Rajasthan RERA Permits Forensic Audit During CIRP Without Violating IBC Moratorium

The Rajasthan Real Estate Regulatory Authority (RERA) has issued a significant ruling allowing a forensic audit of the Avalon Royal Park project accounts, despite the ongoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). This decision was made in response to an application filed by the Avalon Royal Park Homebuyers’ Association, which sought a detailed forensic audit to examine the utilization of allottees' funds, project-level compliances, and regulatory disclosures.

The Single Bench, chaired by Veenu Gupta, ruled that a forensic audit conducted under the RERA Act, 2016, is an investigative and fact-finding exercise and does not constitute a coercive proceeding prohibited by the moratorium under Section 14 of the IBC. The Authority noted significant inconsistencies in the promoter’s financial disclosures, including discrepancies in project receipts, expenditure, loan amounts, and physical progress. These discrepancies raised concerns about the proper utilization of project funds and the need for an independent examination of the project accounts to safeguard the interests of allottees.

Background

The Avalon Royal Park project was launched in 2013 and registered under RERA in 2017. Homebuyers alleged prolonged delays in completion, diversion of project funds, discrepancies in financial disclosures, and improper creation of encumbrances over project assets. The Homebuyers’ Association repeatedly requested a forensic audit through applications filed between 2023 and 2025. During this period, CIRP was initiated against the promoter company, and a Resolution Professional (RP) was appointed.

The RP and the secured creditor opposed the application, arguing that once CIRP had commenced, all issues concerning the corporate debtor were required to be dealt with exclusively within the insolvency framework. They contended that any parallel inquiry by RERA would be impermissible due to the moratorium under Section 14 of the IBC and the overriding effect of Section 238 of the IBC.

Analysis

1. Empowerment of RERA During IBC Moratorium

The Authority examined whether it could exercise its independent powers under Sections 35 and 37 of the RERA Act to direct a limited forensic examination of the project accounts, despite the pendency of CIRP. It noted that while Section 14 of the 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 primary objective of this 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 allowing RERA to discharge its statutory and regulatory functions, provided there is no direct conflict with CIRP. The forensic audit sought under RERA is aimed at examining project-level regulatory compliances, such as the utilization of allottee funds, escrow compliance, statutory disclosures, and possible diversion of project funds. This is distinct from the forensic audit conducted under the IBC, which focuses on suspect transactions under Sections 43, 45, 50, and 66 of the IBC for insolvency-related purposes.

The proposed forensic audit is an investigative and fact-finding exercise to verify project accounts and RERA compliances. Since it does not involve recovery or enforcement against the corporate debtor’s assets, it is not barred by Section 14(1) of the IBC and does not interfere with the CIRP proceedings before the NCLT.

2. Prima Facie Discrepancies Warranting Forensic Audit

The Authority found significant discrepancies in the project’s financial disclosures, including inconsistencies in receipts, expenditure, and project progress. There is a substantial mismatch between the expenditure claimed to have been incurred (75-77% of the project cost) and the actual physical progress of only 48.13%, raising concerns about the utilization of project funds. The homebuyers have been demanding a forensic audit since 2023, alleging diversion and misutilization of project funds and loan proceeds.

The Authority noted the issuance of utilization certificates by different Chartered Accountant firms and disputes regarding the nature and extent of encumbrances created over project assets. Given these circumstances, the Authority concluded that the issues could not be resolved based on the existing record alone and required deeper scrutiny through a forensic audit to ascertain the true financial position of the project.

Conclusion

The Rajasthan RERA’s decision to permit a forensic audit during the CIRP, while respecting the moratorium under the IBC, is a balanced approach that ensures the protection of homebuyers' interests while not disrupting the insolvency resolution process. This ruling sets a precedent for harmonious coexistence between RERA and IBC frameworks, ensuring that regulatory inquiries can proceed without impeding the insolvency process.