What can I do if a builder is diverting money from the RERA-mandated escrow account?

Question

I suspect my builder is diverting funds collected from buyers instead of depositing seventy percent in the designated escrow account as RERA requires. What can I do about this? I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

What can I do if a builder is diverting money from the RERA-mandated escrow account? is governed in India primarily by Real Estate (Regulation and Development) Act 2016, Section 4(2)(l)(D), Real Estate (Regulation and Development) Act 2016, Section 35 and Real Estate (Regulation and Development) Act 2016, Section 60. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Section 4(2)(l)(D) of RERA requires a promoter to deposit seventy percent of the amounts realised from allottees in a separate escrow account in a scheduled bank, to be used only for the cost of construction and land, so that funds collected for one project are not diverted to another.

Withdrawal from the escrow account is permitted only in proportion to the percentage of completion of the project, and must be certified by an engineer, an architect and a chartered accountant under Section 4(2)(l)(D), creating a documented compliance trail an allottee can demand to inspect.

Section 35 empowers the RERA Authority to call for information, conduct investigations and issue directions to a promoter suspected of diverting funds, including auditing project accounts and the escrow account itself.

Section 60 allows the Authority to impose a penalty on a promoter who fails to comply with the escrow account requirement, which can extend up to five percent of the estimated project cost, in addition to any other remedy the allottees pursue.

Allottees who suspect fund diversion can jointly file a complaint before the RERA Authority seeking an audit and appropriate directions, and this evidence of diversion also strengthens any parallel refund or compensation claim under Section 18.

What to do next: 1) Collect evidence of construction delay disproportionate to funds collected, suggesting possible diversion; 2) File a written complaint before the RERA Authority under Section 35 seeking an audit of the escrow account; 3) Coordinate with other allottees to file a joint complaint, since collective evidence carries more weight; 4) Pursue a refund claim under Section 18 in parallel if the project remains stalled despite funds collected.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Real Estate (Regulation and Development) Act 2016, Section 4(2)(l)(D) carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.