RERA Escrow Fund Rights for Bangalore Property Buyers

What Rights Do Bangalore Allottees Have to Monitor the RERA Project Escrow Fund and What Are the Permitted Conditions for Developer Withdrawals?

By the Property Law Team | Legal Brigade | Bar Council of Karnataka

Under Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act 2016, every developer of a RERA-registered project in Bangalore must deposit at least 70% of all amounts received from allottees -- including the flat price, GST, stamp duty costs collected from allottees and any other amounts collected -- into a dedicated project-specific escrow account maintained in a scheduled bank, and may withdraw amounts from this escrow account only to meet the actual cost of the land and the construction of the project as certified by an engineer, an architect and a chartered accountant, giving allottees a statutory right to monitor the escrow fund's balance and to challenge any withdrawal that is not supported by the required certifications.

What Is the RERA Escrow Requirement and Why Does It Protect Allottees?

The RERA escrow requirement is the most important consumer protection mechanism in RERA -- designed to prevent the diversion of allottees' funds to projects other than the one the allottees paid for. Before RERA, developers routinely collected funds from allottees of Project A and diverted them to fund Project B or to pay the developer's personal debts or other business expenses. Allottees of Project A would then find their project unfunded and incomplete while the developer had used their money elsewhere. The RERA escrow mechanism closes this diversion gap.

The 70% escrow mandate means that for every Rs 100 collected from allottees, Rs 70 must go into the project's dedicated escrow account and can only be withdrawn for that specific project's land and construction costs -- certified by an independent engineer, architect and CA. The remaining 30% can be used by the developer for other purposes including the developer's overhead, marketing costs and profit. The escrow account cannot be used as collateral for the developer's other loans -- it is ring-fenced for the project.

How Can Allottees Monitor the Escrow Fund?

RERA's transparency requirements give allottees several mechanisms to monitor the escrow fund. The developer's quarterly progress report filed with K-RERA must include a statement of the escrow account's balance and the withdrawals made during the quarter. This quarterly report is publicly available on the K-RERA portal. Allottees who are diligent about reviewing the quarterly reports can track the escrow fund's balance and identify any withdrawal patterns that appear inconsistent with the project's construction progress.

An allottee who identifies a discrepancy between the escrow fund's reported balance and the expected balance (based on the amounts collected from allottees) can raise the issue with K-RERA through a written complaint. K-RERA has the power to direct the developer to produce the escrow account's bank statements and to justify each withdrawal with the required certifications. K-RERA can also order a forensic audit of the escrow account if a serious diversion is suspected.

What Can Allottees Do If the Escrow Is Misused?

Step 1: Download the K-RERA quarterly progress reports for the project from the K-RERA portal -- reviewing the escrow balance statement in each quarterly report for the project's collection period.

Step 2: Calculate the expected escrow balance -- 70% of all amounts collected from allottees to date -- and compare it against the reported escrow balance. A significant shortfall signals under-deposit or improper withdrawal.

Step 3: File a K-RERA complaint for escrow non-compliance if the escrow balance is materially lower than the expected 70% of collections. Attach the quarterly reports and the calculation showing the expected vs reported balance.

Step 4: Request K-RERA to direct the developer to produce the escrow account bank statements and withdrawal certifications for K-RERA's review.

Step 5: If a diversion of escrow funds to the developer's personal use or other projects is established, file for a K-RERA enforcement order directing the escrow to be topped up and the developer's RERA registration to be cancelled if the diversion is serious.

Q1. What is the RERA escrow requirement and why is it important?

RERA Section 4(2)(l)(D) requires developers to deposit 70% of all amounts collected from allottees in a dedicated project-specific escrow account in a scheduled bank. The escrow can only be withdrawn for the project's land and construction costs as certified by an independent engineer, architect and CA. This prevents developers from diverting allottees' funds to other projects or personal purposes -- the most common cause of project failures before RERA.

Q2. Can a developer withdraw from the escrow for marketing expenses or commissions?

No -- the escrow withdrawals are strictly limited to the actual cost of land and construction. Marketing expenses, broker commissions, the developer's overhead costs and profit are not permitted uses for the escrow funds. The developer funds these from the 30% of collections that are not required to be deposited in the escrow. A developer who uses escrow funds for marketing or commissions is in breach of the RERA escrow discipline.

