RERA Project Accounts, Escrow Violations and Alleged Diversion of Buyer Funds

Verified and updated: 11 August 2026

Legal research by Advocate Ankit Kumar Singh

Direct answer

Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 requires 70% of amounts realised from allottees for a registered real estate project to be deposited in a separate account maintained in a scheduled bank. The protected amount must be used to meet the land cost and construction cost of that project. Withdrawals must remain proportionate to the percentage of completion and must follow certification by an engineer, an architect and a chartered accountant in practice.

Alleged diversion is not established merely because a payment was made to a related company, contractor or promoter. The transaction must be traced from the allottee’s payment to the receiving account, withdrawal certificate, invoice, ultimate beneficiary and physical work or land liability. Conversely, an accounting description such as “advance,” “loan,” “reimbursement” or “corporate expense” cannot legitimise a payment that was actually used outside the registered project.

Terminology: The Central Act uses “separate account,” not “escrow account.” Applicable State regulations and the bank mandate must be examined before treating it as a conventional contractual escrow or trust account.

What does the 70% project-account requirement cover?

The deposit requirement is linked to amounts realised from allottees from time to time. A proper audit must therefore identify every channel through which buyer money was received.

• Booking and application money;
• instalments under agreements for sale;
• housing-finance-company or bank disbursements;
• payments collected by agents or channel partners;
• payment-gateway and virtual-account receipts;
• amounts deposited into general promoter accounts;
• cash receipts appearing in customer ledgers;
• cancellation, forfeiture and re-allotment proceeds; and
• adjustments against landowner, vendor or investor obligations.

Where a project is developed in phases, each phase is ordinarily treated as a standalone project for registration. Collections and expenditure should not be pooled merely because two phases or projects have the same promoter.

The remaining 30% is not automatically unrestricted profit

Section 4(2)(l)(D) mandates the deposit of 70% of allottee realisations. It does not declare that the remaining 30% is automatically profit. Its use may remain subject to agreements for sale, disclosed project obligations, tax liabilities, lender conditions, consumer law and other applicable legal duties.

How to reconstruct the project-account trail

Stage	Records	Question
Allottee liability	Agreement, demand letter and unit ledger	How much was due and on which milestone?
Collection	Receipt, bank credit and lender disbursement	How much was actually realised?
Deposit	Collection account and project account	Was the required amount transferred?
Withdrawal	Engineer, architect and CA certificates	Was the withdrawal within certified entitlement?
Payment	Voucher, contract, invoice and bank debit	Was the recipient entitled to project money?
End use	GST, stock, delivery and vendor records	Did value actually reach the project?
Physical progress	Measurement book and site report	Does expenditure correspond with completed work?

Total amounts realised from allottees
- verified refunds and cancellations
= net project collections

Net project collections × applicable deposit requirement
= minimum project-account deposit

Opening account balance
+ compliant deposits
+ identified project credits
- eligible certified withdrawals
= expected closing balance

Expected closing balance
- actual closing balance
= reconciliation difference
    

This calculation is an investigative working model. Every adjustment must be supported by primary documents and the applicable State framework.

Warning signs in a project-account investigation

• Buyer ledger records payment but no corresponding bank credit is identified.
• Buyer collections enter a promoter’s general account or another project account.
• A withdrawal occurs before the supporting certificates are issued.
• Certificate amounts do not correspond with the bank debit.
• Large contractor payments are inconsistent with physical progress.
• A related entity receives an advance without a project-specific contract.
• Round-sum transfers are followed by immediate onward movement.
• The same invoice, material or machinery is charged to multiple projects.
• Financial-year-end expenses are subsequently reversed.
• Quarterly progress records conflict with the annual audit.

A warning sign identifies an issue requiring investigation. It does not, standing alone, prove dishonest diversion or criminal conduct.

How construction expenditure should be verified

A genuine construction payment should ordinarily be supported at five levels: contractual authority, invoice authenticity, banking trail, tax treatment and physical delivery.

