Homebuyer protection bars recovery of bank and development authority dues from purchasers and projects where both enabled fund diversion.
Homebuyers who paid the land-cost component are protected from recovery of development authority and bank dues where those entities enabled diversion of project funds. The dues cannot be recovered from project assets or used alone to withhold completion certificates or registered conveyances. Public trust and statutory duties require authorities to supervise public land and protect purchasers. Conditional mortgage permissions did not create valid charges because their conditions were unmet. Persistent defaults and diversion led to cancellation of project registrations and leases, with lessee rights vesting in a court receiver for supervised completion. Identified recipients must return diverted funds, while dues must be pursued from other attached assets. RERA requires relevant common areas to be transferred to allottee associations or the competent authority; the challenged alienations are void. Identified foreign investment transactions breached applicable norms, with individual liability subject to investigation.
Issues: (i) Whether the development authorities breached their public and statutory duties in managing the housing projects; (ii) whether valid mortgages or charges arose in favour of the lending banks over the projects; (iii) whether the forensic audit established diversion of homebuyer funds warranting recovery; (iv) whether the project registrations and land leases should be cancelled in light of the promoters' defaults and claimed force majeure; (v) whether the authorities' and banks' dues could be enforced against homebuyers or project assets, or used to withhold completion certificates and conveyances; (vi) whether the promoters could transfer common areas reserved for allottees; and (vii) whether the identified foreign investment transactions complied with foreign-exchange and investment norms.
Issue (i): Whether the development authorities breached their public and statutory duties in managing the housing projects.
Analysis: The public trust doctrine required affirmative supervision of public land and protection of the interests of purchasers. Despite persistent defaults, the authorities continued allotments and permitted sub-leases without enforcing lease conditions or taking effective action under the Uttar Pradesh Industrial Area Development Act, 1976.
Conclusion: The authorities breached their public trust and statutory duties.
Issue (ii): Whether valid mortgages or charges arose in favour of the lending banks over the projects.
Analysis: Mortgage permissions were conditional on payment of the premium and current lease rent, and the loans were to finance the projects. Those conditions were not fulfilled. Although the mortgages predated RERA, its provisions also protect allottees against subsequent charges created after their sale agreements.
Conclusion: No valid bank mortgage or charge was created over the projects.
Issue (iii): Whether the forensic audit established diversion of homebuyer funds warranting recovery.
Analysis: The audit traced funds through related entities, bogus bills, undervalued flat transactions and unearned fees. The expenditure figures and objections offered against the audit lacked supporting records or specific answers to its findings.
Conclusion: The forensic findings were approved, and identified recipients must return the amounts and take the steps specified in the audit.
Issue (iv): Whether the project registrations and land leases should be cancelled in light of the promoters' defaults and claimed force majeure.
Analysis: RERA requires project funds to be used for their designated purposes and permits revocation for default or fraud, while the leases and the Uttar Pradesh Industrial Area Development Act, 1976 provide for action on breaches. Land-acquisition litigation had not stayed construction, and the asserted farmers' agitation did not establish a force majeure impediment. Persistent defaults and diversion also defeated the promoters' claim to utilise or alienate floor-area rights.
Conclusion: The project registrations and leases are cancelled, the lessee rights vest in the court receiver, and the promoters cannot utilise or alienate the claimed floor-area rights.
Issue (v): Whether the authorities' and banks' dues could be enforced against homebuyers or project assets, or used to withhold completion certificates and conveyances.
Analysis: Purchasers had paid the land-cost component, while the authorities and banks enabled diversion of funds. RERA protects the right to project completion and makes refund an alternative at the allottee's option; registered conveyances remain necessary to perfect title. The promoters remain responsible for collected outgoings, and purchasers remain liable for their own outstanding contractual amounts.
Conclusion: The dues cannot be recovered from the homebuyers or the projects and must be pursued from other attached assets. Completion or part-completion certificates and registered conveyances must not be withheld solely for those dues.
Issue (vi): Whether the promoters could transfer common areas reserved for allottees.
Analysis: RERA requires the relevant common areas to be transferred to the association of allottees or the competent authority.
Conclusion: Sub-leases or other alienations of the common areas are void and inoperative.
Issue (vii): Whether the identified foreign investment transactions complied with foreign-exchange and investment norms.
Analysis: Inflated share valuations and intermediary entities were used to route purchasers' funds, while foreign investment intended for construction was diverted. The applicable external commercial borrowing restrictions and investment requirements were not observed.
Conclusion: The identified transactions contravened the applicable norms; individual liability remains for investigation.
Final Conclusion: The developer's control over the projects is replaced by a court-supervised completion and conveyance framework, while recovery is directed towards other assets and identified recipients.
Ratio Decidendi: Where public authorities and lenders enable fraudulent diversion of housing-project funds, their recovery rights cannot be enforced against innocent purchasers or their investments in those projects.