Real Estate sector is one of the exception sector where end-consumer pays for the product before getting delivery of such product. That is, unlike other goods or services, customers pay significant purchase price in advance, which is often as large as life savings of a person and hence faces huge risk.
On the other hand, over-ambitious builders & developers engaged into unsustainable practice of commencing second project with the funds collected from buyers of first project, resulting in delay in or failure to deliver possessions.
Curbing such practices and protecting interests of such buyers of property is the one of the one of the important objective of introducing RERA, 2016. Chartered Accountants have been entrusted with responsibility to fulfil this objective through certification (form 3) and audit (form 5).
Though both Form 3 & Form 5 are to be issued by a Chartered Accountant, the law envisages different purposes to be served by each form. Thus, this article aims to distinguish these forms in concise and comprehensive manner.
1. Legal Provisions
1.1 The section 4(l)(D) of RERA, 2016 casts responsibility on the Promoter (builder/developer) to deposit 70% of the amounts realised for the real estate project from the allottees (buyers), which can be withdrawn only in proportion of work completed.
1.2 The second proviso to section 4(l)(D) prescribes the certificates to be obtained to withdraw funds from the separate account, which includes certificate to be obtained from a CA.
1.3 Further, the third proviso to section 4(l)(D) requires promoter to get his accounts audited for every financial year by a chartered accountant in practice, and shall produce a statement of accounts duly certified and signed by such chartered accountant.
1.4 The explanation 1 to regulations 4 of Maharashtra RERA (General) Regulations, 2017 requires that the chartered accountant certifying the progress of the registered real estate project for the purpose of withdrawal of amounts from the separate account should be a different entity than the chartered accountant who is the statutory auditor of the promoter’s enterprise.
2. Forms Prescribed
2.1 Certificate for the purpose of withdrawal of funds from separate account is to be obtained in “Form 3” whereas annual certificate from statutory auditor is to be obtained in “Form 5”.
3. Objective of Certification
3.1 While issuing certificate in Form 3, the CA has to verify the cost incurred towards construction cost and land cost. The CA is also required to certify proportion of cost incurred to total estimated cost. Thus, here the purpose is to ensure that funds from separate account of a project are withdrawn not more than that required to complete respective project.
3.2 On the other hand, statutory auditor in Form 5 certifies that the amount collected for particular project has been utilised only for such project and the withdrawals has been in compliance with the proportion to the percentage of completion of project. Annual audit is aimed to prevent and report diversion of funds of one project to another project.
4. Periodicity
4.1 The certificate in Form 3 is required to be obtained along with Architect’s certificate and Engineer’s certificate as and when promoter wishes to withdraw fund from separate account.
4.2 The annual report on statement of accounts in Form 5 has to be obtained within 6 months from end of every financial year, that is, on or before 30th September of the year following relevant financial year.
5. Disclosure on Website
5.1 There are no explicit provisions either in Act or Regulations or Rules requiring Form 3 to be uploaded under quarterly updation of project. However, Section 11(1)(e) reads “The promoter shall….. enter all details of the proposed project….. quarterly up-to-date status of the project” which is often interpreted as “uploading of Form 3 along with Form 1 & Form 2”. Interestingly, the “SOP for updating registered projects” issued by MahaRERA, provides field to voluntarily upload Form 3 unlike mandatory uploading of Form 1 (Architect’s certificate) & Form 2 (Engineer’s certificate).
5.2 As far as Form 5 is concerned, Regulation 4 clearly mandates to upload the annual report on statement of accounts (i.e. Form 5), duly certified and signed by the chartered accountant who is the statutory auditor of the promoter’s enterprise.
Thus, Chartered Accountants through their legal and financial knowledge can assist builders & developers to better organise themselves and equip themselves not only to comply RERA, 2016 in its letter and spirit but also to face global competition in the sector once floodgates of FDI in real estate industry are opened to the fullest.