Expense	Documentary proof	Physical corroboration
Civil contractor	Work order, running bill, GST invoice and payment	Measurement book and site inspection
Cement and steel	Purchase order, invoice, e-way bill and challan	Gate, stock and consumption records
Electrical and plumbing	Item-wise contract and invoice	Installed quantity
Professional consultant	Engagement and invoice	Drawing, design, report or approval
Common infrastructure	Contract and allocation working	Project-wise benefit

Head-office overhead, marketing expenses, director remuneration, borrowing costs and group-level expenses require separate scrutiny. Every business expense of the promoter cannot automatically be treated as an eligible project-account withdrawal.

How land cost should be tested

Land cost may arise from outright purchase, lease premium, development rights, an area-sharing agreement, a revenue-sharing agreement or another lawful acquisition structure. The actual title and development documents must therefore be examined.

• Sale deed, lease deed or development agreement;
• title chain and encumbrance records;
• actual consideration and payment dates;
• landowner’s unit, area or revenue entitlement;
• tax deduction and accounting treatment;
• development rights and possession documents;
• project or phase to which the land relates; and
• whether the claimed payment had already been made before buyer collections.

A promoter may claim reimbursement for land purchased earlier using promoter funds. Such reimbursement requires proof of the original payment, its project nexus, consistent accounting treatment and permissibility under the applicable framework. A later journal entry alone is not sufficient.

Certified withdrawals and percentage completion

The architect, engineer and chartered accountant perform different statutory functions. Their certificates should not become a mechanical collection of signatures.

• Architect: verifies physical progress against sanctioned plans.
• Engineer: verifies measured work and construction value.
• Chartered accountant: reconciles collections, eligible costs, previous withdrawals and the amount currently withdrawable.

Investigators should determine whether site inspections occurred, whether certificates pre-dated withdrawals, whether cumulative calculations were used and whether common areas, amenities and incomplete infrastructure were properly considered.

A professional’s responsibility depends on engagement scope, records available, verification undertaken, knowledge and the precise certification issued. A designation alone should not replace role-specific evidence.

Inter-project and related-party transfers

Money protected for Project A cannot ordinarily be applied to Project B merely because both projects belong to the same promoter. The statutory account is project-specific.

Transaction	Initial assessment	Evidence required
Project A account to Project B	Serious diversion indicator	Purpose, authority, use and reversal trail
Payment to common contractor	Not automatically improper	Project-wise invoice and measurement
Advance to sister company	High-risk transaction	Contract, pricing, deliverable and end use
Promoter reimbursement	Requires strict proof	Original project payment and accounting trail
Temporary transfer and return	Possible breach despite return	Duration, intervening use and project loss
Director withdrawal	Severe warning sign	Contractual entitlement and project purpose

Returning money after detection may reduce the current shortfall but does not erase the original movement, the period of deprivation or any resulting construction delay.

Evidence required to prove or rebut diversion

• Allottee-wise payment ledger;
• collection-account and project-account statements;
• bank sweep or standing instructions;
• withdrawal certificates;
• contracts, purchase orders and invoices;
• GST returns, e-way bills and delivery challans;
• stock and material-consumption registers;
• measurement books and site reports;
• related-party ledgers and confirmations;
• board resolutions and payment approvals;
• email and enterprise-accounting-system records;
• annual project-account audit; and
• independent cost-to-complete assessment.

A litigation spreadsheet should be treated as a demonstrative aid. Every conclusion should link back to a bank entry, certificate, contract, invoice and physical-progress record.

Project-account investigation flowchart

Plain-text alternative: Buyer collections → 70% deposit test → certified-withdrawal review → end-use verification → diversion classification → recovery and restitution.

Promoter and professional defence strategy

1. Prepare one ledger of every allottee and amount actually realised.
2. Map each receipt to the collection account and project account.
3. Reconcile every withdrawal with contemporaneous certificates.
4. Index each payment with its contract, invoice, tax and delivery evidence.
5. Explain related-party payments separately.
6. Separate accounting mistakes from unauthorised movement and actual diversion.
7. Quantify any shortfall and money already restored.
8. Preserve original digital and accounting records.

