Pre-launch = ₹1 in every ₹10: the RERA penalties builders keep underestimating

A Vizag developer has a plotted-layout project ready on paper. Registration has not yet been filed with AP RERA, but the sales team wants to “test the market.” A few rendered images go on Instagram. Brokers circulate a WhatsApp message showing the location, proposed plot sizes and an “early-bird” price. Interested buyers are invited to submit expressions of interest.

Then one buyer sends the screenshots to the Authority.

That is enough to create a serious problem. Section 3 of the Real Estate (Regulation and Development) Act, 2016 prohibits advertising, marketing, booking, selling or offering plots, apartments or buildings for sale before registration when the project exceeds 500 square metres or contains more than eight apartments, counting all phases. “Advertisement” is defined widely enough to cover digital campaigns, messages, brochures and other communications intended to inform people about a project or its sale.

The promoter’s defence—“we had not accepted bookings; it was only a soft launch”—does not answer the advertising and marketing prohibition.

On a project with an estimated cost of ₹50 crore, the maximum first-level penalty under section 59 is:

₹50 crore × 10% = ₹5 crore under section 59(1).

That is ₹1 in every ₹10 of project cost, before considering legal expenses, stalled collections, reputational damage or the consequences of continuing after an Authority order. The statutory framework is set out in the Real Estate (Regulation and Development) Act, 2016.

Four “small” defaults on a ₹50-crore project

Builders often budget for concrete, steel, finance and approvals with great precision. RERA compliance is treated as clerical work. The arithmetic shows why that approach is dangerous.

1. Pre-launch advertising before registration: up to ₹5 crore

Default: Instagram advertisements, WhatsApp circulation, broker campaigns, newspaper inserts, site branding or invitations for expressions of interest before registration.

Sections involved: Section 3 read with section 59.

Maximum penalty calculation:

₹50 crore × 10% = ₹5 crore under section 59(1).

If the promoter continues to violate section 3 after an order directing compliance, section 59(2) provides for imprisonment of up to three years, a further fine extending up to 10% of estimated project cost, or both.

Further exposure: up to another ₹5 crore under section 59(2), or imprisonment, or both.

The registration threshold is not tested phase by phase to manufacture an exemption. Section 3 expressly requires all phases to be counted. A large layout cannot safely be presented as several “small launches” merely because each internal phase appears below the threshold.

2. Missing one quarterly project update: up to ₹2.5 crore

Default: One quarter passes without updating project progress, approvals, bookings, construction status and other prescribed information on the RERA portal.

Sections involved: Section 11, the applicable AP or Telangana Rules, and section 61.

Maximum penalty calculation:

₹50 crore × 5% = ₹2.5 crore under section 61.

Section 11 requires the promoter to create and maintain the project’s web page and periodically update the prescribed particulars. Quarterly reporting is mandatory under the AP RERA Rules, 2017 and Telangana RERA Rules, 2017. TG RERA has expressly warned that failure to submit quarterly progress reports can attract section 61 proceedings. Its published timetable requires reports within 15 days after each quarter: TG RERA quarterly-reporting notice.

The penalty is “up to” the statutory ceiling, not an automatic ₹2.5 crore for every missed quarter. But the ceiling applies even where the promoter regards the lapse as a delayed upload rather than a substantive default.

If the Authority orders the promoter to file or correct the information and the order is ignored, section 63 can add a daily penalty cumulatively extending to 5% of estimated project cost:

Additional order-default exposure: up to ₹2.5 crore under section 63.

3. Withdrawing from the 70% account without the CA certificate: up to ₹2.5 crore

Default: Project money is withdrawn on the strength of internal cost sheets, an engineer’s note or bank availability, without the complete statutory certification package—including the certificate of a chartered accountant in practice.

Sections involved: Section 4(2)(l)(D) read with section 61.

Maximum penalty calculation:

₹50 crore × 5% = ₹2.5 crore under section 61.

The Authority may also require corrective action, including restoration of improperly diverted or excess-withdrawn funds. That financial correction is separate from the penalty and depends on the facts and the order passed.

If such an order is not complied with, section 63 creates daily exposure cumulatively reaching:

₹50 crore × 5% = up to ₹2.5 crore under section 63.

4. Changing the layout without two-thirds consent: up to ₹2.5 crore

Default: The promoter shifts amenities, revises the layout, changes common-area specifications or makes another material alteration without formal written consent from at least two-thirds of the allottees.

Sections involved: Section 14 read with section 61.

Maximum penalty calculation:

₹50 crore × 5% = ₹2.5 crore under section 61.

For the two-thirds calculation, each allottee is counted as one irrespective of the number of apartments or plots booked, while joint allottees of one unit are treated together as one allottee.

The Authority may additionally direct restoration, plan correction or other remedial work. Rework, approval costs, delay compensation and disruption to sales are commercial consequences beyond the section 61 penalty ceiling. Ignoring a corrective order can separately attract section 63—up to another ₹2.5 crore on a ₹50-crore project.

How the 70% account actually works

Section 4(2)(l)(D) requires 70% of amounts realised from allottees to be deposited in a separate scheduled-bank account maintained for that project. The money may be used only towards that project’s land and construction costs.

The separate account is not merely a bank account with “RERA” added to its name. It is a controlled project-fund mechanism.

Suppose a promoter receives ₹10 crore from allottees. At least ₹7 crore must enter the designated project account. That does not mean the entire ₹7 crore becomes freely withdrawable.

Withdrawals must follow the project’s certified progress and eligible cost position. Before releasing money, the promoter must establish the relevant land and construction costs, the stage of completion and the amount that can properly be withdrawn without exceeding the statutory limit.

