Form 5 & Case Studies in rera

PREPARED BY MAITRI THAKKAR, SANDESH MUNDRA & ASSOCIATES

FORM 5 – RERA AUDIT
•The provisions of the RERA Act requires “..the promoter shall get his
accounts audited within six months after the end of every
chartered accountant in practice, and shall produce a
duly certified and signed by such chartered accountant and it
during the audit :-
•that the amounts collected for a particular project have been utilized
•the withdrawal has been in compliance with the proportion to the
completion of the project.”

IS THIS A CERTIFICATE / AUDIT REPORT /
STATEMENT

FORM 5 – MAHARASHTRA, PUNJAB & TAMIL NADU RERA
PREPARED BY MAITRI THAKKAR, SANDESH MUNDRA &
ASSOCIATES

FORM 5 – RERA AUDIT
•The format of Form is given in the Gujarat RERA Regulation, 2017, has
been amended as on 9th July,2018.
•The new format prescribed by the authority seems to widen the scope of
Audit, by not only auditing Form 3 but also commenting and reviewing
various matters pertaining to RERA Bank Account, financial
borrowings and certification of other forms (namely Form 1 & 2)

1. Whether separate bank account has been opened as envisaged in Gujarat RERA
Bank Account Directions, 2018 (GRBAD) ?
1.1. Whether the existing operational bank account was made known at the time
of application for registration as RERA bank account ?
Issues
What are the implications, if after GRBAD, one has not
renamed the bank account ?
ASSOCIATES

Issues
What are the implications of non-intimation of change in Bank Account to the Authority ?
If multiple accounts used for transactions of the project, whether all of them to be considered as RERA
RERA Account ?
GRBAD clearly makes it clear that “Every project shall have only one RERA Account. In the case of
case of multiple promoters, necessary contractual or legal arrangements should be made by the principal
promoter, who is registering the project, to ensure proper operations of RERA Account.”
Lets look at the matrix of Multiple Accounts and it viability :

INCURRED & PAID  CERTIFICATION  WITHDRAWAL
No. of Bank Account Ongoing Projects New Projects
One bank account
(100%)
Legacy of making payments. As already
already expenses would have been
incurred prior to RERA regime also.
However, the provisions of the act
require separate bank account for
depositing 70% of collection, which
would make a single account non–
compliance.
Withdrawal and payment are separate
separate scenarios. Gujarat RERA
requires payment prior to withdrawal,
withdrawal, which would not be
possible with a single bank account.
Two bank account
(70% & 30%)
Either of the accounts can be used for collection (preferably 70% account) and
and payment to creditors (preferably 30% account). Consistency being the most
most important factor.
Three bank account
(100%, 70% & 30%)
Collection would be received in 100% account, which will be bifurcated in 70-30.
70-30. Expenses/Payments can be made by transferring eligible funds to 30%
30% account after certification.
BANK ACCOUNTS MATRIX
PREPARED BY MAITRI THAKKAR, BY SANDESH MUNDRA & ASSOCIATES

No. of Bank Account Ongoing
Projects
New Projects
One bank account
(100%)
Two bank account
(70% & 30%)
Three bank account
(100%, 70% & 30%)
BANK ACCOUNTS MATRIX SUMMARY

2. Details of the RERA Bank Account as registered with Gujarat RERA
(mention all the bank accounts, if there has been change in the bank account
registered with RERA)
Issues
While applying for RERA registration in April’2018, Bank X mentioned. After registration in
May’2018, opened RERA bank account in Bank Y. Deposit and withdrawal done from Bank Y,
which is also mentioned in Form 3.
Which bank account to be reported in Form 5?
What if other receipts are routed through Bank Y, like unsecured loans ?
ASSOCIATES

4. Whether any of the Form 3 issued during the certificate period mandated deposit of
100% of the money collected from the booking of the project units (refer point 5 of
additional information of Ongoing Projects of Form 3)
4.1. If yes, please mention the certificate date and name of the certifying chartered
accountant.
Issues
Is point no. 4 applicable to new
projects also?

3. In case of change in RERA Bank Account as indicated above, whether due approval
following prescribed documentation was taken from Gujarat RERA under the Gujarat
RERA Bank Account Directions, 2018 ?
Issues
If Account ‘A’ registered at the time of Registration with RERA in Sept’2017,
Opened RERA Account ‘B’ in Dec’2017 and GRBAD came in Feb’2018. Does, the
promoter need to comply with requirements of GRBAD (Form RA1, RA2, RA3 &
RA4) ?

