Author: Debdeep Giri, Xavier Law School, St. Xavier’s University, Kolkata
To the Point
In Union Bank of India v. Rajasthan Real Estate Regulatory Authority (2022), SLP (C) Nos. 1861-1871 of 2022, order dated 14-2-2022 (SC), the Supreme Court affirmed that once a secured creditor enforces its rights under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), they become a statutory assignee of the promoter under the Real Estate (Regulation and Development) Act, 2016 (RERA Act). Consequently, buyers (homebuyers) may file complaints against such banks before Real Estate Regulatory Authority (RERA) authorities. The Court held that in instances of jurisdictional overlap, RERA, as a more recent and specialized enactment, overrides SARFAESI. However, RERA’s jurisdiction extends only to cases initiated by homebuyers, effectively shielding them and precluding misuse by developers.
Abstract
This article delves into the Supreme Court’s ruling in Union Bank of India v. Rajasthan Real Estate Regulatory Authority (2022), exploring its doctrinal bearings and systemic ramifications. The judgment resolved conflicts between the RERA Act and the SARFAESI Act, affirming that banks act as promoters once they enforce security under Section 13(4) SARFAESI. It establishes RERA’s primacy in adjudicating home buyers’ grievances, reinforces regulatory coherence, and prioritizes consumer protection without completely disempowering secured creditors. Drawing from statutory interpretation, comparative jurisprudence, and stakeholder consequences, this paper analyses the balance struck between institutional recovery rights and individual property interests.
Use of Legal Jargon
The ruling hinges on complex legal constructs such as statutory assignment, secured creditor, promoter, jurisdiction, harmonious construction, and consumer protection. Under Section 13(4) of the SARFAESI Act, a secured creditor may assume control of secured assets, stepping into the shoes of the borrower. This elevates the bank to the status of a promoter under Section 2(zk) of RERA, prompting its subjection to RERA jurisdiction. The judgment applies principles of statutory interpretation, affirming RERA’s prevalence over SARFAESI as a special legislation, and underscores the necessity of homebuyer-initiated complaints to invoke RERA’s adjudicatory mechanism.
The Proof
In 2014, SNG Real Estate (the promoter) launched “Sunrisers,” a building project. Flats were mortgaged to Andhra Bank, later merged with Union Bank of India. When the developer defaulted, the bank invoked Section 13(4) of the SARFAESI Act and initiated auction proceedings. Homebuyers, fearful of losing their investments, approached the RERA Authority under Section 11(4)(h) of RERA, which provides protection to buyers against actions like mortgage or charge created by promoters. The Authority passed an injunction restraining the auction. Union Bank appealed to the Rajasthan High Court, arguing that it did not fall within RERA’s scope, as RERA applies only to promoters, allottees, or agents, not banks or secured creditors.
The Rajasthan High Court held that upon invoking SARFAESI Section 13(4), a bank becomes the statutory assignee of the borrower/promoter. Therefore, it falls within the definition of “promoter” under Section 2(zk) of RERA.
It further held that in the event of a conflict, RERA (as a later and special statute protecting homebuyers) prevails over SARFAESI, unless prior action was taken before RERA’s enactment and not fraudulently. Thus, RERA Authority was competent to adjudicate buyer complaints against Union Bank.
The Supreme Court upheld the High Court’s reasoning, affirming that the invocation of the SARFAESI Act results in a statutory assignment, thereby converting banks into promoters within the meaning of RERA. It further endorsed the principle that, in cases of statutory conflict, RERA prevails over the SARFAESI Act, given its later enactment and specific consumer protection mandate. The Court also clarified that RERA’s jurisdiction in such matters is confined to proceedings initiated by homebuyers, thereby preventing potential misuse by promoters. Additionally, it upheld the validity of Regulation 9 of the Rajasthan RERA Rules, finding it consistent with Section 81 of RERA.
Case Laws
Bikram Chatterji v. Union of India, Writ Petition (Civil) No. 940 of 2017:
In this case, the Supreme Court dealt with the large-scale fraud and mismanagement by the Amrapali Group, which had left thousands of homebuyers stranded without possession despite having paid substantial sums. The Court found the promoters guilty of siphoning off funds in violation of the Real Estate (Regulation and Development) Act, 2016 (RERA) and other laws. It cancelled Amrapali’s RERA registration, barred its directors from engaging in any real estate activity, and appointed the National Buildings Construction Corporation (NBCC) to complete the projects under Court supervision. Significantly, the Court held that homebuyers’ interests must prevail over secured creditors, emphasising RERA’s role as a welfare statute aimed at consumer protection. The judgment reinforced that real estate developers cannot exploit statutory loopholes to escape accountability, and it demonstrated the Court’s willingness to directly intervene to ensure delivery of projects and restoration of public trust in the sector.