Three professionals certify the position:

• The engineer certifies construction cost incurred.
• The architect certifies the stage or percentage of project completion.
• The chartered accountant in practice verifies collections, deposits, eligible costs, previous withdrawals and the permissible withdrawal.

All three certifications are necessary; one does not substitute for another.

Why CA independence matters

The certificate is not supposed to reproduce management’s spreadsheet. The CA must independently examine bank statements, allottee collections, ledgers, invoices, land-cost records, related-party entries, prior certificates and cumulative withdrawals.

A CA or team that has prepared the underlying books, approved management calculations or participated in fund-transfer decisions may face a self-review or management-participation threat. Calling that person the “compliance CA” does not resolve independence. Eligibility and independence must be evaluated before every certification engagement, with proper separation of bookkeeping, management decisions and assurance work.

The annual audit is another control, not a substitute for withdrawal certificates. Under section 4(2)(l)(D), the project accounts must be audited within six months after the end of each financial year by a chartered accountant in practice. The audit must verify that collections were used for the project and withdrawals complied with the proportion linked to completion. Telangana’s prescribed annual-audit format is published as Form 7.

RERA compliance is a recurring service rhythm

A builder running three to five projects does not need a once-a-year document exercise. Each project needs a continuing evidence chain.

Monthly cost tracking

Every month, reconcile:

• allottee-wise collections;
• the 70% deposit requirement;
• designated-account credits and withdrawals;
• land and construction costs;
• vendor invoices and related-party payments;
• booking, cancellation and refund data; and
• physical progress against financial progress.

Errors caught monthly can still be corrected before they become a misleading quarterly return or unsupported withdrawal.

Quarterly cost and progress certification

At quarter-end, reconcile the architect’s progress position, the engineer’s cost certificate and the CA’s financial records. Differences must be resolved before submission—not carried forward with a promise to “adjust next quarter.”

Withdrawal-triggered certificates

Whenever a withdrawal requires statutory certification, assemble the supporting records before moving the money. A certificate generated after the transfer does not change the fact that the withdrawal was unsupported when made.

Quarterly RERA updates

Update sales, approvals, construction progress, plans, financial particulars and other prescribed disclosures under section 11 and the applicable state rules. Portal data should agree with the books, bank account, GST records and certificates.

Annual audit

Within the statutory timeline, complete the project-wise audit under section 4(2)(l)(D). The auditor must examine how much was collected, how much entered the designated account, how much was withdrawn and whether the money was used for that project.

This is one continuous control cycle: monthly records feed withdrawal certificates and quarterly returns; those records then support the annual audit.

Three “we’ll fix it later” moves that backfire

Calling the pre-launch an “EOI”

Section 3 regulates conduct, not labels. If an EOI campaign communicates a project, price, inventory or opportunity with the object of generating purchasers, changing “booking” to “expression of interest” does not automatically remove the advertisement or marketing element.

Accepting refundable money makes the position worse, particularly where the communication and payment together show an offer or booking process. Registration should precede market-facing promotion for a project covered by section 3.

Temporarily using one project’s money for another

The 70% account is project-specific. A transfer to meet another project’s contractor bill, land payment or cash-flow shortage is not cured merely because management plans to return the money next month.

The original withdrawal must itself satisfy section 4(2)(l)(D). A later repayment may reduce the continuing shortfall, but it does not rewrite the transaction’s purpose or make the earlier certification correct.

Taking verbal consent for layout changes

Individual conversations, broker assurances, meeting discussions and unrecorded phone approvals do not constitute formal written consent from two-thirds of allottees under section 14.

The promoter needs a controlled consent process: final proposed alteration, explanatory note, affected plans, allottee register, written responses, voting calculation and an auditable record showing that the statutory threshold was reached before implementation.

FAQs

Can we advertise before registration if we do not mention the price?

No. Section 3 prohibits advertisement and marketing before registration; it is not limited to advertisements containing a price. If the communication promotes a covered project or invites prospective purchasers, omitting the rate does not make the campaign safe. Non-registration can attract up to 10% of estimated project cost under section 59(1).

Can we collect a 15% “token” and execute the agreement later?

No. Section 13 prohibits accepting more than 10% of the apartment or plot cost as an advance or application fee without first entering into a written agreement for sale and registering it.

The payment method creates a separate tax-law risk. Receipt of ₹2 lakh or more in cash in respect of a single transaction can violate section 269ST of the Income-tax Act, subject to its complete tests and exceptions. Section 271DA provides for a penalty equal to the amount received: sections 269ST and 271DA.

If no money is missing, can a delayed quarterly update still be penalised?

Yes. Quarterly disclosure is an independent promoter obligation under section 11 and the applicable AP or Telangana Rules. Section 61 permits a penalty up to 5% of estimated project cost for contravention of provisions for which no separate penalty is provided. Actual diversion of funds is not required.

Does two-thirds consent mean two-thirds of the units sold?

Section 14 refers to written consent of at least two-thirds of the allottees, other than the promoter. Each allottee is counted once regardless of how many units that allottee holds; joint holders of one unit are treated as one allottee. The consent should be obtained and documented before making the covered alteration.

Harun Raaj & Associates, Visakhapatnam provides one integrated recurring RERA-CA engagement covering project registration, quarterly compliance, withdrawal certificates and the annual project audit.

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See Also

• JDA landowner tax: when the ₹0-till-CC deferral holds, and when it doesn't
• The 70%-account: a CA certificate every withdrawal, an audit every year
• ESOP Perquisite Calculation: Exercise Price, FMV and Form 12BA / Form 16 Mapping

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