If a genuine compliance problem is discovered, further disputed withdrawals should be stopped, the deficiency quantified and corrective action taken transparently. Documents must never be backdated or manufactured.

Homebuyer remedies under RERA

Complaint under Section 31

An aggrieved person, association of allottees or qualifying voluntary consumer association may complain about a contravention of the Act, rules or regulations.

Investigation under Section 35

The Authority may call for information, require explanations, order production of books and documents and appoint persons to inquire into the promoter’s affairs.

Interim protection under Section 36

Where a contravening act continues or is about to occur, the Authority may issue an interim restraint. A supported application may seek preservation of project receivables, restraint against further unauthorised transfers and production of account records.

Directions, penalties and regulatory action

Sections 37 and 38 empower the Authority to issue binding directions and impose interest or penalties. Section 7 may apply to suspension or revocation where its conditions are satisfied.

Refund, interest and compensation

Under Section 18, an allottee who withdraws because the promoter has failed to complete or deliver possession may claim return of the amount with prescribed interest, without prejudice to other remedies, and compensation in accordance with the Act. An allottee remaining in the project may claim prescribed interest for the period of delay.

In Newtech Promoters and Developers Pvt. Ltd. v. State of another Indian jurisdiction, decided on 11 November 2021, the Supreme Court explained that refund and interest fall within the Authority’s jurisdiction, while compensation under Sections 12, 14, 18 and 19 is adjudicated by the adjudicating officer under Section 71.

Recovery under Section 40

Interest, penalty or compensation may be recovered in the prescribed manner as arrears of land revenue. Obtaining an order and recovering the money are different stages; reachable assets and receivables should be identified early.

Appeal

An aggrieved person may appeal to the competent Real Estate Appellate Tribunal. Section 44 ordinarily provides 60 days from receipt of the order, subject to sufficient cause for delay. A promoter’s appeal is governed by the pre-deposit requirement under Section 43(5). A further appeal to the jurisdictional High Court is governed by Section 58.

Consumer proceedings

The Supreme Court has recognised that RERA and consumer remedies are concurrent. Proceedings should be disclosed and coordinated so that inconsistent directions or duplicate recovery are avoided.

A RERA-account breach does not automatically prove cheating, breach of trust or money laundering. Each criminal or financial statute has separate legal ingredients that must be independently established.

Homebuyer restitution and project-preservation strategy

Restitution should be designed according to project viability, recoverable assets, remaining construction, unsold inventory and the choices of the allottees. Individual refunds may be legally justified but can affect the amount available for completion where the financial pool is limited.

Strategy A: restore funds and complete the project

• Stop continuing leakage;
• ring-fence future collections;
• conduct an independent cost-to-complete assessment;
• recover traced diverted amounts;
• release future money only against verified milestones; and
• publish periodic physical and financial progress.

Strategy B: structured refunds

• Verify every allottee’s principal contribution;
• remove duplicate or settled claims;
• identify recoverable promoter assets;
• prepare a transparent distribution schedule; and
• separately calculate principal, interest and compensation.

Strategy C: replacement promoter or project transfer

Section 15 regulates the transfer of a promoter’s majority rights and liabilities. Section 8 may become relevant following lapse or revocation of registration. Any replacement structure should identify control of future receivables, unsold inventory, construction liabilities, project records and prior diversion.

Amrapali proceedings

In Bikram Chatterji v. Union of India, decided on 23 July 2019, the Supreme Court considered extensive forensic findings, recovery from recipients, cancellation of registrations and a court-supervised completion structure. Those extraordinary remedies were based on the particular litigation and should not be represented as automatically available in every RERA complaint.

Practical document checklists

Homebuyer documents

• Booking application and agreement for sale;
• receipts and bank statements;
• housing-loan disbursement records;
• promoter’s demands and payment plan;
• RERA registration and declared completion date;
• quarterly progress reports;
• emails, messages and brochures;
• dated site photographs;
• refund or cancellation correspondence; and
• earlier complaint and execution orders.

