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Kerala HC: Interim Judicial Substitution of Statutory Interest Rates in RERA Appeals is Impermissible

In a significant ruling clarifying the boundaries of judicial interference in statutory regulations, the High Court of Kerala has set aside an interim order that allowed a real estate promoter to deposit pre-deposit amounts for an appeal based on the Marginal Cost of Funds based Lending Rate (MCLR), rather than the rate prescribed by law.

The Division Bench, comprising of Justice Raja Vijayaraghavan V and Justice K. V. Jayakumar, held that the judiciary cannot rewrite statutory rules under the guise of an interim order. The case involved property developers, Hoysala Projects Private Limited, who sought to challenge an order from the Real Estate Regulatory Authority (RERA) by attempting to calculate their mandatory pre-deposit using a lower interest benchmark.

A Dispute Over Statutory Benchmarks

The conflict originated from a failure by Hoysala Projects to hand over apartments as promised in their 2013 agreement. RERA directed the developer to pay a simple interest at 16.85% per annum—a rate derived from Rule 18 of the Kerala Real Estate (Regulation and Development) Rules, 2018 , which prescribes the State Bank of India ’s Benchmark Prime Lending Rate (BMPLR) plus 2%.

When the developer appealed to the Real Estate Appellate Tribunal , they were required to deposit the full amount awarded as interest to entertain the appeal, per the mandate of Section 43 (5) of the RERA Act, 2016. Seeking relief, the developer approached the High Court, arguing that BMPLR was obsolete and that MCLR should be used instead. An interim order from a Single Bench initially permitted this substitution.

The Arguments: Legislative Intent vs. Modern Banking

The appellants—the distressed home buyers—argued that the inclusion of BMPLR in the 2018 Rules was a conscious legislative policy choice made years after the RBI had introduced MCLR. They contended that was intended to act as a significant deterrent against developer defaults and that modifying this in an interim order "undermined the mandatory pre-deposit" requirement, creating a cascading negative effect on home buyers.

Conversely, the developer argued that the requirement was "onerous" and that using the retired BMPLR rate made the provision unworkable, urging that the judiciary should align the process with modern banking standards like the MCLR.

Judicial Reasoning: The Limits of Discretion

The High Court rejected the developer’s reliance on judicial discretion. The Court emphasized that the right to appeal is a creature of statute and is subject to the conditions imposed by that statute.

"The validity of the provision having already been upheld by the Apex Court, this Court could not have substituted that legislative policy choice with an alternative benchmark through an interim order," the Division Bench noted. The court further held that by permitting the deposit at the MCLR rate, the Single Bench had effectively permitted the developer to bypass a jurisdictional prerequisite, thereby treating a conditional right as an absolute one.

Key Observations

The judgment underscores the sanctity of legislative choices in consumer-protection laws:

• "... is a piece of delegated legislation... The Rule specifically prescribes SBI’s BMPLR plus 2% as the applicable benchmark for determining interest. The said prescription... cannot be characterised as obsolete merely because the Reserve Bank of India subsequently issued directions."
• "We have no hesitation in observing that the same [] constitutes a policy decision of the State intended to protect the interests of homebuyers under a beneficial legislation."
• "By reducing its quantum through an interim order, the Single Judge has effectively conferred jurisdiction on the Appellate Tribunal that the statute... does not permit."

Final Decision and Implications

The High Court vacated the interim order and granted the promoter/builder two weeks to deposit the full amount calculated strictly in accordance with . The ruling serves as a stern reminder that the mandatory pre-deposit mandated under the RERA Act is a non-negotiable prerequisite. For the real estate sector in Kerala, this decision reinforces the power of established statutory rules as effective tools for consumer protection and ensures that regulatory benchmarks remain consistent, regardless of shifting banking terminology.