RERA“Majority Rights“ under Section 15 of RERA

“Majority Rights“ under Section 15 of RERA Stands Clarified By Maharashtra Real Estate Regulatory Authority for Financial Institutions and Creditors

With the powers of General Superintendence vested in him under Section 25 of the Real Estate (Regulation and Development) Act, 2016, the Maharashtra Real Estate Regulatory Authority brought in a clarity regarding the implication of Section 15 of the RERA, 2016 via Circular No. 11/2017 dated 08.11.2017.

Section 15 of the act states:

“The promoter shall not transfer or assign his majority rights and liabilities in respect of a real estate project to a third party without obtaining prior written consent from two-third allottees, except the promoter, and without the prior written approval of the Authority.”

There was an uncertainty regarding the term “majority rights” under Section 15 of the Act. Clarity was required whether in certain situations such as change in internal share holding, change in the promoter’s organization type, Merger and Acquisition, Mortgage enforcement would require the consent of the allottees and approval of the authority.

The ambiguities have been cleared by the MAHA Regulatory Authority in the following manner:

Internal Shareholding: Such changes do not affect the rights and obligations of the Allottees with respect to the promoter’s organizations. Hence, the 2/3^rd consent of allottees would not be required for the same.

Conversion: In the below mentioned cases, no 2/3^rd consent of the allottees will be required.

• Partnership firm to LLP or private Limited Company.

• Private limited Company or unlisted company to an LLP or otherwise.

• Proprietorship change by succession to legal heirs.

Merger and Amalgamation: In case of a Merger or Amalgamation initiated by the Promoter, wherein the project is transferred and vested with the amalgamating company, it shall be regarded as a transfer and the 2/3^rd consent of allottees will be required. But in case where the amalgamation, merger or demergers is not regarded as a transfer under Section 47 of the Income Tax Act,1961 or 75% shareholders remain same in the resulting amalgamation company, then the consent will not be required.

Enforcement of Mortgage: In case where the financial institutions/creditors take over the real estate property by way of enforcement of security or mortgage, the promoter and/or the financial institution/ creditors (which are disclosed by the promoter to the Regulatory Authority on its website) are not required to seek consent as per section 15.

But the promoter is required to inform the Regulatory Authority in writing within 7 days of being aware of the possibility of a transfer arising out of enforcement of security or mortgage.

Observation:

The legislation had left the term “majority rights” undefined. The Maharashtra Real Estate Regulatory Authority has given clarification on the same issue.

A similar clarification should either come or be adopted by other Real Estate Regulatory Authority to put the ambiguities at rest.