Rera -->one bank -->certificate for usage of funds

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naresh (Querist)
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21 November 2022 if builder has only one project and has used money for it more than realisation from customer, can we give form 5 certificate stating funds are used for project?

my view--.no ca cant give clean certificate, because, although customer realisations hvae been so less that they can be said for project but in same bank , because, borrowings (funds coming in) are so huge, the bank's outflow includes personal use of funds also, not just for project.

just any view is invited,

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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10 July 2024 Your view raises an important point regarding the issuance of Form 5 certificate under the Real Estate (Regulation and Development) Act, 2016 (RERA). Let's break down the considerations and perspectives related to this issue:

### Understanding Form 5 Certificate

Form 5 is a certificate that needs to be issued by a Chartered Accountant (CA) after conducting a detailed examination of the accounts and records of a real estate project. This certificate is crucial as it verifies that the funds collected from customers have been utilized for the intended real estate project and not diverted elsewhere.

### Issues to Consider

1. **Utilization of Funds**: As per RERA guidelines, the funds collected from customers (for instance, through bookings or advances) are meant to be used exclusively for the development of the specific real estate project for which they were collected. The Form 5 certificate attests to this utilization.

2. **Commingling of Funds**: In your scenario, where the builder has used funds from multiple sources (customer advances and borrowings), there is a risk of commingling. This means funds collected for the project may be mixed with other funds, including personal use or other business expenditures.

3. **Bank Borrowings**: If the builder has borrowed funds from a bank or financial institution, these borrowings could be used for various purposes, not solely restricted to the project. This complicates the assurance that all funds from customers were utilized exclusively for the project.

4. **CA's Responsibility**: The CA issuing the Form 5 certificate must conduct a thorough audit and verification to ensure that funds from customers are segregated and used only for the specific project. Given the potential commingling of funds as you described, it may not be possible to provide a clean certificate stating that all customer funds were used exclusively for the project.

### Conclusion

Based on the principles of fund utilization under RERA and the risk of commingling funds with borrowings, your assessment that a CA cannot issue a clean Form 5 certificate appears valid. The certificate should reflect the true and fair view of the utilization of customer funds, and if there is any doubt about the segregation or exclusive use for the project, the CA should refrain from issuing such a certificate.

In practice, if there are significant borrowings and complexities in fund management where customer funds could be intermingled, the CA's report would likely reflect these concerns. It's essential for builders to maintain transparency and clarity in fund management to comply with RERA regulations and provide accurate certifications to stakeholders, including customers and regulatory authorities.