The Karnataka Real Estate Regulatory Authority (KRERA) has restrained a finance company from taking possession of flats purchased by a homebuyer in a mortgaged Bengaluru project, in a significant order upholding buyer protection under the Real Estate (Regulation and Development) Act (RERA). The authority said that coercive recovery or seizure of property by a lender — without disclosing existing encumbrances to homebuyers — violates the spirit of the RERA Act.
KRERA has barred Edelweiss Asset Reconstruction Company (ARC) from seizing, auctioning, or interfering with a homebuyer’s possession of two flats in the project Aswani Sunshine, developed by Aswani Properties India Pvt Ltd, until due legal process is followed.
“The Respondent No. 10 (Edelweiss ARC) is restrained from taking possession, auctioning, or in any manner interfering with the complainant’s peaceful possession of Flat Nos. C-2-304 and C-3-104 in the project ‘Aswani Sunshine’ without due process of law,” the order stated.
The authority further directed the developer to disclose all loans and mortgages within the project within one month and clear any encumbrances that affect buyers’ interests. Non-compliance, KRERA said, would attract penalties. The order was issued on October 17, 2025.
The case
The complaint was filed by a homebuyer who had purchased two flats in Aswani Sunshine under registered sale agreements dated March 5, 2021.
He alleged that the developer did not disclose that the project was mortgaged to Indiabulls Housing Finance Ltd as part of a project loan. When the developer defaulted, Indiabulls classified the account as a Non-Performing Asset (NPA) and subsequently assigned the loan and securities to Edelweiss ARC for recovery.
The complainant stated that Edelweiss ARC had initiated proceedings to take possession of the mortgaged flats, including those already sold to him, despite his lack of awareness of any encumbrance. He argued that genuine homebuyers should not suffer for a builder’s undisclosed defaults and sought KRERA’s intervention to restrain the lender.
“The developer never informed me that the property was under mortgage,” the complainant said, adding that buyers should not be penalised for defaults by promoters.
KRERA noted that the promoter had failed to reveal the existence of the mortgage, thereby violating Section 4(2)(1)(B) of the RERA Act, which mandates developers to declare all encumbrances on project land at the time of registration. “Suppression of such material facts constitutes a violation of Section 4(2)(1)(B) and amounts to misrepresentation and deficiency in service,” the order stated.
The authority observed that once a project is registered under RERA and units are sold to genuine purchasers, any coercive possession or auction by a financial institution defeats the very purpose of the Act.
KRERA also invoked its powers under Sections 35, 36, and 38 of RERA, enabling it to issue directions to any party, including financial institutions — to protect homebuyers’ rights. Accordingly, Edelweiss ARC has been restrained from taking possession or auctioning the complainant’s flats until the builder’s liability is determined and full disclosure is made before RERA.
Legal experts said the order reinforces the precedence of RERA over the SARFAESI Act in protecting homebuyers’ interests. Advocate Akash Bantia noted that the ruling aligns with the Supreme Court’s judgment in Union Bank of India vs Rajasthan RERA, which held that RERA provisions prevail in cases where the loan was taken after a project’s RERA registration.
“In similar cases, homebuyers should move the High Court to seek a stay on any possession or auction attempts by lenders,” Bantia said. “While RERA safeguards buyers, lenders often dispute its applicability — so judicial intervention ensures genuine buyers aren’t wrongfully dispossessed.”
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