1.0 Introduction
The Real Estate
(Regulation and Development) Bill has been cleared by both houses of
parliament. The provisions of this new legislation assume critical importance
in the context of internal controls at real estate companies. CFOs, controllers
and audit committees of companies in this sector need to gear up for system and
process changes to ensure compliance with this new legislation and at the same
time comply with the provisions of section 134 of the Companies Act.
2.0 Internal Controls
- Provisions of Companies Act
As per section 134 of
the Companies Act, 2013, the Board of Directors, in case of a listed company,
are responsible for laying down internal financial controls and ensuring the
adequacy and effectiveness of such controls. The Directors are also responsible
for devising proper systems to ensure compliance with the provisions of all
applicable laws and that such systems are adequate and operating effectively.
The companies legislation
articulates that the term "internal financial controls" to mean those
policies and procedures adopted by the company for ensuring the orderly and
efficient conduct of its business, including adherence to company's policies,
the safeguarding of its assets, the prevention and detection of frauds and
errors, the accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information.
3.0 Real Estate
Regulation and Development Bill - Salient features
The salient features
of the impending regulation are discussed herein below:
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a.
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Every commercial and
residential project (greater than 500 sq.m or having eight units) to be
registered with the Real Estate Regulatory Authority (RERA) to be set up in
each state,
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b.
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Project registration
requirements apply to both on-going and new projects,
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c.
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Disclosures
encompassing details of promoters, project plans, status of land, approvals
etc. need to be submitted at the time of project registration,
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d.
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Builders required to
deposit 70% of money collected from buyers in an escrow account to be
utilized only for purpose of construction and payment of land,
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e.
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Sale of units to be
based on carpet area,
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f.
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Developers and
buyers to pay same rate of interest on default,
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g.
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Developers to
advertise and sell homes in projects only after all approvals are obtained
from local authorities.
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4.0 Conclusion
The present
legislation was anticipated as the Bill was in public domain for some time. The
Board of Directors in general and audit committees in particular are
responsible for ensuring that an organization has good internal controls in
place to ensure compliance with all applicable laws and legislations. Systems,
process and controls need to be dynamic as changes to regulatory requirements
are a common and expected feature of the business environment.
It is time to gear up
for these changes, more so, in the context of an impending convergence with
International Financial Reporting Standards (IFRS)
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