The purpose of having an escrow provision in any real estate act is to make a real estate developer deposit certain percentage of money collected from home buyers for a real estate project in a separate bank account (called escrow account). The money collected in this account should only be used for the construction of that particular project for timely delivery.?This ensures that the project is well financed and the developer is able to meet the?committed?timelines. The provision of escrow account in Real Estate (Development and Regulation) Act (RERA)?2016 is not a new one. In real estate acts of some states such as Haryana, this provision is already there.
For instance, under the Haryana Development and Regulation of Urban Areas Act, 1975, which deals with ?Cost of Development Works?, The colonizer shall deposit thirty percent of the amount?realized?from the plot-holders within a period of?ten days of its realization in a separate account to be maintained in a scheduled bank. This amount shall only be?utilized?by him towards meeting the cost of internal development works in the colony.?After the internal development works of the colony have been completed,the colonizer can withdraw the balance amount to meet the cost of land and external development works.
As a process when the Department of Town and Country Planning (DTCP) of Haryana grants license to any developer, the escrow provision is one of the terms of the grant of license and in case of failure to abide by this term, developer?s license can be cancelled and therefore every developer gets an escrow account opened and the follows the process.?Further,?Under the act the Director of Town and Country Planning has been empowered to inspect the accounts of the developer.
Then why is it that the projects are delayed and some projects are not?adequately?financed. One possible?explanation?could be that the lack of administration and monitoring of this escrow account and the other that there is no check on the purpose of cash?withdrawal.
Keeping all these issues in mind, RERA has tried to address the issue of misuse of escrow account. And that?s why RERA has made a provision under which the amounts from the separate account (escrow account) shall only be withdrawn by the promoter after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in compliance with the percentage of completion of the project.
The Act further mandates that the promoter will get his accounts audited?within six months?after the close of every financial year by a Chartered Accountant in practice. He should also publish on its website a statement of accounts duly certified and signed by such chartered accountant and it will be verified during the audit that the amounts collected for a particular project have been utilized for that project and the withdrawal has been in compliance with the percentage of completion of the project.
Due to these provisions in RERA, the safeguard to the escrow account looks good. The Act necessitates the developer to publish on its website a statement of the escrow account. This will add transparency and the homebuyers can keep a track too.