K-RERA has no legislative powers to impose penalties: HC

Bengaluru: In a major setback to the Karnataka Real Estate Regulatory Authority (K-RERA), the Karnataka High Court has struck down its order imposing penalties on builders for failing to submit quarterly progress and annual audit reports for housing projects.

The court held that K-RERA lacks legislative authority to levy such penalties, stating that “any power to impose fees or fines must have legislative backing.” The bench, led by Justice M. Nagaprasanna, observed that K-RERA’s circulars and administrative orders cannot substitute statutory power.

“If punitive or financial action is to be taken against any citizen, it must be supported by direct legislative authority. In the absence of such authorization, the circular cannot stand,” the court stated.

In September 2020, K-RERA had issued a circular under Section 7 of the RERA Rules, 2016, mandating that developers who fail to file quarterly or annual audit reports within the stipulated time would be charged a “delay fee.” The move was aimed at tightening compliance among builders. However, over 50 developers, including JCSV Builders and Developers, challenged the circular in the High Court, arguing that it was arbitrary and unlawful.

The petitioners contended that many housing projects were halted during the COVID-19 pandemic, making it impossible to meet deadlines. They argued that K-RERA had acted unilaterally and beyond its legal powers by issuing the circular. K-RERA’s counsel defended the order, asserting that the Act requires every builder and promoter to submit progress and audit reports, and therefore the authority was empowered to impose a fee for non-compliance. However, the High Court disagreed, ruling that no authority can impose or collect any fee, tax, or penalty without explicit statutory sanction. The judgment also cited Article 265 of the Constitution, which prohibits the collection of any tax or fee without legal authority.

“Administrative orders or circulars alone are insufficient; there must be legislative support. Since the K-RERA circular lacks such backing, it is hereby quashed,” the court concluded.

The verdict provides temporary relief to developers and promoters while posing a regulatory challenge for K-RERA, which may now need to seek legislative amendments to reinforce its compliance powers.