Introduction
The Karnataka High Court in a recent judgement Sharada Achar v. State of Karnataka & Ors. 2025 LiveLaw (Kar) 316, quashed a circular issued by the Karnataka Real Estate Regulatory Authority (KRERA) with respect to delay fees payable by promoters for late quarterly project updates and late annual audit reports. The Court stated that the circular was ultra vires of what was authorized under the Real Estate (Regulation and Development) Act, 2016 (RERA Act), hence it was null and void. It also ruled that the imposition of retrospective delay fees, without any explicit provision in legislation, could not be sustained. This ruling reiterates the legal constitutional principle that regulatory authority and bodies are only restricted to acting within their ambit or powers as granted to them in a statute, more particularly when it comes to imposing penalties that have a financial consequence.
Background
The involved circular, dated September 3, 2020, proposed penalising promoters with a fine of ₹ 10,000 for delays up to one month in submitting their quarterly progress reports and audited financial statements, and ₹ 20,000 for each additional month from there on. The issue was that the circular imposed fines uniformly for delays, and in doing so, ignored taking into account any personal reasons that the promoter might have for such delay. The directive was challenged by the promoters and industry stakeholders through various petitions. The promoter contention was that KRERA lacked the jurisdiction to issue a circular, that it violated natural justice principles, and that it violated Articles 14 (right to equality), and 265 (no taxation without authority of law). The petitioners additionally noted that while the RERA Act obligates promoters to disclose certain information, it did not allow KRERA to impose this kind of penalty through a circular, and did not allow KRERA to do so retroactively.
Key Points
- Statutory Authority and Scope: The Court examined Sections 11, 34, 37, 61, and 63 of the RERA Act in order to frame the boundaries of KRERA’s powers. The Court held that it is given under the Act that the promoters are required to file regular reports diligently, but it was also observed that only such penalties that are explicitly mentioned under the Act will be imposed in case the promoters fail to do their duty. So, by issuing a circular that could charge fees based on delay, KRERA went beyond its jurisdiction, since it was out of KRERA’s authority to create new financial obligations on its own.
- Ultra Vires Nature: The Court declared the circular ultra vires, emphasizing that any financial imposition must have been backed by explicit authority in legislation. No authorities can be assumed or enable expanded legislation independent of some tacit authority or government orders. Using a retrospective basis for imposing a delayed fee was also held unlawful, as it went against the general legal principles of fairness, equity, and certainty. This helped eliminate arbitrary financial burdens on promoters.
- Constitutional Safeguards: Turning to Article 265 of the Constitution, the Court concluded that no taxes or fees can be levied upon a person unless explicitly stated by statute. These safeguards ensure that regulatory authorities operate within the bounds of their legal authority. Since the circular did not follow the statute, the Court considered it to be unconstitutional and invalid.
- Arbitrary and Discriminatory Impact: The Court also found there to be a violation of Article 14 of the Constitution which ensures equality for all under law. It deemed the fixed penalty scheme arbitrary because of this violation. The circular lacked the vision to differentiate among penalties that should be imposed based on the size of the project, its stage, or the reasons for delay, and thereby failed in the equal treatment of parties.
- Non-Extension of Section 37 Powers: The court clarified that s.37, which provides KRERA the authority to issue directions for the purpose of carrying out its functions, does not provide KRERA the authority to impose monetary penalties on non-compliant parties. Therefore, claiming to rely on this provision is inappropriate.
Recent Developments
The judgement of the Karnataka High Court, which overturned the KRERA circular dealing with fees for delay amounts to an important reaffirmation of the limits to statutory powers. The Court clarified that in case of any issue, the regulatory authorities must refer to the specific provisions given under the RERA Act instead of imposing financial charges on its own through arbitrary orders since it does not have the authority to do so. This ruling ensured significant relief to promoters, particularly with regard to retrospective fees, since a lot of the delay in development issues had arisen after the COVID 19 pandemic.
At the same time, the ruling has sparked a discussion on the need for a clearer penalty system legislated within the property development sector. While welcomed by industry authorities, and commentators, the judgement bolsters certain constitutional protections, while also observing a fair balance between regulation and promoters right to develop land.
Conclusion
The Karnataka High Court’s ruling invalidating the KRERA delay fee circular reiterates both constitutional and statutory limits on the exercise of regulatory authority. While transparency and accountability are of utmost importance for the real estate sector, monetary penalties must be supported by a clear statutory basis in addition to principles of fairness and natural justice. Therefore, in invalidating the circular, the Court upheld the rule of law and also protected promoters from arbitrary hardships, emphasizing that such consequences require appropriate legislative enactment and not an unauthorized executive order.
