Understanding Financial And Penal Liability Under RERA

Understanding Financial And Penal Liability Under RERA

The Real Estate (Regulation and Development) Act, 2016 (RERA) (and rules made thereof) promises to pave the way for a new era in the Indian real estate sector - an era of regulation, transparency, structure and security. Prior to RERA coming into force, in most cases of delay or default by developers, the main recourse for thousands of disillusioned homebuyers pan India was to approach the consumer forums in order to enforce the terms and conditions of their builder buyer agreements and obtain possession of their properties. This often resulted in arduous delays caused by litigation which did little to help homebuyers. RERA is an unprecedented law which seeks to transform the real estate market by ensuring that the terms and conditions of the agreement between the builder and buyer are enforced (while also ensuring transparency in the involvement of third party real estate agents/brokerage firms), resulting in regulation of this previously unregulated sector.

RERA finds its teeth in effective enforcement by providing for penal liability for the various parties involved in a real estate transaction. RERA provides for establishment of the Real Estate Regulatory Authority & the Real Estate Appellate Tribunal in each State/Union Territory which shall impose financial penalties which may alternatively tantamount to imprisonment in cases of ‘continued default’.

The following persons are liable with financial penalty and/or imprisonment under RERA:



  1. Promoters

  2. Real Estate Agents

  3. Allottees


Chapter VIII of RERA details the penalties and process of adjudication in case of circumvention/non-compliance/continued default under RERA or rules made thereunder.

In the event that a Promoter contravenes the relevant provisions of RERA by advertising or marketing their real estate project without obtaining proper registration, he shall be liable to pay a penalty which may extend up to 10 percent of the estimated cost of the real estate project as determined by the State Authority and in case of continued violation or not complying with orders, decisions or directions of the Authority, he shall be punishable with imprisonment for a term which shall extend up to three years or a fine which may extend up to a further 10 percent of the cost of the real estate project. For other contraventions under RERA or non-compliance with orders, decisions or directions of the Authority, the penalty shall extend up to 5 percent of the estimated cost of the real estate project. In the event that the Promoter does not comply with the orders, decisions or directions of the Appellate Tribunal he can be punished with imprisonment for a period up to three years and/or a penalty imposed on him extending upto 10 percent of the estimated value of the project.

It is pertinent to mention that the definition of ‘Promoter’ under RERA is inclusive and wide and any person/land owner entering into joint development of a Real Estate project should ascertain their rights, obligations and liabilities under RERA before doing so.

Similarly, any Real Estate Agent who fails to comply with provisions of the Act such as marketing projects or accepting bookings without first registering himself under the Act, shall be liable to pay a penalty of Rs. 10,000/- for every day of the default which may cumulatively extend up to 5 percent of the cost of the transaction that the Agent was involved in. Also for contravention of any direction, order or decision of the State Authority under RERA he shall be liable to pay a penalty for every day of default which may cumulatively extend up to 5 percent of the cost of the transaction that the Agent was involved in. Additionally, in case the Real Estate Agent fails to comply with any order, decision or direction of the Appellate Tribunal, he shall be punishable by imprisonment which may extend up to one year or shall be liable to pay a penalty for each day that such default continues which may cumulatively extend up to 10 percent of the transaction cost.

Further, Allottees too have been conferred with certain rights, duties and obligations under RERA such as making timely payments, paying interest on delayed payments etc. and have been made liable in case of non-compliance and/or default under RERA with punishment that may even result in a prison sentence. RERA provides that if any Allottee fails to comply with the orders or directions of the State Authority established under RERA, he shall be liable to pay a penalty for each day during which such default continues and which may cumulatively extend up to 5 percent of the plot, apartment or building cost, as determined by the authority. In case an Allottee fails to comply with or contravenes the orders of the Appellate Tribunal, the defaulting Allottee shall be punishable with imprisonment upto one year and/or face a fine for each day that such default continues which may extend up to 10 percent of the transaction cost.

For persons involved in a transaction where the property size is more than 500 sqaure meters or contains more than 8 saleable units, in order to fully comply with RERA, an individual must ascertain their rights, obligations and liabilities before entering into a real estate transaction failing which they may be penalized.

Yudhist Narain Singh is a real estate lawyer based in New Delhi