What Happens If a Builder Is Not Registered in RERA?

Imagine you have saved for years to purchase your dream home. You finalise a project, only to discover that the builder has not registered it under RERA. What does this mean for you? Is your investment at risk? Can the builder be punished? What remedies do you have as a buyer?

This article explains, simply and practically, what happens when a builder is not registered under the Real Estate (Regulation and Development) Act, 2016 (RERA), the risks involved, the penalties faced by builders, and the remedies available to you as a homebuyer.

What is RERA and Why Is It Mandatory?

The Real Estate (Regulation and Development) Act, 2016, better known as RERA, was enacted by the Indian government to regulate the real estate sector. The main aims are:

• Ensuring transparency and fair practices.
• Protecting the interests of homebuyers.
• Bringing accountability to real estate transactions.
• Creating a mechanism for speedy redressal of disputes.

RERA registration is mandatory for any real estate project where the land area exceeds 500 square metres or where more than eight apartments are to be constructed. No builder can advertise, market, book, sell, or offer any real estate project for sale without registering it with the respective State RERA Authority.

What If a Builder Skips RERA Registration?

Many homebuyers still face situations where the builder has not registered the project under RERA. This is not just a technical lapse—it has serious legal consequences for the builder and exposes homebuyers to several risks.

Section 3(1) of the RERA Act clearly states that no promoter (builder or developer) can advertise, market, book, sell or offer for sale any project without registering it under RERA. This requirement applies to almost all large and medium-sized residential and commercial projects.

Consequences for Builders Not Registering under RERA

Heavy Penalties

The law is strict for non-compliance:

• First Offence: Under Section 59(1) of RERA, if a builder fails to register a project, they can be fined up to 10% of the estimated cost of the project.
• Continued Non-Compliance: If the builder continues to violate the law, Section 59(2) allows for further fines (another 10%) and even imprisonment for up to three years, or both.

There have been several high-profile cases where State RERA Authorities imposed heavy penalties on builders for not registering projects, such as fines of several crores in Gurugram, Haryana.

Blacklisting and Deregistration

RERA Authorities have the power to blacklist builders who consistently violate the Act. A blacklisted builder:

• Cannot launch new projects in the state.
• Faces a loss of reputation, which discourages banks, investors, and future buyers.

If a builder with an ongoing project fails to deliver as per the RERA-declared timeline, the Authority may deregister the project and appoint a third party to complete construction. This is to protect the interests of homebuyers.

Loss of Business and Future Projects

Once a builder is blacklisted or found guilty of violating RERA, it becomes extremely difficult for them to:

• Get approvals for future projects.
• Obtain project finance from banks or investors.
• Attract new customers.

What Are the Risks for Homebuyers?

Loss of Legal Protections

RERA offers several important protections for buyers, such as:

• Defect Liability: The builder must rectify any construction defects for 5 years after handover.
• Right to Timely Possession: Compensation for delays in handing over possession.
• Clear Agreements: All project and apartment details must be transparent and legally documented.

If a project is not registered in RERA, you lose access to these direct legal protections and rights.

No Access to RERA Dispute Resolution

For registered projects, buyers can file complaints with the RERA Authority and get disputes resolved quickly—usually within 60 days. But for unregistered projects:

• You cannot file a complaint with RERA.
• You must approach consumer forums or civil courts, which can be slow, complex, and expensive.

Increased Risk of Fraud and Delays

Unregistered projects are not under any regulatory oversight, so:

• Builders may hide important information, such as project delays, changes in layout, or financial mismanagement.
• There is a higher risk of project abandonment, illegal construction, and hidden charges.
• Buyers may never get possession or may get a substandard property.

What Can Homebuyers Do If the Builder Is Not Registered in RERA?

If you discover that your builder has not registered your project under RERA, you do have remedies. The course of action depends on whether your project should have been registered under RERA (i.e., it meets the area/unit criteria) or is genuinely outside RERA’s scope.

Filing a Complaint with RERA

If the project falls under RERA’s purview (i.e., >500 sqm or >8 units), you can:

• File a complaint against the builder with the State RERA Authority for failure to register.
• The Authority can impose penalties, order compensation, and even ban the builder from future projects.
• You may want to consult a RERA Advocate to help draft and file the complaint properly.

Consumer Forum Complaint

If your project is not covered by RERA (e.g., small projects or old projects started before RERA’s notification):

• You can file a complaint with the District, State or National Consumer Forum for issues like:
  • Delay in possession
  • Substandard construction
  • Illegal demands or hidden charges
  • Fraudulent booking or non-issuance of legal documents
• The process usually starts with a legal notice sent to the builder.
• If the builder does not resolve the issue, a formal complaint is filed in the consumer forum with supporting documents (agreement, receipts, correspondence).

Insolvency Proceedings under IBC

Under the Insolvency and Bankruptcy Code (IBC), homebuyers are treated as financial creditors. If the builder fails to refund money or deliver the property:

• Buyers (individually or collectively) can initiate a Corporate Insolvency Resolution Process (CIRP) against the builder’s company.
• An Insolvency Professional takes control of the company and tries to resolve the matter for all creditors, including homebuyers.

Due Diligence Tips for Buyers

To avoid getting trapped in an unregistered project, follow these steps:

1. Always Verify RERA Registration: Check the project’s registration status on the official State RERA website.
2. Insist on Written Agreements: Never rely only on verbal promises or flashy advertisements. All agreements and payments must be documented.
3. Consult a Real Estate Lawyer: Have all documents (title, approvals, agreement) reviewed by a lawyer before you pay any money.
4. Be Cautious with Schemes: Don’t get tempted by “guaranteed returns” or “no EMI till possession” offers unless the scheme is registered and recognised by RERA.
5. Keep Records: Keep copies of all communications, payment proofs, and legal notices.

Conclusion

RERA registration is not a formality; it is a legal necessity and a safety net for homebuyers. Builders who do not register their projects under RERA face stiff penalties, criminal prosecution, and business blacklisting. As a homebuyer, you lose out on several protections and face higher risks if you invest in an unregistered project.

Always verify the project’s registration status, insist on proper documentation, and consult legal experts before making any payment. If you find yourself stuck with an unregistered project, know your rights and the alternative remedies available to you. Remember, awareness is your best protection in the property market.