Can a Builder Cancel a Registered Flat under RERA?
Can a Builder Offer Refund Under RERA?
1. Introduction
RERA (Real Estate (Regulation and Development) Act, 2016) aims to protect homebuyers by ensuring transparency, accountability, and timely delivery of real estate projects.
One of the key features of RERA is the buyer’s right to claim a refund if the promoter fails to deliver the project or violates RERA provisions.
Refunds are not only permissible but mandated in certain situations under RERA.
2. Relevant Provisions of RERA
A. Section 18(1) – Refund of Amount with Interest
If the promoter fails to complete or deliver the unit on time, the buyer may:
Cancel the booking or allotment
Claim refund of the amount paid along with interest at the prescribed rate
Section 18(1): “If the promoter fails to comply with the provisions of this Act or the rules and regulations made thereunder, he shall be liable to return the amount received from the allottees, with interest calculated from the date the amount was received…”
B. Section 19 – Obligation of Promoter
Promoter must deposit 70% of the project funds received from buyers in a separate escrow account to cover:
Land cost
Construction cost
This ensures refunds are available and protected in case of delay or project abandonment.
C. Section 59 – Penalties for Non-Compliance
Promoter failing to refund buyers or not following RERA orders can face:
Financial penalty
Daily fines until compliance
Possible legal action
3. When Can a Builder Offer a Refund?
| Scenario | Refund Allowed? | Explanation |
|---|---|---|
| Delay in delivery beyond agreed date | Yes | Buyer can cancel and claim principal + interest |
| Project abandoned by promoter | Yes | Full refund with interest mandatory |
| Misrepresentation / false information by promoter | Yes | Refund + interest + penalty may apply |
| Voluntary cancellation by buyer (as per agreement) | Depends on agreement | Promoter can offer refund, but RERA may limit deductions |
| Defective construction after possession | Partially | Refund of proportionate amount or compensation for defects |
4. How Refunds Are Calculated
Principal Amount Paid – Total money paid by buyer for booking/unit.
Interest – Calculated from the date of payment until refund, at the RBI notified rate or state RERA prescribed rate.
Penalty (if any) – Promoter may be liable for additional penalty for delay or non-compliance.
Example:
Buyer paid ₹50 lakh for apartment.
Promoter delayed delivery by 2 years.
Interest at 10% p.a. → Refund = ₹50 lakh + ₹10 lakh interest (approx).
5. Key Case Laws
K.P. Suresh v. MahaRERA
Promoter delayed project delivery.
Held: Buyer entitled to refund with 10% annual interest; promoter also fined under Section 59.
Lodha Developers v. Buyer (MahaRERA, 2021)
Issue: Promoter advertised unregistered project.
Held: Refund with interest mandated; promoter penalized for misrepresentation.
Siddharth Vardhan v. Haryana RERA
Promoter misrepresented amenities and approvals.
Held: Refund of all payments plus interest; RERA emphasized buyer protection over promoter convenience.
PVR Ltd. v. Delhi RERA
Real estate agent misrepresented timelines.
Held: Promoter liable to refund buyer; agent penalized separately.
6. Practical Considerations for Builders Offering Refunds
RERA Compliance
Refund must be calculated as principal + interest.
Must comply with RERA orders and timelines.
Escrow Account
Refund can be paid directly from 70% escrow account funds, ensuring funds are available.
Documentation
Issue a written notice / refund order to buyer.
Maintain proof of refund payment for legal compliance.
Voluntary Refunds
Builder can offer refunds even before dispute arises, to maintain goodwill.
RERA allows settlement through conciliation / mediation.
7. Key Principles
Buyer Protection is Paramount
RERA prioritizes refund and interest over promoter’s financial interests.
Strict Liability on Promoter
Failure to deliver or misrepresentation → mandatory refund + penalty.
No Penalty-Free Delay
Promoters cannot avoid refund obligations by citing project delays or market conditions.
Refund Applies to All Registered Projects
Only RERA-registered projects qualify; unregistered projects may attract penalties under Section 59.
8. Illustrative Examples
Delayed Apartment Delivery
Promoter delivers 2 years late.
Buyer cancels booking → RERA mandates refund of amount + interest.
Abandoned Project
Promoter stops construction midway.
Buyers claim refund → mandatory refund + interest + promoter penalty.
Misrepresentation of Project Approvals
Promoter advertises approved plan but approvals missing.
Buyer cancels booking → full refund with interest under RERA.
9. Conclusion
Yes, a builder can and must offer a refund under RERA in cases of:
Delay in delivery
Project abandonment
Misrepresentation
Failure to comply with RERA orders
Refund includes principal amount + interest, and non-compliance attracts penalties under Section 59.
RERA ensures buyer protection, fund transparency via escrow account, and strict promoter accountability.
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