides that notwithstanding anything contained in Section 69 and Section 69A of the Transfer of Property Act, any security interest created in favour of the secured creditor may be enforced without the intervention of the Court or tribunal by such creditor in accordance with the provisions of the Act. Sub-section (2) of Section 13 envisages issuance of notice by the secured creditor to a borrower whose asset has been classified as non-performing asset. Such notice would require the borrower to discharge the liability in full failing which the secured creditor would be entitled to exercise or any of the rights under sub-section(4). In sub- section (3) of Section 13 the notice referred to in sub-section (2) has to contain details of amount payable by the borrower and the secured asset intended to be enforced in the event of non- payment of secured debts by the borrower. Sub-section (3) of Section 13 envisages disposal of the objections by the borrower if (56 of 60) [CW-13688/2021] raised in response to the notice under sub-section (2). Sub- section (4) of Section 13 which is of importance to us reads as under:-
"(4) in case of the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole, of the business or part of the business is severable, the security creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt."
33. In terms of SARFAESI Act and particularly Section 13, once a borrower is unable to repay the debt and the asset is classified as non-performing asset, it is open for the secured creditor to enforce the rights without intervention of the Court. After issuance of notice under Section 13(2) and disposing of the objections of (57 of 60) [CW-13688/2021] the borrower in terms of Section 13 (3A), a secured creditor could proceed to take steps as envisaged in sub-section (4). These measures which a secured creditor can take include taking possession of the secured asset including right to transfer by way of lease, assignment or sale for realising the secured asset; to take over the management of business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor and require at any time any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower to pay the secured creditor so much of the money as is sufficient to pay secured debt.
34. Clauses (a) to (c) of sub-section (4) are all in the nature of rights that a secured creditor can exercise which originally vest in the borrower. Clause (d) on the other hand, is in the nature of a garnishee enabling the secured creditor to recover the dues from a person other than the borrower who has acquired any of the secured assets and from whom any money is due or may become due to the borrower.
35. Clauses (a), (b) and (c) of sub-section (4) of Section 13 vest power in the secured creditor to take all steps as the borrower himself could take in relation to the secured asset. Clause (d) goes a step further and enables the bank to recover its dues directly from a debtor or the borrower who has acquired any of the secured assets. For all purposes thus the secured creditor steps in (58 of 60) [CW-13688/2021] the shoes of the borrower in relation to the secured asset. This is thus a case of assignment of rights of the borrower in the secured creditor by operation of law. In other words the moment the bank takes recourse to any of the measures under sub-section (4) of Section 13, it triggers statutory assignment of right of the borrower in the secured creditor. Till this stage arises the bank or financial institutions in whose favour secured interest may have been created may not be in isolation in absence of the borrower be amenable to the jurisdiction of RERA. However the moment the bank or the financial institution takes recourse to any of the measures available in sub-section (4) of Section 13 of the SARFAESI Act, RERA authority would have jurisdiction to entertain the complaint filed by an aggrieved person.”
# 26. It is admitted fact that the 3rd Respondent has taken recourse to the measures under sub section (4) of the Section 13 of the SARFAESI Act. Therefore, this Authority is of the opinion that the 3rd Respondent Bank has assumed the role of the promoter the moment they initiate action under sub section (4) of Section 13 of the SARFAESI Act as held by the Hon’ble High Court of Rajasthan, Jaipur.
# 27. Therefore, to protect the interest of the home buyers under RERA Act, the Respondent-3 shall be liable to refund the amount to the Applicants/Complainants as determined by this Authority on the disposal of CCP Nos.61 & 62 of 2021, 248 & 344 of 2019 and 293 & 294 of 2021. Such amount shall be refunded by the 3rd Respondent to the Applicants/Complainants within one month from the date of realising the proceeds of the proposed auction of the schedule property. Therefore, the order in the IA.Nos. 24, 26, 28, 30, 32/ 2025 in CCP Nos.61, 62,293/2021 and 248,344/2019 seeking a stay on the e-auction dated 17.02.2025, are closed as infructuous in view of the initiation of the second e-auction.
With the above directions IA.Nos.74,75,76,77,78/2025 in CCP Nos.61,62,293/2021 and 248,344/2019 are disposed of.
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