Answer By law4u team
Under the Real Estate (Regulation and Development) Act, 2016 (RERA), the concept of an escrow account is an important provision designed to protect homebuyers and ensure transparency in real estate transactions. The escrow account provisions are primarily aimed at regulating the flow of funds to prevent the misuse of buyer's money by real estate developers. Here are the key provisions related to the escrow account under RERA: 1. Mandatory Escrow Account: - Under Section 4(2)(l)(D) of RERA, it is mandatory for developers to deposit 70% of the amount received from homebuyers for a particular project into a separate escrow account maintained in a scheduled bank. - This account is specifically for covering the cost of construction and the cost of land for that project. 2. Purpose of the Account: -The money deposited in the escrow account can only be used for construction and development purposes related to that particular project. It ensures that the funds are not diverted to other projects or for personal use by the developers. 3. Withdrawal of Funds: - Developers can only withdraw funds from the escrow account in proportion to the work completed on the project. - Section 4(2)(l)(D) requires that withdrawals be certified by: An architect or engineer confirming the stage of completion of the project. - A chartered accountant confirming that the withdrawal is in proportion to the percentage of work completed. 4. Auditing of the Escrow Account: - The account must be audited by a practicing chartered accountant within six months of the end of each financial year. The audit report ensures that withdrawals from the account are in compliance with the provisions of RERA. - This requirement promotes transparency and accountability by keeping track of how the funds are being used. 5. Restrictions on Misuse of Funds: - Developers are prohibited from using funds collected for one project to finance another project. The escrow account acts as a safeguard to ensure that the funds for each project are used exclusively for that project’s development. 6. Penalties for Non-Compliance: - In case of non-compliance with the escrow account provisions under RERA, developers can face heavy penalties, including fines and imprisonment. The Act imposes strict penalties for diverting funds, which can go up to 10% of the estimated cost of the project, and in severe cases, even imprisonment. 7. Buyer’s Rights: -The escrow account system enhances the protection of homebuyers' investments by ensuring that the funds they provide are used appropriately. It builds confidence that their money will be used to complete the project on time. The escrow account provision under RERA is a crucial step in increasing transparency and accountability in the real estate sector. It protects homebuyers from financial risks and ensures that their funds are used properly for project completion.
