RERA

MAHARERA: Rights and Liabilities of Promoter transferred to the third party

calendar11 Aug, 2020
timeReading Time: 4 Minutes
MAHARERA-Rights-and-Liabilities-of-Promoter

According to Section 15 of the Real Estate (Regulation and Development) Act, 2016, the promoter requires RERA registration and cannot transfer or assign the majority rights and liabilities. It is done in respect of the real estate project to third party without obtaining prior written consent from 2/3 allottees, or without prior written approval of the Authority. However, a procedure was prescribed for the purpose of the transfer or assign Promoters’ rights by MAHARERA.

On June 4, 2019, MAHARERA issued Circular (2019 Circular) specifying the revised procedure to be followed for transferring the majority rights and liabilities of a promoter in the real estate project to a third party. The 2019 Circular provides the procedure to be followed by a promoter for obtaining approvals above MAHARERA and two-thirds of the allottees and also specifies certain kinds of transfers that are exempted from the requirement to obtain the approvals above. 

Changes in Internal Shareholding

Changes in the internal shareholding or constituents of a promoter’s organization must not require the approval of two-thirds of the allottees or the MAHARERA provided such changes don’t affect:

Changes in Internal Shareholding

Conversion

Any conversion of the promoter entity is available from:

Conversion

Amalgamation or Merger

An amalgamation/ merger that is voluntarily initiated by a promoter in which the amalgamating company has one or more than one registered projects, and wherein the registered project is transferred, must be regarded as a transfer initiated by a promoter. The RERA registration for Promoter is required and he has to obtain approval of 2/3 of the allottees for MAHARERA.

However, such approval is not required if:

  • The amalgamation, merger or demerger of the companies, is not regarded as the transfer under Section 47 of the Income Tax Act, 1961[1]
  • Where 75% of the shareholders of an existing company remain the same in the resultant company.

Read our article:All You Need To Know About RERA Registration Process

Transfer Initiated by Financial Institutions or Creditors

A bare reading of 2019 Circular suggests that approval of allottees or MAHARERA is not required in cases where a transfer of the promoter rights and obligations in a real estate project is pursuant to enforcement of security by the financial institutions or creditors or under the operation of law, provided that the loan and charge over a project was disclosed in the registration details of a project on the website of MAHARERA. The 2019 Circular provides a few examples of enforcement of security such as:

  • Invocation of a pledge of shares of promoters
  • A takeover of a project under the provisions of Securitisation and Reconstruction of Financial Assets & Enforcement of Securities Interest Act, 2002 and the Insolvency & Bankruptcy Code, 2016 (IBC)
  • A takeover of the management of promoter in the case of the IBC.

The 2019 Circular prescribes the following procedure required to be followed for change in a promoter according to lenders enforcing their security over a project:-

  • First, the promoter must inform MAHARERA in writing with the format prescribed in Annexure “A” within 7 days of being aware of potential transfer arising out of enforcement of the security or mortgage.
  • Simultaneously, the promoter shall inform every allottee regarding such impending or potential transfer.
  • Within seven days of the transfer being affected by the financial institution/creditors, such financial institutions/creditors must intimate to each of the allottees and MAHARERA of the enforcement of security and transfer of ownership of the promoter organization or transfer of the project.
  • After that, the financial creditor (acting as a new promoter) or a new promoter (appointed by financial institutions) shall apply to MAHARERA for making necessary corrections to the registration details of the project.
  • The financial creditor must submit an undertaking stating that they must comply with all the obligations under an agreement for sale executed by the erstwhile promoter with the allottees and assume all the erstwhile promoter’s obligations.

Process followed where Approvals are required

The promoter required to follow the following process:

  • The promoter must first obtain the consent of two-thirds of the allottees of the project.
  • The promoter shall apply to MAHARERA with a format prescribed in Annexure “A” along with the consent of two-thirds of the allottees on the date of application.
  • Under the application as prescribed under Annexure A, the existing promoter must make the following declarations to MAHARERA:
  1. There are no pending cases before a court or National Company Law Tribunal or any authorized body regarding the transfer of a promoter’s rights and liabilities concerning the project.
  2. There is not any bar in the transfer of rights & liabilities to a third party, from any financial institutions or financiers who charge on the project.
  3. There is no prohibitory order passed by the court of law against the transfer of the present project to a third party.
  • MAHARERA must within one month of filing of such application either grant approval (with or without any conditions) or reject such application.
  • After receiving the approval of MAHARERA, a new promoter must submit an undertaking stating that they shall comply with all the obligations under an agreement for sale executed by the erstwhile promoter with an allottee and assume all the obligations of the erstwhile promoter.

Conclusion

The step taken by MAHARERA will go a long way toward boosting the confidence of lenders and new promoters. However, the declaration sought from the existing promoter declares there are no pending proceedings regarding the transfer of its rights/obligations concerning the project.

Read our article:Guide on RERA Registration for Real Estate Agents

Request a Call Back

Are you human? : 8 + 4 =

Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality