The Karnataka Real Estate Regulatory Authority (KRERA) has pulled up a developer for failing to comply with the authority’s directions and orders and has imposed a penalty of up to 5% of the project cost.
“The Secretary, KRERA, to initiate penalty proceedings under Section 63 of the Act upon the Respondent Company for failure to comply with the earlier orders of this Authority. The penalty shall be cumulatively extended up to 5% of the estimated project cost payable within 60 days,” the order said.
The regulatory action comes after repeated non-compliance by Ozone Urbana Infra Developers Private Limited in refunding homebuyers, despite previous orders and subsequent enforcement proceedings initiated by the authority.
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The case
In this case, the homebuyers in the Ozone Urbana project had approached KRERA after facing significant delays and defaults by the developer in delivering the apartments. Citing failure to meet both contractual and statutory obligations, the complainants sought a refund of the amounts paid along with applicable interest.
“This authority, after affording sufficient to the developer and upon detailed consideration of the matter over a period of time, was pleased to pass orders in favour of the buyers directing the developer to refund ₹1.42 crore in one complaint and ₹1.13 crore in another vide order dated 05/08/2023 respectively along with specific directions issued to the developer for compliance within the stipulated period,” KRERA said.
However, despite the issuance of these orders, and even after execution proceedings were issued, initiated, and Recovery Certificates (RRCs) were issued, the developer failed to comply with the refund directions within the stipulated timelines, the order said.
“The buyers submit that such non-compliance constitutes a clear violation of the orders of this authority and attracts penal consequences under Section 63 of the Real Estate (Regulation and Development) Act, 2016, which provides for the imposition of a penalty for failure to comply with orders or directions of the Authority,” the authority said in the order.
The authority also said that, since the developer is a company, provisions under Section 69 would apply, making all individuals responsible for the conduct of its business, including directors, managers, and officers, liable under the Act.
“The earlier order was passed only against the company. The directors were not parties in the earlier proceedings. The corporate veil cannot be lifted routinely. The respondent further submits that RERA’s jurisdiction extends only to promoters, allottees, and real estate agents. The directors cannot be fastened with liability absent specific allegations. The sale agreements were executed between the company and the complainants. The cirectors are not being signatories, cannot be made personally liable,” the order said.
A list of questions has been sent to the developer. The story will be updated once a response is received.
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The order
KRERA held that the developer’s failure to comply with binding directions clearly falls within the provisions of Section 63 of the Real Estate (Regulation and Development) Act, 2016. The section provides for penalties for every day of default, cumulatively extendable up to 5% of the estimated project cost, it said.
“The order dated 05/08/2023 is undisputed. The burden to demonstrate compliance lies upon the developer once the existence of the order and lapse of the compliance period is established. The developer has not placed material demonstrating full compliance within the stipulated time,” it said.
Accordingly, KRERA has its secretary to initiate penalty proceedings against the company, with fines that could extend up to 5% of the project cost.
In addition, invoking Section 69 of the Act, the KRERA has issued a show-cause notice to the managing director and other directors responsible for the company’s operations during the relevant period. They have been asked to appear before the authority, either personally or through authorised representatives, within 30 days and explain why further penal action should not be initiated against them, the order said.
“The managing director and the directors who were responsible for the conduct of the business of the company during the relevant period shall appear either personally or through authorized representative before this Authority and show cause within 30 days as to why proceedings under Section 63 read with Section 69 of the Real Estate (Regulation and Development) Act, 2016 should not be initiated against theth for non-compliance of the orders of this Authority,” the order said.
The impact
Calling it a landmark ruling, Advocate Akash Bantia, who also represented the homebuyers, said the order represents a significant shift in enforcement under the RERA Act, 2016. “This groundbreaking order by RERA marks the first-ever invocation of its penal provisions, imposing hefty penalties on the promoter for non-compliance with authority ,” he said.
He further highlighted the wider implications of the ruling, pointing out that it “holds directors jointly and severally liable, unprecedented in RERA jurisprudence,” and sends a strong deterrent message to developers and their leadership teams.