By Shreya Narayan

NEW DELHI: Assured return schemes are often believed to be a win-win scheme for both builders and investors. On one hand, builders get access to capital at low rates of interest to develop the real estate project for which money has been raised. On the other hand, investors are offered fixed regular returns on their investment, in addition to the appreciation of the property value. However, not has gone well for investors in the recent past, as builders in some instances have arbitrarily stopped paying the assured returns, erroneously citing the Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act). With multiple recourse options ranging from approaching the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Board (IBC), investors were made to run from pillar to post to get their grievances resolved. This changed with the landmark judgement from Real Estate Regulatory Authority (RERA) in 2021. 

Assured return scheme is an investment plan, wherein a builder gives interest, or return on money invested by an investor at an agreed rate of interest. It is based on the concept of capital appreciation, which is the difference between the purchase value of the investment/ property, and the selling price of the investment/ property. The rate of interest is usually pre-decided by the builder and accordingly offered to the investor. 

However, in many instances, builders have allegedly misused the assured return scheme by raising funds from investors for one project (of course on payment of assured returns), but appropriating that money for development of another project. Due to the said practice, investors claim to be defrauded by such builders, as the projects in which they had invested, remained hanging and incomplete. There was no clear legal framework in India to protect the interest of such investors, based on such schemes prior to implementation of the RERA Act 2016. 

In the matter of Nikhil Mehta and Sons v. AMR Infrastructure Ltd., CA(AT)(Ins) No. 07 of 2017, the Hon’ble NCLAT, recognized that assured returns from real estate projects, act as ‘time value of money’, for the investment made by the investor. It also held that assured returns by builders is a method of raising or mobilising funds from open market or general public at a lower rate of interest without any security and any regulatory body, thereby making investors ‘financial creditors’. Accordingly, it became easier for the investors of a real estate project to initiate Corporate Insolvency Resolution Process against the said project under the IBC.

However, with the advent of the BUDS Act, builders started to evade from their contractual obligation of paying assured returns to the investors under the garb of it being banned and illegal under Section 2(4) of the BUDS Act. Builders interpreted and categorized the amount invested by investors under the definition of ‘deposits’, under the BUDS Act, and not as an investment, thereby making them look illegal. Accordingly, investors suffered on account of non-payment of assured returns. 

Things changed after Haryana RERA in the cases titled “Madhushree Khaitan v. Vatika Limited”, bearing Complaint No. 1239 of 2021, and “Tanya Mahajan v. Vatika Limited”, bearing Complaint No. 343 of 2021, clarified that builders are wrongly categorizing investments of investors as ‘deposits’, instead of ‘investments’, as there exist a relationship of ‘builder-buyer’ between the builder and the investor. Accordingly, the Authority held that such investments shall not fall within the ambit of the prohibition provided under the BUDS Act, and builders are liable to pay assured returns to investors.

Recently, the Authority resounded this stance, in an order dated September 12, 2022, in complaints titled “Veena Sukhrani and Anr. v. Vatika Limited”, and “Gaurav Gandotra and Anr. v. Vatika Limited” bearing complaints no. 1037 and 1038 of 2021, wherein it directed the builder to ensure payment of assured returns to the investors of the project, along with interest since the defaulting date. 

The orders are a big win for investors, and are likely to have a positive impact on similar cases of other investors, whose assured returns have been arbitrarily stopped by builders. However, even after the passing of such judgements by the Authority, investors fail to approach the Authority to get their issues addressed, due to their lack of awareness, and misconception of RERA being a new law which is still developing. 

There also remains a common doubt in the minds of investors, regarding the execution of the orders of RERA. To clarify, the Haryana RERA came out with a notification dated February 26, 2019 titled ‘Haryana Real Estate Regulatory Authority (Adjudication of Execution Petition) Regulations, 2019’, which clarified that orders of the Authority shall be considered as a ‘decree’ of a civil court and should be executed in a similar manner. 

This makes RERA a good avenue for investors to have their grievances redressed in case of non-payment of assured returns by builders.

(The author is a Partner at Narayan Chamber of Law, and works on matters pertaining to RERA, commercial law, and Insolvency and Bankruptcy code. Views ‘expressed’ are authors own and does not in any manner constitute legal advice.)