5. Whether the required proportion of money collected from the allottees of the
project units
(as indicated in Form 3) deposited in the RERA Bank Account ?
5.1. If no, please mention the amount not deposited under the above non –
compliance.
Issues
In case of Joint Development Agreement, whether the proportionate collection of co-
promoter and needs to be deposited in the separate bank account maintained by the
principal developer?
If while auditing Form 3, the auditor comes across various ineligible expenses and
thereby percentage completion changes, whether the withdrawal as per Form 3 be
considered as excess withdrawal to be reported

6. Whether the project registration is New or Ongoing project ?
6.1. In case of new project registration, whether there was any booking taken prior to project
registration ?
6.2. If Yes, please provide the details number if units booked, amount collected and total
consideration.
Issues
Can a project, whose construction has started but marketing has not been initiated be
registered as New project ?
Will any ongoing project registered after 31st March, 2018 be required to comply with
Audit requirements under RERA for FY 2017-18?

7. Whether all amounts withdrawn from RERA Bank Account were within the withdrawal
limit as certified under the relevant form 3 issued during the reporting period ?
7.1 If no, please provide the details of period and the amount of excess withdrawals.
Issues
Can the Bank allow withdrawal from the RERA Account without Certificate ? Can the
Bank be held liable for the same ?
Is the auditor expected to re-compute the withdrawal limit or he can rely upon the
same?

8. Whether any fixed deposit(FD) was created out of funds deposited in RERA Bank
Account ?
8.1. If Yes, whether the fixed deposit is created with the same RERA account bank branch in
compliance with para 5(ii) of GRBAD?
8.2. If Yes to 8 above, whether any lien is created on such fixed deposit in violation of para
5(ii) of GRBAD?
Issues
Is auditor required to ensure the compliance of Para 7(iii) of GRBAD? If yes, where
should he mention in case if he doesn’t receive any such certificate or if there is a
lien (Quarterly lien certificate) on such FD ?
Ideally for what period should the FD be created?
What is the procedure for transferring the amount from FD to RERA Bank Account?
ASSOCIATES

9. Whether there has been any instance of receipt of consideration in excess of
10% of apartment value without entering into a registered Agreement for Sale ?
If Yes, please provide the information about the same
Issues
If the promoter gets ATS prepared on back dated notary, how can it be reported in
Form 5 ?
If collection in excess of 10% received in September’2017, if ATS is be entered into
with allottee till March’2018, can it be considered compliance of RERA provisions ?

10. Whether the project is executed by availing any loans/borrowing ?
10.1. If yes, please provide details of sanction date, sanction amount,
outstanding amount as on the year end and collateral/mortgage details
10.2.Whether the financial encumbrance is reported to Gujarat RERA ?
Issues
Whether details of unsecured loans are required to reported under point 10?
Is the loan taken from partners reportable under point 10?
How can the financial encumbrance be reported to Gujarat RERA ?
Is customer loan an financial encumbrance to be reported under point 10?
ASSOCIATES

11. Whether any discrepancy noticed in forms 1,2 and 3 with reference to
their issuance in accordance with the RERA Act, rules and regulations ?
11.1. If yes, please provide the details of such experts and discrepancies
Issues
How can a Chartered Accountant analyze and comment on the certification by other experts?
Form 3 requires certification from inception of the project till a particular date. Whether the
auditor needs to review utilization of pre-RERA funds of the project also?
Certification under all forms is done cumulatively. Is verification of all the Forms issued
during the previous year needed to be done or that of only the latest form would suffice?
ASSOCIATES

12. Please specify any other things which are not covered above.
Issues Remedies
Is the auditor required to report on any
non-compliances?
Yes, the auditor is expected to report any non-
compliances like
• Delay in registration,
• Any advertisement/booking initiated prior to
registration
• Delay in opening or transfer of RERA Bank
Account,
• Delay in Quarterly Compliances,
• No lien/ charge Certificate in respect to such
fixed deposit not obtained,
• Investment of excess monies other than in
Fixed Deposit
ASSOCIATES

GENERAL QUERIES
Issues Remedies
Till the online utility is available, do we need to
need to physically submit the Form 5 ?
Yes.
If audit under Companies Act is done, is there
there a requirement of RERA Audit ?
Yes, the auditor has to do the aforesaid compliance in the
the format as prescribed under the Regulations framed by
framed by states. Further, if one opts for phase wise
registration under RERA, audit would be required for each
each phase separately, however, for the companies audit
audit the entire Books of Accounts shall be audited as a
a whole.
If the project is completed prior to
March’2018, would RERA Audit be required?
Annual Audit up to completion date of the project is
required even if project is completed before March’2018.
March’2018.
What if statutory auditor does not agree to do
do RERA audit?
An inability letter can be taken from the statutory auditor
auditor and any other Chartered Accountant can be
appointed who has not signed Form 3.

