The 70% Escrow Rule: What Section 4(2)(l)(D) Does With Your Money

Ask a sales team about the separate-account rule and you learn a great deal in about ninety seconds, whatever the answer is. It is the single most important protection in the statute and the least understood, largely because it gets described as "money is safe in escrow" — which is not what it says and not how it works.

What section 4(2)(l)(D) actually requires

It sits inside the registration application. To register a project under section 4 of the Real Estate (Regulation and Development) Act, 2016, the promoter files a set of declarations, and sub-clause (D) of section 4(2)(l) is the one about money.

The declaration is that seventy per cent of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank, to cover the cost of construction and the land cost, and shall be used only for that purpose.

Four phrases in that sentence carry all the weight.

• "Amounts realised ... from the allottees." The base is what buyers actually pay, as they pay it — not a projection, not the sanctioned cost, not a budget.
• "From time to time." It is a continuing obligation on every receipt, not a one-off deposit at launch.
• "For the real estate project." Per project. A promoter with several developments runs several accounts, and money raised on one may not build another.
• "Used only for that purpose." Cost of construction and land cost. Not marketing, not corporate overhead, not land for the next site.

What the separate account protects against

The failure this was written for is a specific one. A promoter collects on Project A, spends it acquiring land for Project B, and Project A stalls because the money that was supposed to build it is now a plot somewhere else. Buyers in A discover that their money has become an asset they have no claim on.

The separate account breaks that loop by making the money project-specific before anyone gets to decide what to do with it. The bank account is the boundary.

It is worth being precise about what that is not. It is not a guarantee of completion, not insurance, and not a fund you can draw on. It is a constraint on where money may go, enforced by a bank mandate and by the certification chain below.

Withdrawals: the three certifications

Money going in is only half the rule. The provisos to section 4(2)(l)(D) govern money coming out, and this is the part almost nobody quotes.

A promoter may withdraw from the account in proportion to the percentage of completion of the project. And the withdrawal may be made only after it is certified by an engineer, an architect and a chartered accountant in practice that the withdrawal is in proportion to the percentage of completion.

Three independent professionals, each with their own registration and their own exposure, have to agree before the money moves. That is what converts "seventy per cent is in a separate account" from a slogan into a mechanism.

There is a fourth control on the same sub-clause. The promoter must get the accounts audited within six months after the end of every financial year by a chartered accountant in practice, and produce a statement of accounts duly certified and signed — verifying during the audit that the amounts collected for a particular project have been utilised for that project and that withdrawals were in compliance with the proportion to the percentage of completion.

What the remaining thirty per cent is, and is not

The balance is not restricted by this sub-clause, and that is deliberate rather than a loophole. A project has real costs outside construction and land — approvals, professional fees, financing costs, marketing, administration — and a rule that ring-fenced everything would stop the project rather than protect it.

So the honest description of the rule is: the majority of every rupee collected is fenced to the thing you are buying, and the remainder is the promoter's working money. What the rule does not do is make the fenced portion yours. It is still the promoter's money; it is simply money that may only be spent one way.

Where the account is disclosed

The declaration under section 4(2)(l)(D) is part of the registration application, so the fact of the account and the undertaking about it belong to the record the authority holds. States prescribe the format of the declaration in their own rules made under the Act, and several require the bank details in the annexure to the application.

The related disclosure you can read yourself is the quarterly update. Section 11(1) of the Act requires a registered promoter to maintain the project's page on the authority's website and to update it every quarter with the number and type of apartments booked, the status of the project and the status of approvals. Bookings and construction status are the two inputs to the proportionality test, which makes a stale project page a more interesting fact than it looks.

What a promoter should be able to answer without hesitating

This is the practical value of the whole section. Five questions, and the quality of the answer is the signal.

1. Which scheduled bank holds the separate account for this project, and is it project-specific? A promoter running one account across several developments has answered the question badly by answering it at all.
2. Who are the engineer, the architect and the chartered accountant certifying withdrawals? Named professionals, not "our team". Section 4(2)(k) puts the architect and structural engineer on the registration application anyway.
3. What percentage of completion has been certified so far, and as of when? A date matters as much as a figure.
4. Have the annual audited accounts under the sub-clause been completed for the last financial year? The obligation runs to six months after the year end.
5. Does my payment schedule track construction stages or the calendar? A construction-linked schedule sits naturally alongside a rule built on percentage of completion. A time-linked one does not.

None of these are unreasonable questions and none of them are commercially sensitive. A team that has to go and find out is telling you where the rule sits in their process.

What the separate account does not protect you from

• A promoter that runs out of money anyway. Proportionate withdrawal is a discipline, not a solvency guarantee.
• Delay. The remedy for that is section 18 of the Act — refund with interest on withdrawal, or interest for every month of delay if you stay in — not the account.
• A defect in title. Section 4(2)(l)(A) is a declaration of legal title by the promoter, and section 18(2) is the compensation route where the title turns out to be defective. Your own search is still your own job.
• Your own payments running ahead of the work. The rule gates the promoter's withdrawals from the account, not your deposits into it.
• A project that was never registered. Section 3(1) of the Act bars marketing, booking or selling an unregistered project — and where there is no registration there is no declaration, so there is no rule to rely on.

Which is the reason the first check is always the registration itself. Every SUYUG registration number, regulator, promoter as named on the certificate and validity date is transcribed on the registrations page, so it can be verified against the register rather than taken on trust — and the questions above are laid out in purchase order on the buyer guide.