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Corporate Real-Estate Funding Rules.

Corporate Real-Estate Funding Rules (India)

Corporate real-estate funding refers to the legal mechanisms through which developers raise capital for land acquisition, construction, and project completion. Because real estate affects public investors and homebuyers, funding is heavily regulated.

1. Sources of Corporate Real-Estate Funding

2. Regulatory Framework

A. RERA, 2016

70% of project funds must remain in project escrow

Funds cannot be diverted across projects

Withdrawal linked to construction progress

B. Companies Act, 2013

Borrowing limits (Sec. 180)

Issue of debentures

Related-party funding restrictions

C. RBI & Banking Regulations

Exposure norms for banks

Prudential norms for NBFC real estate exposure

D. FEMA & FDI Policy

FDI allowed in construction development subject to:

Lock-in norms

Exit restrictions

Reporting to RBI

E. SEBI Regulations

REIT Regulations

Issue of securities

Disclosure norms for listed developers

3. Key Legal Restrictions

4. Risk Areas in Real-Estate Funding

Using one project’s funds for another

Structured debt masking equity

Misreporting construction progress

Layered SPV funding opacity

Investor exit disputes

Insolvency during project

5. Important Case Laws

1. Bikram Chatterji vs. Union of India (Amrapali Case) (2019)

Principle: Supreme Court held developers liable for diversion of homebuyer funds; strict financial discipline required.

2. Pioneer Urban Land vs. Union of India (2019)

Principle: RERA financial safeguards upheld; protects homebuyers from funding misuse.

3. Chitra Sharma vs. Union of India (Jaypee Infratech) (2018)

Principle: Homebuyers treated as financial creditors under insolvency law; funding mismanagement has IBC consequences.

4. Swiss Ribbons Pvt. Ltd. vs. Union of India (2019)

Principle: Insolvency law aims to balance creditor interests including real-estate investors and buyers.

5. Urban Infrastructure Venture Capital Ltd. vs. Union of India (2017)

Principle: PE investment structures in real estate must comply with FEMA and regulatory frameworks.

6. HDFC Ltd. vs. Satpal Singh Bakshi (2012)

Principle: Arbitration in financial real-estate disputes enforceable; funding contracts bind parties.

7. Supertech Ltd. vs. Emerald Court Owners Association (2021)

Principle: Regulatory non-compliance in construction tied to financial and approval irregularities.

8. ICICI Bank vs. Official Liquidator of APS Star Industries (2010)

Principle: Financial structuring and assignment of debts recognized; relevant for real estate project finance.

6. Dispute Resolution in Funding Conflicts

7. Best Practices for Corporates

✔ Project-wise escrow accounting
✔ Board approvals for borrowings
✔ Avoid cross-collateralization risks
✔ Transparent investor disclosures
✔ FEMA reporting for foreign funds
✔ Independent project audits
✔ Alignment with RERA withdrawal norms

8. Conclusion

Corporate real-estate funding is governed by financial discipline + regulatory oversight. Courts and regulators focus on:

Protection of homebuyer money

Prevention of fund diversion

Transparency in investor funding

Accountability of corporate promoters

Improper funding practices can lead to RERA penalties, insolvency proceedings, criminal liability, and director disqualification.

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