Puneet Gupta v. International Infratech Pvt. Ltd., CR/255/2023, passed on 23rd January 2023:
In this case, the Gurugram bench of the Haryana RERA stayed the e-auction initiated by Bank of Baroda over project land, recognizing the vested property rights of homebuyers. The Authority underscored that the Real Estate (Regulation and Development) Act, 2016 (RERA)—being enacted after the SARFAESI Act—is designed explicitly to protect allottees’ interests. RERA imposes a statutory obligation to ensure these rights are neither prejudiced nor jeopardized, even when secured creditors seek enforcement. By restraining the auction, the bench reaffirmed that financial institutions must account for buyers’ vested rights before proceeding, reflecting the growing legal emphasis on consumer protection over foreclosure via SARFAESI. This decision highlights the need to harmonize the recovery rights of lenders with the statutory protections granted to real estate allottees.
Mukesh Agarwal & Ors. v. SNG Real Estate Pvt. Ltd. & Ors., RAJ-RERA-C-2021-4056:
In this case, the Rajasthan RERA Authority clarified that the pendency of proceedings before the Debt Recovery Tribunal (DRT) under the SARFAESI Act, 2002 does not oust RERA’s jurisdiction. The Authority emphasized that RERA is a special enactment of Parliament intended to protect the rights of allottees and ensure timely completion of projects. Invoking Section 79 of RERA, it reiterated that the jurisdiction of civil courts is expressly barred in matters to be determined by RERA authorities. Thus, even when lenders initiate recovery proceedings under SARFAESI, homebuyers can continue to seek relief under RERA, and such jurisdiction remains unaffected. This ruling reinforced the principle that RERA’s consumer-protection mandate operates independently and concurrently, ensuring that financial recovery actions do not override statutory safeguards granted to allottees in real estate projects.
Conclusion
The judgment in Union Bank of India v. Rajasthan Real Estate Regulatory Authority cements RERA’s role as a consumer-protection statute with overriding effect over SARFAESI in matters concerning homebuyers’ rights. By holding that banks invoking SARFAESI become statutory assignees and, therefore, “promoters” under RERA, the Supreme Court has bridged a significant jurisdictional gap that could have left allottees vulnerable. The ruling harmonizes the objectives of debt recovery and consumer welfare, ensuring that while secured creditors retain their statutory remedies, these cannot be exercised in a manner that prejudices buyers’ legitimate expectations. It also limits RERA’s intervention to homebuyer-initiated proceedings, preventing misuse by promoters. The decision, read with precedents like Bikram Chatterji, Puneet Gupta, and Mukesh Agarwal, strengthens the jurisprudence that prioritizes delivery of homes and protection of investments over purely commercial enforcement. Importantly, it sends a clear message that statutory interpretation must lean towards welfare objectives when competing laws intersect. The ruling thus reinforces public confidence in real estate regulation, offers clarity to lenders, and affirms the judiciary’s role in balancing economic interests with constitutional principles of fairness and equity in the housing sector.
FAQs
What was the core issue in Union Bank v. Rajasthan Real Estate Regulatory Authority?
Whether a bank enforcing SARFAESI rights becomes a “promoter” under RERA and is subject to its jurisdiction.
What did the Supreme Court decide?
That banks invoking Section 13(4) SARFAESI become statutory assignees and thus fall within RERA’s definition of “promoter.”
Which law prevails in case of conflict—RERA or SARFAESI?
RERA, being the later and more specialized consumer-protection statute, prevails over SARFAESI in such conflicts.
Does RERA’s jurisdiction extend to all complaints against banks?
No, it applies only to complaints initiated by homebuyers, not by promoters or third parties.
What is the significance of Section 2(zk) of RERA?
It defines “promoter” broadly, including statutory assignees such as banks taking over projects.
How does this ruling protect homebuyers?
It ensures their rights in a project are not prejudiced by enforcement actions of secured creditors.
Can SARFAESI actions proceed if RERA complaints are pending?
Yes, but they must respect RERA’s protective provisions for allottees.
