Designated (Escrow) Account Compliance

Is the designated separate account an escrow account?

The statutory separate account is not simply a lender-controlled escrow arrangement. Section 4(2)(l)(D) requires seventy per cent of amounts realised from allottees to be deposited in a separate scheduled-bank account for land and construction costs, with progress-linked withdrawals. MahaRERA Order 56/2024 expressly distinguishes the designated separate account from an escrow account and addresses freedom from liens and third-party control.

The operational review should map the collection, separate and transaction accounts required under the applicable directions and examine any multiple-promoter structure. Bank mandates, auto-sweep instructions, project identifiers and account names should match the project records. A loan agreement cannot be assumed to override the regulatory account restrictions. Existing projects and special structures need an applicability check against the order and subsequent directions.

• RERA Act, 2016, Section 4 (application for registration)
• MahaRERA Order 56/2024, 27 June 2024: maintenance and operation of project bank accounts

How are withdrawals and annual audit tested?

Withdrawals must be supported by the engineer, architect and practising CA certification required by Section 4(2)(l)(D), in proportion to project completion. The certificate pack should use consistent dates, cost assumptions and project scope. Reconcile the permitted withdrawal computation with actual cumulative withdrawals and identify differences before further transfers. A certificate is not permission to use money for unrelated projects.

The Act requires accounts to be audited within six months after the financial year ends by a practising CA, with verification of project use and compliance of withdrawals with completion proportions. The annual exercise is not replaced by periodic withdrawal certificates. Preserve bank statements, ledgers, receipts, cost evidence and prior certificates so the auditor can test the transactions rather than merely repeat management totals.

• RERA Act, 2016, Section 4 (application for registration)
• Chartered Accountants Act, 1949 and ICAI guidance on certificates

What should a compliance exception report show?

Identify each exception by transaction, period, amount basis and supporting document, while keeping confidential bank information out of public content. Examples include receipts routed outside the expected account, unexplained inter-project transfers, certificate dates after withdrawals or a lien inconsistent with the directions. Distinguish a missing document from an established misuse of funds and obtain management explanations without treating them as independent evidence.

The engagement should define whether it covers setup advice, monthly reconciliation, withdrawal certification, annual audit or remediation support. These tasks can involve different professionals and independence considerations. The named CA must decide what can be certified on the available evidence. No account balance or certificate pack is represented here as reviewed for any particular project, and the rendering professional remains to be confirmed before engagement.