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Why stuck home buyers should know about Haryana RERA’s order on assured return schemes


Until recently, customers who had invested in assured return schemes of various developers were left rather confused with respect to enforceability of these schemes, especially in light of the SEBI restrictions and orders from the Real Estate Regulatory Authorities (RERA) in Maharashtra & Haryana. As per Maharashtra RERA and Haryana RERA, it had no jurisdiction over assured return schemes offered by developers.

Also, the precedents suggested that only the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC) or civil courts would entertain complaints for adjudication on assured return schemes. But, the recent decision of the Haryana RERA in Madhushree Khaitan vs Vatika Limited on November 10, 2021 (Madhushree Khaitan Order), has indicated/stated that RERA shall have the power to adjudicate on such schemes (at least for agreements prior to 2016), although it is yet to be seen if RERA in other States embrace this view and also extend it to assured return schemes post 2016.

What the latest order of HRERA suggests

In the Madhushree Khaitan Order, the Haryana RERA established that developers cannot wriggle out of their contractual obligations under an agreement executed prior to the Real Estate (Regulation and Development) Act, 2016 (RERA 2016) coming into force simply because: (i) the original agreement to sell was not entered in a format prescribed for an ‘agreement to sell’ under RERA 2016 (or rewritten as per prescribed format) or (ii) due to the applicability of the provisions of the Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act).

The Haryana RERA held that money taken by the developer as payments in advance, against allotment of immovable property cannot be considered as ‘deposits’ for the purpose of the BUDS Act. This view was taken due to the following exemption from the definition of deposit: “Advance received in connection with consideration of an immovable property under an agreement or arrangement subject to the condition that such advance is adjusted against such immovable property as specified in terms of the agreement or arrangement”.

Further, given that the developer failed to honour its contractual commitment of paying the assured returns against the advances received, it was held that the allottee had the right to approach RERA for redressal of grievances. The HRERA, therefore, ordered the builder/developer, Vatika Limited, to pay the assured returns to the allottees/subscribers to the builder’s assured returns schemes.

What this means for stuck homebuyers

For homebuyers whose money is stuck in these assured return schemes, this means that they can approach RERA. However, the Madhushree Khaitan Order does not cover assured return schemes in totality, since it relates only to agreements executed prior to the RERA 2016 coming into force. The Madhushree Khaitan Order does not clarify whether RERA would have jurisdiction to deal with assured return transactions under agreement executed after RERA 2016 but not in the format prescribed under RERA 2016.

Future homebuyers must tread carefully and keep in mind that such assured return schemes are now regulated. Thus, if your money is stuck, it may be difficult to get the money back.

What previous judgements said about assured returns schemes

The legality of the assured return schemes was first put to test in the Viswas Real Estates and Infrastructure India Limited case (VREIIL). In this case, following a complaint, Securities and Exchange Board of India (SEBI) deemed a scheme of guaranteed assured returns offered by VREIIL to be a Collective Investment Scheme. This type of scheme requires registration with SEBI under the SEBI (Collective Investment Schemes) Regulations, 1999 (CIS Regulations).

On April 27, 2015, in VREIIL case, SEBI ordered the winding up of such scheme and instructed VREIIL to refund the money collected from its investors along with returns that were due to such investors. SEBI has since reiterated its position that assured return schemes without registration under CIS Regulations are not permitted.

Recourse under the Insolvency and Bankruptcy Code, 2016

At first, even the NCLT, in Nikhil Mehta and Sons vs AMR Infrastructure Limited, denied the subscribers of an assured return scheme, rights akin to a ‘financial creditor’ within the meaning of the IBC.

However, in July 2017, the National Company Law Appellate Tribunal (NCLAT) overturned the decision of the NCLT and held the appellants to be ‘financial creditors’ in terms of the IBC. This decision was taken on the ground that the transaction had consideration for time value of money (the price associated with the length of time that an investor must wait until an investment matures), as the appellants had chosen the committed return plan and the developer in turn had agreed to pay monthly fixed return. Despite the fact that the developer had treated the money received from the appellants at par with loan in their income tax returns and there was no specific agreement (between the investors and the developer) to sell any particular unit, NCLAT accorded the appellants, rights akin to a ‘financial creditor’. It meant that those subscribers to an assured return plan, who would otherwise not qualify to approach RERA since they did not have an agreement to sell, could still approach NCLT as financial creditor – a right similar to the one available to an allottee under IBC.

Enforcement of Assured Return Scheme by Real Estate Regulatory Authorities

RERA in Maharashtra and Haryana have adjudicated matters relating to assured return schemes. Until recently, the entire catena of judgments passed by RERA have consistently declared that RERA has no jurisdiction over assured return schemes.

The Maharashtra RERA has even held that where a complainant has invested money with the sole intention of gaining profits out of a project, then the complainant is in the position of co-promoter and cannot be treated as an ‘allottee’. Similar views were traditionally adopted by the Haryana RERA as well in their previous judgements.

What are assured returns schemes?

Since the global financial recession in 2008 adversely impacted several sectors including real estate, developers in India began dishing out innovative schemes to attract investment in their under-construction projects. Soon enough, schemes such as the ‘assured return’ or ‘interest subvention plans’ or ’80:20 plans’ gained popularity.

The assured return schemes were a way to address the problem of the growing trust deficit among customers due to inordinate delays in construction in most projects. These schemes offered a fixed percentage of return on investment without providing any collateral, till possession of the property is given and, in some cases, even after possession.

Such schemes have been more popular in commercial real estate as opposed to residential.

Assured return schemes are generally favoured by developers because such schemes give them access to money at interest rates lower than ordinary loans from scheduled banks.

Now that HRERA has already upheld the right of subscribers of such schemes to seek redressal under RERA, it will need to be seen if RERA Authorities of other states follow suit.

Avnish Sharma is Partner and Nilesh Chaudhary is Senior Associate at Khaitan & Co. The views of the author(s) in this article are personal and do not constitute legal/professional advice of Khaitan & Co. For any further queries or follow up please contact us at editors@khaitanco.com


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