CASE STUDY
Project ‘A’ is integrated mixed development project comprising of Lower income Group (LIG) /
Middle Income Group (MIG) and High Income Group (HIG) housing along with Multiplex and
hotel. Larger complex has been sub-divided into two Complex i.e LIG / MIG having own ingress /
egress and HIG having own ingress / egress. Construction of the said project is underway since more
than three years. Project FAR is based on single sanction plan/ approvals.
Company has capitalized the cost that has been incurred on development of hotel and Multiplex
components, being part of the development that would not be sold and would be run as a business
once completed. Other components comprised in the project may be disposed of during construction
stage prior to receipt of Completion Certificate.
Towers A, B & E of HIG are significantly sold out. Further, Tower C (Commercial) and Tower D
(Residential) and are yet to be launched and the marketing/booking activities have not been
initiated. Company has not yet applied for RERA registration for the project. It is clarified that
company is maintaining single books of accounts for the entire project and budget prepared is also
at project level. However, tower wise cost and realizations can be worked out.

CASE STUDY
For revenue recognition purposes, and Tower A is considered separately, Tower B & E are
considered separately. In the time to come Tower C and D would also be considered separately.
The said integrated mixed development project would have common infrastructure and certain
services which will be common across all the components of the project and at the same time
some of the services would be specific to the component of the project. Example : Hotel and
Multiplex would have dedicated Heating, ventilation and Air Conditioning(HVAC) system
whereas Sewage Treatment Plant (STP) would be common across the project.
Cost would be determined as under :
1.Civil construction cost will be apportioned amongst all the components, in proportion of their
saleable area (super built up area);
2.Direct expenses attributable to each component;
3.Overhead cost (including corporate overhead) apportioned amongst all the components
proportionate to actual cost incurred.

CASE STUDY
Questions:
• What is the time and trigger point to register the project under RERA?
• What is meant by term phase? Is it development planned phase /Marketing phase or could it be any other
any other method viz sanction plan or any other plan?
• Can the company, continue with the sale pending registration under RERA due to delay on account of
account of seeking necessary clarifications from the authority. Is there a precedence in other states where
states where the authorities did not allow marketing of projects in initial stages when RERA just got
got implemented? If requirement arises to put a project detail board on site as well as head office, can that
can that be termed as advertisement?
• What will be the project area that will be registered under RERA, will it include Hotel and Multiplex area
Multiplex area as
well? What would be the implications,
o If registration is taken and if not sold ?
o If registration is not taken and if sold ?

CASE STUDY
Questions:
• If the design of multiplex is changed, whether the 2/3rd permission of allottees would be required, if
required, if registration of whole project is taken together or in case of phase wise registration?
• The project marketing would be done on pan India basis. Is there any legal obligation on the company to
company to register the project in any state other than the state where project is located?
• Can the open parking areas sanctioned by the authorities be sold to the allotees?
• In the model agreement to sale of Gujarat, there is a clause that open parking areas can be sold to allottees

CASE STUDYQuestions:
• Company undertakes affordable housing projects which are generally sold through lottery process
(applications received are more than the number of salable units). Unsuccessful applicants are refunded
refunded back the application amount.
Whether such customer collections are to be routed through separate Bank account and if yes, how the
how the refunds to unsuccessful applicants will be made with due compliance with RERA provisions.
provisions.
• Whether working capital gap would arise ?.
• How Loan (specific / Corporate) taken and repayments would be handled. ?
• Treatment of advance given to sub-contractors in RERA

CASE STUDYQuestions:
• The project may be constructed for leasing only, whether long term or short term. It is possible that
that Company be sale the leased space (Pre- Post CC). Will it be required to be registered under RERA?
RERA?
• In case of Joint Development Agreement (JDA), whether Land Owner would fall within the definition of
definition of Promoter / Co-developer and need to take registration under RERA?
o If yes, will he be required to maintain separate bank account and comply with all the provisions
provisions contained, in RERA
o If yes, then how the funds would get used (from separate account)as he is physically not spending
spending any money on project construction.

THANK YOU
ASSOCIATES

Form 5 & Case Studies in rera

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