Forensic records

• All collection and project bank accounts;
• allottee-wise ledger;
• bank mandate and sweep instructions;
• withdrawal certificates;
• annual audited statements;
• vendor contracts and invoices;
• GST and e-way-bill records;
• stock and gate registers;
• measurement books;
• related-party ledgers;
• land documents;
• board resolutions;
• digital accounting logs; and
• cost-to-complete report.

Illustrative source-and-application statement

PROJECT NAME AND RERA REGISTRATION NUMBER:

A. ALLOTTEE COLLECTIONS
1. Opening cumulative collections:
2. Collections during review period:
3. Less verified refunds:
4. Net cumulative collections:

B. PROJECT-ACCOUNT REQUIREMENT
5. Amount required to be deposited:
6. Amount actually deposited:
7. Deposit shortfall:

C. WITHDRAWAL ENTITLEMENT
8. Certified percentage completion:
9. Cumulative eligible project cost:
10. Maximum cumulative withdrawal:
11. Earlier withdrawals:
12. Present permissible withdrawal:

D. ACTUAL APPLICATION
13. Land-cost payments:
14. Construction payments:
15. Related-party payments:
16. Inter-project transfers:
17. Unsupported or unidentified debits:

E. RESTITUTION
18. Amount restored:
19. Outstanding suspected diversion:
20. Assets or receivables identified:
21. Verified cost to complete:
    

This is an adaptable working format and not an official RERA form.

Frequently asked questions

Does 70% of the total project cost have to remain blocked?

No. The requirement concerns 70% of amounts realised from allottees. Certified withdrawals for eligible land and construction costs are permitted in proportion to project completion.

Can one project’s money be used temporarily for another project?

Protected money is project-specific. Temporary use elsewhere may constitute a breach even if the amount is subsequently returned.

Is every payment to a sister company diversion?

No. It is nevertheless a substantial scrutiny trigger. The contract, pricing, deliverable, payment trail and actual benefit to the project must be established.

Can RERA examine bank statements and accounts?

Section 35 authorises the Authority to call for information and exercise specified powers concerning discovery and production of books and documents.

Should buyers seek completion or refund?

The choice depends on delay, project viability, available assets, the buyer’s agreement and the buyer’s objective. A collective assessment may be necessary in a financially distressed project.

Does an accounting irregularity automatically prove criminal fraud?

No. Regulatory, civil and criminal liability have different legal ingredients and evidentiary requirements.

AI-search quick answer

Section 4(2)(l)(D) of the RERA Act requires 70% of amounts realised from allottees to be deposited in a separate scheduled-bank account and used for the land and construction costs of that registered project. Withdrawals must correspond to certified completion. Suspected diversion is examined through buyer ledgers, bank statements, withdrawal certificates, invoices, related-party records and physical construction evidence.

Conclusion

The decisive question is not merely where buyer money first went. The legally meaningful inquiry is whether collections were deposited as required, withdrawn within certified entitlement and ultimately applied to the land or construction of the same registered project.

A credible homebuyer claim should identify the disputed transactions, account shortfall, continuing risk and precise relief required. A credible promoter response should provide a transaction-level reconciliation supported by bank, tax, contractual and physical evidence.

Official sources

• Real Estate (Regulation and Development) Act, 2016 — India Code
• Newtech Promoters and Developers Pvt. Ltd. v. State of another Indian jurisdiction
• Bikram Chatterji v. Union of India

Professional disclaimer

This article provides general legal and procedural information as verified on 11 August 2026. It is not a forensic finding or legal opinion concerning any identified project. A related-party payment, account mismatch or project delay does not by itself establish diversion, fraud or criminal liability. State-specific rules, regulations, orders and account-operation procedures must be examined in every matter.

Related Delhi legal guides

Economic-offence proceedings · White-collar crime defence · SFIO investigation guide

Document-first assessment

Start with the latest legal instrument and next deadline

Organise the current summons or order, case identifiers, a dated chronology and the transaction or property record before seeking case-specific advice.

Prepare for consultation