Introduction:

In the matter of Sharada Achar and State of Karnataka & Others [Writ Petition No. 3379 of 2024 (GM-RES) with connected petitions, citation 2025 LiveLaw (Kar) 316], the Karnataka High Court was called upon to decide the validity of a Circular dated 03.09.2020 issued by the Karnataka Real Estate Regulatory Authority (KRERA) which imposed a “delay fee” for belated submission of quarterly updates and annual audit statements by promoters irrespective of the scale of project, stage of development, or circumstances like force majeure. Justice M. Nagaprasanna presided over the matter, hearing a batch of petitions filed by several promoters challenging the legality of the Circular, while the State and KRERA defended its validity.

Arguments:

The petitioners contended that although the Real Estate (Regulation and Development) Act, 2016 (RERA Act) undoubtedly imposes obligations on promoters, neither the Act nor the Rules empower the Authority to levy delay fees of the kind now demanded. They argued that the impugned Circular was ultra vires the parent statute and an attempt at unjust enrichment by the Authority since it lacked any statutory basis. They submitted that the Act prescribes penalties and interest for violations but nowhere contemplates or authorises the imposition of “delay fees.” The petitioners stressed that the Circular was also violative of Rules 4 and 7, which deal with situations of non-commencement of construction and force majeure. Many promoters highlighted that delays in updating projects had occurred due to the COVID-19 pandemic, which should fall within the protective umbrella of force majeure. They argued that the collection of delay fees retrospectively from the third quarter of 2018-19, although the Circular was issued only in September 2020, was arbitrary, inequitable, and violative of Article 14 of the Constitution. They claimed the Authority had created a new financial liability not sanctioned by law, effectively exercising legislative functions without any statutory backing, which is constitutionally impermissible.

In response, the Authority and the State defended the Circular, contending that the Act casts mandatory obligations on promoters to provide quarterly updates on the KRERA portal and to submit annual audit statements, and when they fail to do so, the delay fee is collected. The respondents argued that the levy is intended to act as a cautionary mechanism to ensure timely compliance and transparency in the real estate sector. It was further contended that the petitioners had approached the Court without clean hands since they had failed to comply with statutory obligations and could not avoid consequences by challenging the Circular belatedly. The Authority maintained that the impugned Circular was not retrospective but only prospective, operating from its issuance in September 2020. It claimed that the Circular was consistent with Section 37 of the RERA Act which empowers the Authority to issue directions to promoters and developers, and hence it had the competence to issue regulatory instructions including financial consequences for non-compliance. The State argued that promoters could not escape liability under the garb of technical objections and that non-compliance warranted imposition of deterrent measures, failing which the regulatory purpose of the RERA Act would be diluted. They further submitted that if promoters refused to comply, they were liable for penalty under Sections 61 and 63 of the Act and the Circular only sought to streamline compliance by incorporating a monetary mechanism to enforce discipline.

Judgement:

After hearing both sides, Justice Nagaprasanna undertook a close reading of the RERA Act and Rules. The Court found that the Act meticulously lays down the duties of promoters, including obligations to provide quarterly updates, but nowhere envisages imposition of a “delay fee” for failure to comply. The Court observed that the only consequences under the Act are penalty or interest, as specifically provided in the statute, and that the Rules too make no mention of such delay fee. The Bench underscored the constitutional principle that imposition of any tax, fee, or impost must be backed by statutory authority, and no Circular, however well-intentioned, can create a financial burden without legislative sanction. The Court noted that the impugned Circular lacked “statutory parentage” and was an “impost without lineage under the statute, an exaction without authority, a levy without law.” The Bench rejected the State’s reliance on Section 37, clarifying that the power to issue directions cannot extend to imposing a fee or charge not contemplated in the parent law. The Court also dismissed the claim that the Circular was merely regulatory, noting that in substance it created a pecuniary liability not traceable to any statutory provision. The retrospective application of the Circular to periods preceding its issuance further compounded its illegality. The Court firmly held that the Authority cannot arrogate to itself legislative powers by issuing Circulars that create new financial liabilities.

In conclusion, the Karnataka High Court allowed the petitions, quashed the Circular dated 03.09.2020, and declared it void and unenforceable. The Court held that the petitioners would be entitled to all consequential benefits arising from the quashment. However, it clarified that its judgment would not prevent the legislature from enacting a law to impose such a fee in future, provided it is done in a manner consistent with constitutional and statutory principles. Justice Nagaprasanna’s judgment sends a strong reminder that regulatory bodies cannot overstep their statutory mandate by introducing imposts not sanctioned by law. The ruling is significant for the real estate sector, reinforcing that while promoters must adhere to transparency and accountability norms under RERA, regulatory authorities too must operate strictly within the four corners of the law and cannot impose burdens through administrative instruments like Circulars.