Fixing Auditors' Accountability

Fixing Auditors' Accountability www.infralive.com 45 InfraLIVE September 15, 2022 reports of most of the compa- nies. DefiniteTimeframe 5. Under the agreement, the p r o m o t e r / c o m p a n y i s required to complete the project within a definite period ranging from 3 to 5 years, failing which the promoter is required to pay penal rent/ penalty at the prescribed rate to the landowners. There should have been a provision of liability on passage of the stipulated period or suitable disclosure ought to have been made in the notes to accounts. Even statutory auditors have failed to qualify/ comment in this respect in their audit reports of most of the compa- nies. SanctionedPlan 6. A real estate project can only be registered with the RERA if it has a sanctioned plan by the competent authority. Each plan is valid for a definite period. It is observed that even after expiry of the validity of the sanctioned plan of the project, companies do not make any disclosure in their notes to the accounts. Further, the statu- tory auditors have not qualified or comment ed upon th i s a s p e c t . Co n s t r u c t i o n o f p r o j e c t s wi t hou t a va l i d sanctionplan is illegal. Reg i s t ra t i on o f New/ Ongoing Project Manda- tory 7. Under Section 3 of the RERA Act, no promoter is permitted to advertise, book, market or sell or offer for sale any flats/ plots in any real estate project unless they are registered with RERA . I f a n y p r omo t e r contravenes the provision of section 3 of the Act, he is liable to pay penalty up to 10 per cent of the cost of the project. Suitable disclosure ought to have been made in this respect in the notes to accounts. Statutory auditors have failed to qualify/ comment in this respect in their audit reports of most of the companies even when proceedings have been initiated against a few compa- nies. Operation of Separate/ Designatedaccounts 8. Under section 4 (2)(l)(d) of the RERA Act, 70 per cent of the amounts realised for the real estate project from the con- sumers/ allottees shall be deposited in a separate bank account to cover the cost of construction and the land cost and shall be used only for that purpose. Further, the promoter shall withdraw the amounts from separate account, in proportion to the percentage of completion of the project and that the amounts from separate account shall be withdrawn by the promoter only after it is certified by an engineer, an architect and a chartered accountant to the effect that the withdrawal is in proportion to the percentage of completion of the project: It is not clear from notes to the accounts or audit reports of accounts of the real estate developers whether the provisions of the Section 4 (2)(l)(d) of the RERA Act have been followed by the company. It is also not evident that the promoter has got its every project accounts audited within six months after the end of every financial year by a CA in practice, to ensure that the amounts collected for a particular project have been utilised for the project and the withdrawal has been in compliance with the propor- tion to the percentage of completion of the project. Percentage of works not disclosed inanyprojects 9. There is no disclosure on the percentage of work completed without acquiring their own land. They generally enter into r e g i s t e r e d d e v e l o pme n t agreements with landowners or group of landowners on sharing basis with specified terms and conditions and have definite timeframe for comple- tion of the projects. High Share of Landowners in theProjects 3. In most of these projects, the share of landowners is signifi- cant - ranging from40 to 60 per cent of the flats/ duplexes/ cons t ruc t ed ar eas o f the project. Further, the right of the promoters to sell their share of flats will arise only when they complete and handover the share of landowner(s) within committed timeframe. Simi- larly, in Noida, it is observed that the cost/ premium of the land is required to be paid to the Noida Authority within a period of ten years of allotment. As p e r Comp t r o l l e r and Auditor General of India (CAG)'s audit report, the total outstanding dues of 65 real estate developers, who were allotted Group Housing (GH) plots prior to April 1, 2010, was Rs 14,818 crore as onMarch 31, 2020 i.e. after ten years of a l l o t me n t o f t h e p l o t s . Resultantly, the thousands of homebuyers of the projects developed on these GH plots are not able to get their flats registered even after their flats are completed. 4. In their financial statements in the last five years, most of the compani es have however neither provided any liability nor disclosed their significant liability towards the landown- ers as agreed in the registered deve l opment agr eement s executed with the landowners for development of the Real Estate Projects. The statutory auditors have also not quali- fied/ commented upon this crucial aspect in their audit