Karnataka High Court Quashes RERA Circular Imposing Fees On Delayed Submission Of Updates, Audit Reports By Promoters

The Karnataka High Court recently set aside a Circular dated 03-09-2020, issued by the Real Estate Regulatory Authority, Karnataka (KRERA), which mandated the levy of “delay fee” for belated submission of quarterly updates and annual audit statements by promoters, without distinction to scale of the project, the stage of development, or the peculiar circumstances surrounding it.

Justice M Nagaprasanna allowed a batch of petitions filed by promoters of various projects and said, “The circular purporting to impose delay fee is arbitrary, illegal and void, for the exactions made thereunder cannot be sustained in law and must in consequence, meet its inexorable fate - the fate of obliteration.”

He added, “The Circular dated 03-09-2020 impugned in these petitions stands quashed. The petitioners in all these cases become entitled to consequential benefits that would flow from quashment of the Circular. The quashment of the Circular will not come in the way of legislation or imposition of subject fee in a manner known to law.”

The petitioners had contended that the Act undoubtedly imposes obligations on promoters, but it neither envisages nor empowers the authority to levy delay fees of the kind that is now demanded. The Circular is violative of Rules 4 and 7 of the Rules, which depict non-commencement of construction and force majeure. It was her submission that the delay due to the COVID-19 pandemic and consequent non-take of the projects was due to force majeure.

Further, it was stated that the Act does not authorise the collection of heavy amounts by way of a Circular and that it was unjust enrichment for the Authority, in the absence of a basis for calculating a delay fee inconsistent with the Act.

It was argued that the Circular is indicative of the fact that the delay fee would have to be taken commencing from the date of the impugned Circular, but the collection of the fee is now being imposed retrospectively from the third quarter of 2018-19.

The Authority opposed the plea, contending that the Act imposes mandatory obligations on the promoters to provide quarterly updates on the K-RERA portal regarding the details of the projects and these promoters and developers or individuals who are in the business of development, when they fail to submit quarterly updates on K-RERA website, the fee is collected. Therefore, it is a caution for the developers to adhere to the timeline.

Further, it was argued that the petitioners have not approached the Court with clean hands, as they have to comply with the directions of the Authority issued from time to time. Since they have not complied, they are liable for action under Sections 61 and 63 of the Act or consequences that flow from the mandate of the statute. The Circular is prospective and not retrospective at all, as is contended by the petitioners. It is in compliance with Section 37 of the Act and therefore, the submissions to the contrary should not be entertained.

Findings:

The bench, on going through the provisions of the Act and the rules, said “What is striking, however, is that while the Act lays down the duties of promoters with precision, it nowhere contemplates the imposition of “delay fee” in the event of non-compliance. The only consequences spelt out in the Act are those of penalty or interest in terms of the provisions quoted hereinabove. The Rules follow suit. It nowhere speaks of imposition of any delay fee.”

It added, “It is trite that imposition of tax, fee or any other impost upon any person, cannot be by way of Circular. It is therefore manifest that the Act and the Rules have not clothed the Authority with power to levy or recover fees beyond those expressly authorised. In the absence of such express conferment, no Circular, however well intentioned, can conjure into existence a financial liability against the promoters. This principle is neither novel nor chartered.”

Court stated that the impugned Circular, whereby a so-called delay fee has been sought to be imposed on promoters and developers, stands exposed as utterly failing of statutory parentage, and finds no sustenance in the Act.

The bench concluded, “From any of the provisions that the respondents seek to place reliance upon, delay fee cannot be distilled. Wherefrom this impost has arisen? This Court finds no answer within the four corners of the statute, it is an impost without lineage under the statute, an exaction without authority, a levy without law. The conclusion is therefore inevitable. The Circular stands no constitutional or statutory footing and is an exercise of power unsupported by authority, it must fail.”

Accordingly, it allowed the petitions.

Case Title: SHARADA ACHAR AND State of Karnataka & Others

Case No: WRIT PETITION No.3379 OF 2024 (GM - RES) with others

Citation No: 2025 LiveLaw (Kar) 316

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