The Real Estate (Regulation and Development) Act, 2016 (RERA) was enacted to bring transparency and accountability to the real estate sector. One of its crucial aspects is ensuring financial compliance through audits and fund utilization regulations. Builders and developers must strictly adhere to RERA financial guidelines to avoid penalties, project delays, or even license cancellations. This blog explores the RERA audit requirements, financial compliance obligations, key case laws, and recent developments that builders should be aware of to operate within the legal framework.

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Financial compliance under RERA primarily focuses on fund transparency, proper project financing, and regular audits. The act mandates several financial regulations, including:

1. Maintenance of a Separate Escrow Account

• 70% of the funds collected from buyers must be deposited in a dedicated escrow account to be used only for land and construction expenses.
• Builders cannot withdraw funds freely; withdrawals must be certified by a Chartered Accountant (CA), Engineer, and Architect based on the project’s progress.

2. Quarterly and Annual Audits

• Developers must submit quarterly project progress reports and annual financial audits to the respective state RERA authority.
• These audits ensure that funds are being utilized as per the approved plans and that no misappropriation has occurred.

3. Restriction on Fund Diversion

• RERA prohibits the diversion of funds from one project to another.
• Any financial irregularity can result in heavy penalties, project suspension, or criminal action against the developer.

4. Timely Completion of Projects

• Builders must ensure that funds are adequately allocated for timely project completion.
• Delays due to financial mismanagement can lead to compensation payments to homebuyers.

5. Transparency in Pricing and Financial Disclosure

Any changes in project finances must be updated on the RERA portal to maintain transparency.

Developers must provide a detailed cost breakdown to buyers and ensure that pricing is based on the carpet area rather than the super-built-up area.

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1. Puneet Kaur v. TDI Infrastructure Ltd. (2021)

• The Punjab RERA ruled against TDI Infrastructure for mismanagement of funds, leading to indefinite project delays. The court ordered a full refund with interest to the homebuyer, highlighting the importance of escrow account compliance.

2. Bikram Chatterjee v. Union of India (2019) – Amrapali Case

• In one of the most significant rulings, the Supreme Court canceled the RERA registration of Amrapali Group for siphoning off homebuyers’ funds.
• The Court ordered the National Buildings Construction Corporation (NBCC) to complete the stalled projects, reinforcing the need for financial transparency in real estate.

3. Pawan Singh v. Unitech Ltd. (2020)

This case reinforced the need for strict fund utilization monitoring.

The Supreme Court directed Unitech to deposit funds with the RERA authority after it was found that the developer diverted homebuyer funds for personal gains.

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1. Stricter Enforcement of Financial Regulations

• Several states, including Maharashtra (MahaRERA) and Haryana (HRERA), have started issuing show-cause notices to developers who fail to comply with financial audits.

2. Digital Auditing & Compliance Reporting

• Many states are adopting digital platforms for real-time financial monitoring of registered projects.
• Developers must now submit financial disclosures via state RERA websites, reducing manual reporting errors.

3. Increased Penalties for Non-Compliance

• RERA authorities are imposing hefty fines on developers for non-adherence to escrow account rules.
• In 2023, Maharashtra RERA imposed fines exceeding ₹100 crores on various developers for financial non-compliance.

4. Introduction of Third-Party Auditing

Some states are exploring the implementation of independent third-party audits to verify project finances and compliance.

• The Punjab RERA ruled that a developer must refund the full amount with interest of 10% per annum due to an 8-year delay in project completion.

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To stay on the right side of the law and ensure smooth project execution, builders should follow these best practices:

Any unapproved financial transaction can lead to legal consequences, including criminal liability.

Maintain Proper Financial Records

Keep detailed accounts of all transactions related to each project.

Submit quarterly financial reports as mandated by RERA.

Strict Adherence to Escrow Account Rules

Ensure that 70% of collected funds remain in the escrow account until utilized for construction and land payments.

Obtain required CA, Engineer, and Architect certifications before withdrawing funds.

Engage Chartered Accountants and Legal Advisors

Regular audits by a qualified Chartered Accountant (CA) will help detect financial mismanagement before it leads to legal trouble.

Legal advisors can ensure that contracts, agreements, and disclosures align with RERA provisions.

Use Technology for Compliance Management

Utilize RERA compliance software to track project expenses, manage buyer payments, and automate audit reports.

Regularly update project details on the RERA portal to maintain transparency.

Timely Project Completion and Financial Planning

Ensure realistic financial planning to prevent cost overruns.

Stick to the approved budget to avoid fund shortages and penalties.

Avoid Fund Diversion at All Costs

Maintain a clear distinction between funds allocated for different projects.

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RERA’s financial compliance and audit regulations have transformed the real estate industry, ensuring greater transparency and accountability. Builders who fail to comply with these guidelines risk heavy penalties, project suspension, or even legal action. The case laws and recent developments reinforce that RERA authorities are actively monitoring financial practices in real estate projects.

To ensure compliance, developers must adhere to escrow account regulations, conduct regular financial audits, and maintain accurate financial records. By embracing financial discipline and leveraging technology, builders can gain buyer trust, avoid legal disputes, and ensure smooth project execution under RERA regulations.

For developers, staying compliant is not just a legal requirement—it is a business imperative that ensures credibility, profitability, and long-term success in the real estate industry.