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Equity investor with veto rights categorised as promoter under RERA

05 Aug 2022

In the matter of Rare Township Private Limited v IIRF India Realty VIII Limited, the Maharashtra Real Estate Regulatory Authority held that an equity investor holding certain veto rights would be categorised as a ‘promoter’ under the Real Estate (Regulation and Development) Act, 2016. Given this order, equity investors holding significant veto/affirmative rights in a company will have to assess whether they could be categorised as 'promoters' under the Act.

An order has been passed by the Maharashtra Real Estate Regulatory Authority (MahaRERA) in the matter of Rare Township Private Limited v IIRF India Realty VIII Limited on 30 June 2022 whereby an equity investor in a company has been categorised to be a ‘promoter‘ under the Real Estate (Regulation and Development) Act, 2016 (RERA) based on certain veto rights of the Investor, and accordingly, all obligations applicable to a ‘promoter‘ under the RERA would be applicable to such investor.


Rare Township Private Limited (Complainant), being the developer and promoter of the project ‘Rising City‘, filed a complaint before MahaRERA against one of its shareholders, IIRF India Realty VIII Limited (Investor) to inter alia:

  • declare the Investor as a ‘promoter‘ under the RERA;
  • to take cognizance of the actions of the Investor which have caused delays in completion of the projects; and
  • to restrain the Investor from creating any hindrance in completing the projects.


Whether the Investor can be categorised as a ‘promoter‘ under RERA?


It was argued by the Complainant that the Investor is vested with requisite powers and rights under the share subscription and shareholders agreement (executed in relation to the Investor’s shareholding held in the Complainant) (SSHA) which enable the Investor to stop and delay the execution of the projects through various acts (specifically, through the veto rights available to the Investor under such SSHA). The veto rights include, among others, seeking prior consent of the Investor for project expenses exceeding INR 25,00,000, approval of sales plan, change in capital structure of the company and any significant change in the liability structure.

On the other hand, the Investor, while citing an order passed by the Supreme Court of India on scope of ‘control‘, argued that reactive rights are not controlling rights and hence veto rights being exercised by a minority shareholder cannot be taken to mean exercising control.

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