TNREAT : If The Sale Agreement Stipulates Interest On Corpus Fund, Promoter Must Pay It, Whether They Earned Any Interest Or Not .

In real estate, the corpus fund is the initial capital collected by the developer for the maintenance of amenities and facilities. This fund is typically collected from home buyers as pre-maintenance charges, which are not included in the total sale amount of the property. The corpus funds are kept in bank, and the interest generated from these funds is used by the developer for maintenance purposes.

Background Facts

The Appellant (Promotor) launched the Alliance Orchid Springs real estate project in 2006, though it was finished in 2017. Despite completion, numerous pending construction work persisted, causing inconvenience to homebuyers.

The Palm Flat Owners Welfare Association (Allotees) filed a complaint in TNRERA, praying registration of Alliance Orchid Springs, handover of corpus fund, rectification of deficiencies, and penalties for exceeding apartment and car parking limits.

TNRERA in its order dated 22.08.22 directed Promoter to hand over the corpus fund, transfer maintenance responsibilities, complete pending amenities, and facilitate documentation handover.

The appellant filed an appeal before the Tribunal against the TNRERA order dated 22.08.22, contending that TNRERA had erroneously directed the appellant to hand over the proportionate corpus fund relating to the Palm Block along with the actual interest earned to the respondent Association, as the appellant had not earned any interest. Conversely, the respondent contended that the appeal is not maintainable, as the appellant has not made the pre-deposit even after 14 months have passed since the order was issued.

REAT Verdict

The Tribunal dismissed the appellant's appeal, holding it not maintainable due to the appellant's failure to comply with the pre-deposit requirement outlined in Section 43(5) of RERA 2016.

The Tribunal placed reference to the Section 43(5) The Real Estate (Regulation and Development) Act, 2016 which is read as follows:

Section 43 - Establishment of Real Estate Appellate Tribunal.

(5) Any person aggrieved by any direction or decision, or order made by the Authority or by an adjudicating officer under this Act may prefer an appeal before the Appellate Tribunal having jurisdiction over the matter:

Provided that where a promoter files an appeal with the Appellate Tribunal, it shall not be entertained, without the promoter first having deposited with the Appellate Tribunal atleast thirty per cent. of the penalty, or such higher percentage as may be determined by the Appellate Tribunal, or the total amount to be paid to the allottee including interest and compensation imposed on him, if any, or with both, as the case may be, before the said appeal is heard.

Furthermore, The Tribunal rejected the appellant's claim that the promoter hadn't earned any interest and ordered the appellant to deposit interest at a rate of 5.5% per annum on the corpus fund.

The Tribunal relied on the Annexture AA of the Construction agreement which is read as follows:

“The Maintenance Deposit as Corpus fund @ 50/- per square ft of the super built up area shall be paid by the Purchaser at the time of possession. The interest received on such corpus fund shall be utilized for maintenance. Apart from Corpus fund, a Monthly Maintenance Charges @ Rs.2.50/- per sqft of the super built up area (Renewable) to be paid in advance for every Twelve Months, along with applicable taxes on such expenses for maintenance shall be paid by the Second Party to the Developer/nominee/s of Developer.”

The Tribunal held that from the provided statement in Annexure AA that the appellant had acknowledged their intention to earn interest on the corpus fund collected from allottees. Thus, the appellant's argument claiming they hadn't earned any interest from the corpus fund is deemed invalid and rejected.

In Conclusion, The Tribunal dismissed the appellant's appeal for failure to comply with the pre-deposit requirement under Section 43(5) of RERA 2016. It ordered a 5.5% interest deposit on the corpus fund, rejecting the appellant's claim.

Case: M/s. Allaince Projects vs M/s. Palm Flat Owners Welfare Association

Citation: Appeal No 11 of 2024

Counsel For Appellant: Mr. PL Narayan

Counsel For Respondent: Mr. Purushothaman Lakshmi Narayanan

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