Disclaimer: This has been reported after the availability of the order of the Court and not on media reports so as to give an accurate report to our readers.
Rajasthan Real Estate Regulatory Authority (RERA): In an application filed by the Avalon Royal Park Homebuyers’ Association seeking a forensic audit of the Avalon Royal Park (project) accounts, the Single Bench of Veenu Gupta, Chairperson, directed a limited forensic audit of the project notwithstanding the pendency of Corporate Insolvency Resolution Process (CIRP) proceedings before the NCLT. The Authority held that a forensic audit undertaken under the RERA Act, 2016, for examining utilisation of allottees’ funds, project-level compliances and regulatory disclosures, is investigative and fact-finding in nature and does not amount to a coercive proceeding prohibited by the moratorium under Section 14, Insolvency and Bankruptcy Code, 2016 (IBC). Noting substantial inconsistencies in the promoter’s financial disclosures, including discrepancies in project receipts, expenditure, loan amounts and physical progress, the Authority held that an independent examination of the project accounts was necessary to ascertain the true financial position of the project and safeguard the interests of allottees.
It was observed that,
“The proposed forensic audit, being limited in scope and regulatory in nature, does not interfere with or prejudice the CIRP pending before the Hon’ble NCLT, nor does it contravene the moratorium under Section 14 of the IBC.”
Background
The Avalon Royal Park project was launched in 2013 and registered under RERA in 2017. The homebuyers alleged prolonged delay in completion, diversion of project funds, discrepancies in financial disclosures, and improper creation of encumbrances over project assets. Seeking scrutiny of the project finances, the Homebuyers’ Association repeatedly requested a forensic audit through applications filed between 2023 and 2025. During the pendency of these proceedings, CIRP was initiated against the promoter-company and a Resolution Professional (RP) was appointed.
The RP and the secured creditor opposed the application, contending that once CIRP had commenced, all issues concerning the corporate debtor were required to be dealt with exclusively within the insolvency framework and that any parallel inquiry by RERA would be impermissible in view of the moratorium under Section 14 IBC and the overriding effect of Section 238 IBC.
Analysis
1. Whether this Authority is empowered to direct a forensic audit during the subsistence of moratorium under Section 14 IBC?
The Authority examined whether, despite the pendency of CIRP, it could exercise its independent powers under Sections 35 and 37, RERA Act to direct a limited forensic examination of the project accounts. It noted that while Section 14 IBC bars coercive proceedings, recovery actions, enforcement of security interests, transfer of assets, and adjudication of claims against the corporate debtor during the moratorium period, the object of such moratorium is to preserve the debtor’s assets and facilitate an orderly insolvency resolution process.
The Authority further observed that although both the IBC and the RERA Act contain overriding clauses, judicial precedents require a harmonious construction that preserves the insolvency framework under the IBC while simul allowing RERA to discharge its statutory and regulatory functions, so long as there is no direct conflict with CIRP. Distinguishing the forensic audit contemplated under the IBC from the audit sought in the present proceedings, the Authority noted that the former is aimed at examining suspect transactions under Sections 43, 45, 50 and 66 IBC for insolvency-related purposes, whereas the latter concerns project-level regulatory compliances such as utilisation of allottee funds, escrow compliance, statutory disclosures, and possible diversion of project funds. The Authority observed that the proposed forensic audit was merely an investigative and fact-finding exercise to verify project accounts and RERA compliances. Since it neither involved recovery nor enforcement against the corporate debtor’s assets, it was not barred by Section 14(1) IBC and did not interfere with the CIRP proceedings before the NCLT.
2. Whether the material on record prima facie discloses inconsistencies and discrepancies in the project’s costs, receipts, expenditures, and physical progress, warranting a forensic audit?
The Authority found that the material on record disclosed significant discrepancies in the project’s financial disclosures, including inconsistencies in receipts, expenditure and project progress, which warranted independent verification through a forensic audit. It noted a substantial mismatch between the expenditure claimed to have been incurred (75—77 per cent of the project cost) and the actual physical progress of only 48.13 per cent, raising concerns regarding utilisation of project funds. The Authority noted the homebuyers’ longstanding demand for a forensic audit since 2023, allegations of diversion and misutilisation of project funds and loan proceeds, issuance of utilisation certificates by different Chartered Accountant firms, and disputes regarding the nature and extent of encumbrances created over project assets and considering these circumstances, the Authority observed that the issues could not be satisfactorily resolved on the basis of the existing record alone and requires deeper scrutiny necessitating forensic audit to ascertain the true financial position of the project.
3. Whether the forensic audit contemplated under the IBC adequately addresses the issues arising under the Act, 2016, and whether directing a forensic audit by this Authority would result in conflict/duplication with the CIRP proceedings?
The Authority distinguished the forensic audit contemplated under the IBC from the audit sought under the RERA Act, observing that while the former is aimed at examining transactions relevant to insolvency resolution, the latter concerns project-specific statutory and regulatory compliances, including protection of allottees’ interests and utilisation of project funds. The Authority observed that the proposed audit neither sought recovery from nor enforcement against the assets of the corporate debtor and did not interfere with the powers of the Resolution Professional. Therefore, the Authority concluded that the forensic audit would not conflict with the CIRP proceedings before the NCLT and that it continued to retain limited regulatory jurisdiction to examine such project-specific compliances and that in any case no question of duplication arises as, no forensic audit was ordered under IBC.
The Authority noted that the promoter had taken inconsistent positions during the proceedings and failed to satisfactorily explain the financial capacity, funding arrangements, or utilisation of funds underlying such change in stance and thus an independent forensic audit was necessary to ascertain the true position regarding utilisation of funds and reconciliation of accounts. The Authority further observed that Section 35, RERA Act empowers it to call for information and conduct investigations into the affairs of a promoter, and held that directing a forensic audit in the present case squarely fell within its statutory jurisdiction.
Decision
The Authority held that a limited forensic audit of the Avalon Royal Park project was warranted, as such an exercise was regulatory in nature, did not contravene the moratorium under Section 14 IBC, and was necessary to safeguard the interests of allottees and ensure compliance with the RERA Act. Accordingly, exercising its powers under Section 35 of the Act, the Authority directed a forensic audit of the project from its inception till commencement of the RP proceedings, to be conducted through an empanelled agency with the Resolution Professional facilitating access to the relevant records. The audit was directed to be completed within 2 months.
[Suo Moto v. GRJ Distributors and Developers (P) Ltd., F.3(151)RJ/RERA/C/2017, decided on 8-6-2026]
Advocates who appeared in this case:
For the applicant: Mohit Khandelwal, Adv
For the respondent: Harshal Tholia, Disha Bohra, Ajay Singhal, Ekta Choudhary, Adv
