Escrow Account Reconciliation

Under RERA Section 4(2)(l)(D), every promoter must deposit 70% of money received from allottees into a project-specific escrow account. This money can only be withdrawn against construction expenditure, proportional to the percentage of construction completed, and supported by: - Project Engineer's certificate of construction percentage - Project Architect's certificate of works completed - Chartered Accountant's certificate of expenditure

This is the single most consequential financial provision in RERA. It directly addresses the root cause of the pre-2016 real-estate failure: developers diverting one project's collections to fund another project, leaving the first project stranded with completed sales but incomplete construction.

The Escrow Reconciliation is the monthly verification that: - 70% of every receipt actually went to escrow (no skimming) - Withdrawals match construction percentage (not over-withdrawn) - Documentation supports every withdrawal (Engineer + CA + Architect) - Bank balance matches accounting records

Without reconciliation: - RERA quarterly compliance fails — Form 5 audit identifies gaps - Penalties + revocation under Section 7 of RERA Act - Allottees can complain to RERA Authority - Criminal liability under Section 71 for diversion - Imprisonment up to 3 years for promoter under Section 60-61 - Project blacklisting — further sales prohibited

Monthly reconciliation cycle:

Step 1 — Collect data: - Bank statement of escrow account (project-specific) - Customer ledger (per allottee receipts) - Withdrawal records + supporting certificates - Construction percentage from project Engineer

Step 2 — Inflow verification: - Every receipt from allottees identified - 70% calculated - Bank credit to escrow verified within stipulated time (typically 7 days) - Any shortfall: investigated + corrected - 30% deposited to operating account (per RERA)

Step 3 — Outflow verification: - Total withdrawals during month - Each withdrawal supported by: - Engineer's Certificate stating physical progress - Architect's Certificate stating works completed - CA Certificate confirming cost incurred - Withdrawal proportional to construction completion - Bank reconciliation

Step 4 — Cumulative analysis: - Total received from allottees to date - 70% mandatory deposit to date - Actual deposit to date - Variance % - Total withdrawals to date - Construction completion % to date - Allowable withdrawal (70% × Project cost × % completed) - Actual vs Allowable

Step 5 — Reconciliation report: - Opening + closing escrow balance - Inflows (deposits + interest credits) - Outflows (construction withdrawals + bank charges) - Bank reconciliation statement - Outstanding items (uncleared cheques / pending transfers) - Compliance status (Y/N) per RERA requirements - Signed by Project Director + CA + Engineer

Quarterly Form 5 filing: - Engineer's + Architect's + CA certificates for the quarter - Cumulative receipts, deposits, withdrawals - Construction progress (physical + financial) - Per-allottee balance + dues - Variations + revisions - Uploaded to State RERA portal

Annual audit (RERA Sec 4(2)(l)(D) proviso): - Independent audit of escrow account - Form 7 — Statutory Auditor's certification - Cross-checked with project bank statements + financials - Filed within 6 months of FY end (by 30 September typically)

Typical RERA escrow rules across states: - Maharashtra (MahaRERA): 70% as per Act + additional rules - Karnataka (K-RERA): 70% strictly - UP-RERA: 70% with detailed quarterly compliance - Telangana TS-RERA: 70% + construction milestone-linked withdrawals - West Bengal HIRA (state law): different escrow rules

1. Less than 70% deposited — most common gap; receipts deposited 60-65% to escrow; promoter saving cash flow; RERA violation.

2. Operating account commingled with escrow — same bank account used for multiple projects; escrow status meaningless; serious violation.

3. Withdrawal exceeding construction % — withdrawal proportional rule ignored; promoter taking money ahead of progress; allottees' funds at risk.

4. Engineer's certificate inflated — "30% complete" but actually 22%; Engineer signed favourably; basis for withdrawal challenged; RERA investigation.

5. No Architect's certificate — Engineer + CA only; Architect's certificate missed; technically non-compliant.

6. CA certificate generic — "costs incurred ₹X" without breakup; doesn't verify cost actually related to this project.

7. Inter-project transfers — escrow money moved from Project A to Project B (because A is selling well, B is short); criminal diversion.

8. Bank charges + interest mis-classified — bank charges treated as withdrawal; interest income credited but not reported; reconciliation breaks.

9. Late deposit of 70% — receipt today, escrow deposit 30 days later; gap period escrow under-funded.

10. No monthly reconciliation — only at quarterly Form 5 stage; errors accumulate; corrections complicated.

11. GST refund credited to operating not escrow — GST refund attributable to project; should go to escrow share + operating share in 70:30; often fully kept by promoter.

12. Cancelled bookings + refunds — booking cancelled, refund made; refund handling between escrow + operating not standardised; ambiguity.

13. Land cost + statutory dues from escrow — escrow meant for construction only; land + statutory payments wrongly drawn from escrow.

14. No project-specific bank account — single account for multiple projects; tagged via accounting; RERA requires physical separation.

15. Audit finding ignored — statutory auditor flags issues in Form 7; promoter doesn't correct; recurring issue across years.

Companion formats: - Customer Ledger + Demand Letter (FMT-RER-006) — receipt source - RERA Quarterly Compliance (FMT-RER-001) — Form 5 filing - Possession Letter (FMT-RER-005) — handover triggers - Possession Handover Checklist — handover process - Bill Register (PMC-BIL-REG-002) — construction expenditure cross-check - Engineer's Certificate — withdrawal supporting doc - CA Certificate (Form 3) — withdrawal supporting doc

Regulatory framework: - RERA Act 2016 Section 4(2)(l)(D) — Escrow mandate (70%) - RERA Rules (State-wise) — Maharashtra / Karnataka / Telangana / etc. specific rules - Section 7 — Revocation of registration (for diversion) - Section 60-61 — Penalties + criminal liability - Section 71 — Imprisonment for non-compliance - MahaRERA Order 2020 — Escrow withdrawal procedure - Companies Act 2013 Schedule III — Disclosure of project accounts - ICAI Guidance Notes — Auditor's responsibility on RERA compliance - Banking Regulation Act 1949 — Banks' obligations on escrow accounts - CARO 2020 — Auditor's reporting on real estate company