Kerala High Court Clarifies RERA can Award Statutory Interest Even If Allottee Withdrawing From Project Claims Lower Rate

Kerala High Court Clarifies RERA can Award Statutory Interest Even If Allottee Withdrawing From Project Claims Lower Rate

States that there could be a deviation only on mutual agreement by both parties

The Kerala High Court has ruled that interest rates payable to allottees withdrawing from a project should be as per Rule 18 of the Real Estate (Regulation and Development) Rules, 2018. It clarified that claiming a lesser interest rate did not preclude allottees from receiving the statutory rate.

The bench comprising Justice A. Badharudeen added that while Rule 18 specified the standard interest rate formula for both promoters and allottees, there could be a deviation, only on mutual agreement by both parties.

The Court stated, “The legal position is no more res-integra and payment of interest by the promoter to the allottee or by the allottee to the promoter shall be the State Bank of India's Benchmark Prime Lending Rate plus two percent interest. It shall be computed as simple interest as provided under Rule 18 of the Kerala Real Estate (Regulation and Development) Rules, 2018.”

It added, “However, payment of interest by the allottee to the promoter as provided under Section 19(7) of the Kerala Real Estate (Regulation and Development) Act, 2016, can be in deviation from Rule 18 and the interest can be reduced when mutually agreed to between the promoter and the allottee and not in any other manner."

The dispute arose when certain allottees sought a refund of their payments with interest due to the promoter's failure to complete the construction in time. RERA granted interest at the rate of 14.75 percent (Benchmark Prime Lending Rate plus 2 percent) more than the amounts claimed by the allottees.

The appeals were filed against the orders issued by the Kerala Real Estate Appellate Tribunal, Ernakulam, and the Kerala Real Estate Regulatory Authority, Thiruvananthapuram.

The question was whether RERA was bound by the provisions in Rule 18, regarding the rate of interest payable when an allottee wished to withdraw from a project and recover the paid amount.

While appearing for the appellants, the senior counsel argued that the RERA should have confined the interest rate to the amount claimed by the allottees when it was less than the statutory interest rate.

However, the respondents contended that Rule 18 granted the Authority wide powers to make orders in accordance with the law. Therefore, it had the power to grant the statutory interest rate even if the allottees claimed a lower rate.

The Court examined Section 18 of the Kerala Real Estate (Regulation and Development) Act, 2016 along with Rule 18 of the Kerala Real Estate (Regulation and Development) Rules. The provisions stipulated that the interest payable by the promoter to the allottee or vice versa should be the Benchmark Prime Lending Rate of the State Bank of India, plus 2 percent, computed as simple interest.

Justice Badharudeen also considered the judgment of the Supreme Court in the Newtech Promoters and Developers Pvt. Ltd v. State of UP case, wherein it was emphasized that the statutory interest rate must be granted as prescribed by the law, leaving no discretion to RERA.

The Court said, "When evaluating the intent behind the legislation, it has to be held that when a party fails to claim the entitled statutory interest, the same shall not be a ground to hold that the party which claimed lesser interest is not entitled to it. The interest is liable to be granted by the Authority and claim for a lesser amount as interest shall not bar the allottee from getting the statutory interest."

The interest rate could be reduced from the standard rate prescribed in Rule 18, but the reduction must result from a mutual agreement between the promoter and the allottee, and it could not be unilaterally imposed in any other manner.

Thus, the Court held that RERA had the power to grant the statutory interest rate even if the allottee claimed a lesser amount. It added that the grant of interest at the rate of 14.75 percent was in accordance with the law and did not require interference.

The bench dismissed the appeals and affirmed the decision of the Regulatory Authority.