The RERA Escrow Account: What a Promoter Can Do With Your Money, and What Happens If They Don't

By S&S Co. Advocates & Solicitors · Published 28 October 2026 · Informational content, not legal advice: see our disclaimer

Most homebuyers assume that once they pay a builder, the money simply becomes the builder's to spend as the project demands. RERA was built on a different premise. Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 requires a promoter to keep seventy percent of the amounts realised from allottees in a separate account in a scheduled bank, and to use that money only for the land cost and construction cost of that specific project, not for anything else, and not for another project the same promoter happens to be running.

This is one of the provisions homebuyers hear about but rarely understand in practical terms, until a project stalls and they start asking where their money actually went. This guide sets out what the escrow requirement demands, how diversion from it gets detected and penalised, and what a homebuyer or an allottees' association can actually do once it becomes clear the rule was not followed.

What Does the 70% Rule Actually Require?

The statutory scheme is simple in design even if the administration of it is not. A promoter has to open a separate account, commonly called the RERA account or project escrow account, into which seventy percent of every amount realised from allottees for that specific project must be deposited. The remaining thirty percent is left with the promoter to use more freely, for overheads, marketing and the broader costs of running the business, but the seventy percent is ring-fenced for that project's land and construction costs alone.

Withdrawals from the escrow account are not unconditional either. A promoter cannot simply move money out whenever cash flow is tight. Withdrawal is tied to the proportion of construction actually completed, certified by an engineer, an architect and a chartered accountant together, so that what comes out of the account roughly tracks what has actually been built. This certification requirement is the practical safeguard, in theory, that stops a promoter from drawing down the whole account early and leaving nothing for the later stages of a project.

What Counts as Diversion, and How Does It Actually Get Caught?

Diversion typically surfaces in one of two ways. Either a promoter's own project progress clearly lags the money that has been withdrawn, which an allottee or the regulatory authority notices when construction visibly stalls despite large sums having left the escrow account, or a lender steps in and recovers from the account to cover the promoter's own loan obligations rather than project costs, treating the escrow balance as general security for its advance rather than money earmarked under the Act.

Regulatory authorities in more than one state have found that banks and lending institutions can themselves breach the rule, even where the promoter never formally maintained the account as it should have been maintained. Where a financier adjusts or withdraws from the seventy percent share of realised sale proceeds without the conditions the Act lays down being met, the authority has treated that as a violation attributable to the lender as well as the promoter, and has in at least one instance directed that excess amounts withdrawn be deposited back into the project account. A homebuyer suspecting diversion can ask the regulatory authority to call for the project's escrow account statements and the engineer-architect-chartered accountant certificates, since a project genuinely using funds as required should have no difficulty producing them.

What Penalty Does a Promoter Actually Face for Breaching Section 4?

A promoter who contravenes the provisions of Section 4, which includes the escrow requirement under Section 4(2)(l)(D), is liable to a penalty that can extend up to five percent of the estimated cost of the real estate project as determined by the regulatory authority. That is a meaningfully large exposure on any project of real size, and it sits apart from the separate, and in some instances more serious, consequence of criminal referral where funds appear to have been actively misappropriated rather than simply mismanaged.

This penalty is distinct from the ordinary remedies an individual allottee pursues, refund with interest, delay compensation, or possession with compensation, which are claimed through the adjudicating officer under the Act's separate compensation provisions. The Section 4 penalty is a regulatory sanction the authority can impose on its own motion or on a complaint, aimed at the promoter's conduct as such, rather than a sum paid directly to any particular allottee, though a project's financial health, and therefore an allottee's eventual prospects of actually getting their flat or their money back, is obviously affected by how seriously the promoter has treated this obligation.

Can the Authority Actually Revoke the Project's Registration Over This?

Yes. Diversion or misutilisation of the funds collected for a project is treated as a default under Section 4(2)(l)(D), and that default can feed into the authority's power to revoke the project's registration where the promoter's conduct amounts to a persistent or serious breach of the registration conditions. Revocation is not the first tool reached for, since it disrupts a project that allottees are themselves relying on to eventually get their homes, but it remains available where lesser measures, warnings, penalties, directions to restore diverted funds, have not brought the promoter back into compliance.

Where registration is revoked, the authority does not simply walk away from the project. It has defined obligations at that point, including facilitating the project's remaining development, which can mean handing it over to the association of allottees to complete, or appointing another promoter to finish the work, with the project's unutilised escrow account funds and other assets available for that purpose. A homebuyer whose project is heading toward this outcome is better served engaging actively through the allottees' association at this stage than waiting passively to see what the authority eventually decides.

What Can a Homebuyer Actually Do With This Information?

An individual allottee rarely has standing or practical ability to audit a promoter's bank accounts directly, but every allottee does have the right to approach the regulatory authority with a complaint, and to request that the authority examine the escrow account and the completion certificates behind any withdrawals. Several state authorities have issued general advisories directing banks to monitor withdrawal patterns from these accounts more closely, which gives an allottee a basis to point to when asking why a particular withdrawal was permitted.

Collective action through an association of allottees tends to carry more weight than an individual complaint, both because it signals the scale of concern and because an association can more credibly propose itself as the body to take over development if matters reach that point. Where a project is visibly stalled and escrow withdrawals do not appear to match any visible construction progress, raising this specifically, rather than filing a generic delay complaint, is more likely to get the authority to look at what the money was actually used for rather than simply ordering refund or compensation on the usual delay-based grounds.

Does the Escrow Rule Apply the Same Way to Every Project?

The seventy percent figure is the general rule under the central Act, but a buyer should not assume every state administers it identically. Different state RERA authorities have issued their own advisories and monitoring directions on top of the central provision, and enforcement intensity varies noticeably between states, some authorities have been visibly more active in auditing escrow accounts and penalising lenders than others. A homebuyer checking on a specific project should look at what their own state's regulatory authority has actually published about that project, rather than assuming a uniform national standard of oversight applies everywhere in practice.

The rule also does not distinguish between a large listed developer and a smaller regional builder in how it applies, even though the practical ability to monitor compliance differs sharply between the two. A large developer with institutional lenders attached to a project often has more external scrutiny built in simply because banks want to protect their own exposure, whereas a smaller builder funded mostly through buyer payments can go longer without anyone outside the project noticing a problem. This is one reason buyers in smaller or single-project developments have more reason, not less, to ask pointed questions about escrow compliance before booking.

Frequently Asked Questions

References & Further Reading

The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.

1. Real Estate (Regulation and Development) Act, 2016, Section 4(2)(l)(D) (escrow account requirement)
2. Real Estate (Regulation and Development) Act, 2016, Sections 7 and 8 (revocation of registration and the authority's obligations after revocation)
3. Real Estate (Regulation and Development) Act, 2016, Section 60 (penalty for contravention of Section 3 or Section 4)