Q3. How often must the developer file quarterly progress reports with K-RERA?

RERA requires developers to file quarterly progress reports with K-RERA within 30 days of the end of each quarter (by April 30, July 30, October 30 and January 30 each year). The quarterly report must include: the status of construction progress, the amount collected from allottees during the quarter, the amount deposited in the escrow, the amount withdrawn from the escrow with certifications and the revised project completion timeline if there have been delays.

Q4. Can allottees access the escrow account's bank statements directly?

Allottees do not have direct access to the escrow account's bank statements -- the escrow account is in the developer's name and the bank statements are not publicly available. Allottees can only access the escrow information through the K-RERA quarterly reports. If an allottee suspects escrow irregularities, they must file a K-RERA complaint -- K-RERA then has the power to require the developer to produce the bank statements for K-RERA's review.

Q5. What happens to the escrow fund if the developer becomes insolvent?

When a developer enters NCLT insolvency proceedings, the escrow fund becomes part of the insolvency estate -- subject to the NCLT's jurisdiction. The allottees are financial creditors in the NCLT proceedings and have a priority claim on the escrow fund for the completion of the project. The NCLT's resolution professional (RP) takes over the management of the developer's assets including the escrow account. The RP must use the escrow funds for the project's completion under the NCLT's approved resolution plan.

Q6. Can the bank holding the escrow account freeze it for the developer's unrelated defaults?

The RERA escrow account is required to be maintained in a designated bank specifically for the RERA project. The bank cannot freeze or attach the escrow account for the developer's default on unrelated loans -- the escrow is ring-fenced. However, if the bank itself holds a charge over the project's land (as the construction lender), the bank may have rights to the escrow funds as part of the project's financial structure. The specific terms of the bank's lending arrangement with the developer determine the interaction between the bank's charge and the escrow.

Q7. What is the engineer's, architect's and CA's certification requirement for escrow withdrawals?

Each escrow withdrawal requires a certification from: the project's engineer (confirming the construction work for which the funds are being withdrawn has been completed or is in progress); the project's registered architect (confirming the construction is in accordance with the building plan); and a chartered accountant (confirming the withdrawal is for the actual cost of land and construction and is within the permitted 70% withdrawal framework). These three certifications together provide an independent check on each withdrawal.

Q8. Can K-RERA audit the escrow account proactively without an allottee complaint?

K-RERA has the power to suo motu (on its own motion) audit the escrow accounts of any registered project -- particularly where K-RERA identifies red flags such as a project that is significantly behind schedule despite collecting large amounts from allottees. K-RERA can direct developers to produce escrow bank statements and withdrawal certifications for K-RERA's review at any time during the project's RERA registration period.

Q9. Does the escrow protect allottees if the developer diverts funds before RERA compliance is checked?

The escrow is a preventive mechanism -- it requires the developer to deposit the funds before they can be diverted. A developer who deposits 70% of collections into the escrow and then makes improper withdrawals (without certifications) is using the escrow fraudulently. K-RERA's periodic monitoring and the quarterly report review process are the detection mechanisms. A developer who diverts the full 30% non-escrow funds to inappropriate uses is also in breach -- but the escrow's 70% ring-fence protects the majority of allottees' funds.

Q10. How does Legal Brigade assist allottees in monitoring the RERA escrow?

Legal Brigade downloads and analyses the K-RERA quarterly progress reports for the specific project, calculates the expected escrow balance from the reported collections and compares it against the reported balance. Where a shortfall or suspicious withdrawal pattern is identified, Legal Brigade files the K-RERA escrow compliance complaint and requests K-RERA to direct the developer to produce the escrow bank statements. Legal Brigade also advises on the interaction between the escrow and the NCLT insolvency proceedings if the developer is in financial distress.

Is your Bangalore developer's RERA quarterly report showing an escrow balance much lower than 70% of what you and your fellow allottees have paid? Legal Brigade analyses the quarterly reports, identifies the shortfall and files the K-RERA escrow compliance complaint

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