Karnataka REAT: Reconstituted Developer Firm Must Still Refund Rs 42 Lakh to Homebuyer

On 29 November 2019, an 82-year-old buyer signed a registered sale agreement for an apartment in the Nash Ville project for Rs 42 lakh, with possession due by 28 November 2020. About nine months after he signed, the partnership firm behind the project was reconstituted, and two new partners came in holding 97 percent of its shares between them. When the buyer won a refund order, the reconstituted firm argued it should not have to pay. On 16 October 2026, the Karnataka Real Estate Appellate Tribunal disagreed.

The ruling, in East North VVS Realty v. B.K. Nagaraj and Others, Appeal No. (K-REAT) 60 of 2026, was delivered by Chairperson Justice J.M. Khazi and Judicial Member Santhosh Kumar Shetty N. We read the tribunal's order, published with a LiveLaw report on 23 October 2026. This guide explains what the tribunal decided and what Bengaluru buyers should check about who their developer really is. It is buyer guidance on a reported order, not legal advice.

The short answer. The tribunal held that the firm could not escape its obligations under the 2019 sale agreement because of changes in its constitution, calling the appeal "an attempt to avoid the legitimate obligations of the Firm". It ordered the firm to refund Rs 42 lakh with interest at SBI MCLR plus 2 percent a year from 29 November 2019 to 24 March 2025, the date the firm deposited the amount with the tribunal. It also cut back K-RERA's interest, which had run from 1 May 2017, before the agreement existed. The trade-off: the ruling protects buyers when developers reshuffle partners, but it also shows that interest runs only from when money could have been paid, so keep proof of the dates of every payment.

What did the Karnataka REAT decide?

It kept the firm liable and corrected the interest. The order modifies K-RERA's order of 11 December 2023 in Complaint No. CMP/00154/2023. It holds the appellant firm liable to refund the sale consideration of Rs 42,00,000 to the allottee, with interest at SBI MCLR plus 2 percent a year from 29 November 2019, the date of the sale agreement, until 24 March 2025, the date on which the firm deposited the amount before the tribunal in compliance with Section 43(5) of the RERA Act.

The registry was directed to release the amount payable to the allottee, with interest accrued on the fixed deposit, by banker's cheque or demand draft once the appeal period expires, and to refund any balance to the firm. No costs were ordered.

Why did reconstitution not shift the liability?

Because the incoming partners took over the firm, not a clean slate. According to the report, the tribunal examined the reconstitution deed of 3 September 2020 and noted that the new managing partner held a 57 percent share and another incoming partner 40 percent. The deed made the managing partner responsible for managing the firm and operating its bank accounts, and the incoming partners agreed to share profits and losses and were bound by the terms of earlier partnership deeds.

On that basis, the report says, the tribunal held that the managing partner could not disown the firm's liabilities arising from the 2019 sale agreement. It also noted that he was a director of East North Realty Private Limited, which had been named in the original complaint, and inferred that he was aware of the complaint.

What did the firm argue?

That it had been left out and had not received the money. The report says the firm, which described itself as the actual promoter and developer, argued that it had not been made a party to the original proceedings, and that the sale consideration had been received by East North Realty Private Limited, a separate company, rather than the firm. It said it could not be liable for money it had not directly received.

The buyer replied that the reconstitution and induction of new partners after the sale agreement could not defeat his rights. Another partner, the report says, told the tribunal he had transferred the firm's assets and liabilities to the appellant firm after the reconstitution. The tribunal found no justification for absolving the firm.

Why did the tribunal cut the interest period?

Because the buyer could not have paid before the agreement existed. K-RERA had ordered interest from 1 May 2017, more than two years before the sale agreement. The tribunal observed that "the allottee is entitled to interest, if otherwise eligible, only from the date of the Sale Agreement and not from any date prior thereto, for the simple reason that there could have been no occasion for the allottee to make payments towards the sale consideration before the execution of the agreement." The report notes the buyer had not claimed to have paid anything in 2017.

The report says the tribunal treated this as an error apparent on the face of the record that it was bound to correct as the first appellate forum, even though neither party raised it, because interest for a period without payment would give the allottee an unjustified benefit at the promoter's expense.

How does the new order differ from K-RERA's?

In who pays and for how long interest runs. According to the report, K-RERA's order of 11 December 2023 directed the promoters to refund Rs 64.46 lakh, a figure that included interest calculated from 1 May 2017 to 11 November 2023, with further interest until final payment. That order was passed against East North Realty Private Limited and a partner of the firm. The firm itself, which said it was the actual promoter, had not been a party.

The tribunal's order changes both points. It names the appellant firm as liable to refund the Rs 42 lakh sale consideration, and it starts interest on 29 November 2019 rather than 1 May 2017, ending it on 24 March 2025 when the money was deposited. The report does not give a final rupee figure under the new calculation, and we have not worked one out, because the SBI MCLR applied over that period is not stated in the order or the report. A buyer in a similar position should ask the registry or counsel for the computed amount before release.

How did the case move from agreement to refund?

Over almost seven years. The table sets out the key dates from the order and the report.

The report also records that the buyer had filed a separate complaint for rental losses from the delay, which was settled before the Lok Adalat, where he received Rs 3 lakh. K-RERA's original order had been passed against East North Realty Private Limited and a partner of the firm.

What should Bengaluru buyers check about their developer?

Who signs, who receives the money, and who controls the firm. This case involved a partnership firm, a separate private company that received the money, and a later reconstitution. Before you pay, match the entity named as promoter in the agreement with the entity receiving your payments, and keep both names in your records. If a developer later changes partners or names, the order shows the tribunal looking at the reconstitution deed itself to decide who carries the obligations.

The ruling also connects to a theme we covered today in Mumbai, where a tribunal released a promoter's pre-deposit to the allottee after a failed appeal. Here too, the amount deposited under Section 43(5) became the fund from which the buyer is to be paid. For how unpaid orders are enforced when there is no deposit, see our report on the Karnataka High Court upholding an attachment.

A seven-point checklist on developer identity and payments

1. Note the exact legal name of the promoter in your sale agreement.
2. Check that every payment receipt is issued by that same entity, or ask why not.
3. If the promoter is a partnership firm, ask for the names of its current partners.
4. Keep proof of the date of every payment, since interest can depend on it.
5. Watch for notices of reconstitution, mergers or name changes, and keep copies.
6. In any complaint, name every entity that signed or received money.
7. If the developer appeals, ask whether a Section 43(5) deposit was made and track its release.

Frequently asked questions

What did the Karnataka REAT order in the East North VVS Realty case?

On 16 October 2026 it held the firm liable to refund Rs 42 lakh with interest at SBI MCLR plus 2 percent a year from 29 November 2019 to 24 March 2025, when the firm deposited the amount with the tribunal, and directed release to the allottee after the appeal period.

Can a developer escape liability by changing partners?

Not on the facts of this case. The tribunal found the incoming partners took over management and agreed to be bound by earlier partnership deeds, and held the managing partner could not disown liabilities from the 2019 sale agreement, calling the appeal an attempt to avoid the firm's obligations.

Why did the tribunal reduce the interest period?

K-RERA had ordered interest from 1 May 2017, before the sale agreement. The tribunal said the allottee is entitled to interest, if eligible, only from the date of the sale agreement, because there could have been no occasion to pay before the agreement was executed.

How will the buyer actually be paid?

The tribunal directed its registry to release the amount payable, with interest accrued on the fixed deposit, by banker's cheque or demand draft after the appeal period expires. The firm had deposited the amount with the tribunal under Section 43(5), and any balance goes back to the firm.

Last updated 2026-11-04. PropNewz Team.