Procedure for transferring or assigning promoter's rights and liabilities to a third party.
Karnataka RERA · Circular No. KRERA / circular / 02 / 2019 · 27/08/2019
What this circular is about
Karnataka RERA’s circular dated 27 August 2019 sets out how a promoter’s majority rights and liabilities in a real estate project may be transferred or assigned to a third party under Section 15. It explains the consent and approval requirements, identifies changes that do not require the stated approvals, and describes separate procedures for promoter-initiated transfers and transfers arising from enforcement by financial institutions or creditors. It also explains how the incoming promoter must update the project’s registration details and assume the previous promoter’s obligations. Annexure A provides the prescribed Application for Change in Promoter. The circular states that its procedure takes immediate effect.
Section 15 context
As set out in this circular, a promoter must obtain prior written consent from two-thirds of the allottees, excluding the promoter, and prior written approval of the Authority before transferring or assigning majority rights and liabilities in a project to a third party.
Key takeaways
For a promoter-initiated transfer, the circular requires the necessary allottee consent and Authority approval, with the application submitted using Annexure A. It identifies internal organisational changes and specified conversions that do not require the stated approvals, and sets out separate seven-day notification requirements for transfers arising from lender or creditor enforcement. The incoming promoter must also update the project’s registration details and take on the outgoing promoter’s obligations.
Changes and exceptions described in the circular
Internal changes in shareholding or constituents that do not affect obligations and liabilities to allottees or the promoter organisation’s rights and liabilities do not require the stated approvals. The circular also lists statutory conversions of a partnership firm into an LLP or private limited company; conversion of a private limited or unlisted company to an LLP or otherwise; and a proprietorship passing to legal heirs by succession.
A voluntarily initiated amalgamation or merger after 11 July 2017, where the amalgamating company has one or more RERA-registered projects, is treated as a promoter-initiated transfer. However, the circular states that an amalgamation, merger or demerger not regarded as a transfer under Section 47 of the Income Tax Act, 1961, or where 75% of shareholders remain the same in the resultant company, does not require the stated allottee approvals under Section 15.
Procedure for a promoter-initiated transfer
- Apply to the Secretary, Karnataka RERA, using Annexure A, with consent from two-thirds of the project’s allottees as on the application date.
- The Secretary initiates the approval process, which may include a personal hearing. The circular provides for an Authority order within one month of filing, approving the application with or without conditions, or rejecting it.
- After approval, and within seven days of completing the transfer, the new promoter applies to correct the existing registration details and uploads supporting documents in its name, such as land title and building-plan approval.
- The new promoter uploads a registered agreement confirming compliance with the outgoing promoter’s agreements for sale with allottees and assumption of the outgoing promoter’s obligations under the Act.
Transfers through financial institutions or creditors
The circular separately addresses transfers by operation of law or enforcement of security where the secured loan and/or charge on the project is disclosed in its Karnataka RERA registration details.
- Within seven days of becoming aware of a proposed transfer arising from enforcement of security or mortgage, the promoter writes to the Secretary in Annexure A format and simultaneously informs every allottee.
- Within seven days after the transfer is effected, the financial institution or creditor informs every allottee and the Secretary of the enforcement resulting in a change in ownership of the promoter organisation or transfer of the project.
- The financial institution or creditor acting as new promoter, or its appointed new promoter, applies for corrections to registration details and uploads supporting documents in its name as they are obtained.
- The incoming promoter uploads an undertaking to comply with the previous promoter’s agreements for sale and assume its obligations under the Act.
The circular’s examples include invocation of a pledge of promoter shares, takeover of project assets, transfer of the project by a bank, financial institution or asset reconstruction company under relevant insolvency and banking law, and takeover of the promoter’s management.
Updating the new promoter’s details
The Secretary obtains a legal opinion and seeks the Authority’s order. The order is emailed to the applicant’s registered or supplied email address. In accordance with that order, the new promoter applies through the correction module, attaches the order, and uploads amended land title, building-plan approvals and other required supporting documents as they become available.
Annexure A: Application for Change in Promoter
Page 4 contains the prescribed application, to be made on the promoter’s letterhead. It asks for the project registration number and contact and organisation details of both the existing and proposed promoter.
The listed enclosures are:
- List of allottees.
- List of complaints pending or disposed of before the Authority.
- Consent of two-thirds of allottees for the proposed transfer.
- Details of pending litigation or directions from a court, NCLT, NGT or another authorised body.
- An architect’s or engineer’s certificate describing development status.
- A chartered accountant’s certificate on project finances, particularly the bank account receiving homebuyer payments.
- A promoter affidavit stating that homebuyer rights are not adversely affected by the transfer or amalgamation.
The form also includes declarations about the accuracy of the information, changes to it, pending proceedings concerning the transfer, restrictions imposed by financiers with a charge on the project, and prohibitory court orders.
Official circular and application form
Download Transfering of Rights Circular — Karnataka RERA Circular No. KRERA / circular / 02 / 2019, dated 27/08/2019.
All your questions answered (FAQs)
Prior written consent of two-thirds of allottees, excluding the promoter, and prior written Authority approval are required for the transfer of majority rights and liabilities, subject to the changes and exceptions described in the circular.
Annexure A, on page 4 of the official PDF, is the Application for Change in Promoter.
For a promoter-initiated transfer, the circular requires an application for correction after approval and within seven days of completion of the transfer. The separate lender/creditor procedure is described above.
Disclaimer:
The information contained in this article is provided for general informational purposes and does not constitute legal advice. Readers should not act or refrain from acting on the basis of any content included herein without seeking appropriate legal or professional advice on the specific facts and circumstances at issue.
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