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No Action to Recover EMI for Stuck Realty Projects

April 26, 2022

By Nihit Nagpal and Anuj Jhawar

The surge in realty projects assuring umpteen homebuyer of the dream of having their own homes have failed to become reality. The aftermath of Real Estate Developer’s inability to deliver projects on time, have left many homebuyers with the additional burdens of paying EMI without having anything in hands.

The Delhi High Court recently in Ashish Tiwari v. Union Bank of India[1] dated January 31, 2022, hearing a number of petitions under Articles 226 and 227 of the Constitution of India of Homebuyers against Banks/ Housing Finance Companies (HFC) disbursing the loan amount through subvention schemes to the developers without even examining the fact as to whether the developers are in a position to complete the construction gave interim relief directing that banks/HFC shall not take any coercive action against the homebuyers to recover EMIs for pending projects where the builders were supposed to pay the EMIs till possession.

Ashish Tiwari v. Union Bank of India- Brief Facts

The Petitioners booked flats with the builders and took home loans under the subvention scheme by entering into a Tripartite Agreement with the builders and the banks. The subvention scheme provided for the banks to disburse the sanctioned amount directly to the accounts of the builders, who were then to pay EMIs on the sanctioned loan amount, until possession of the flats is handed over to the homebuyers. However, builders started defaulting in paying the EMIs to the banks as per the Tripartite Agreement, and subsequently the banks initiated action against the homebuyers to recover the EMIs instead.

Contention by Petitioners

The Petitioners raised the contention that the Banks/ HFCs have given funds to the builder in flagrant violation of the directions issued by the RBI and the NHB wherein the banks have been directed to exercise due caution while disbursing of housing loans sanctioned to individuals under subvention scheme. The Petitioners further submitted that the Respondent/ Banks/HFCs cannot claim payment towards the loan amount, which they in this present matter pre-maturely disbursed to the builders. The Petitioners also submitted that the banks, have in fact, acted in collusion with the builders, in releasing the loan amount even without examining whether the builder was in a position to complete the project or not. The Petitioners in their support placed reliance on the orders passed in Hridesh Kumar Pathak v. Bank of Maharashtra[2] and Jayanta Kumar Mishra and Another v. Union of India[3], wherein the Division Bench, by way of interim orders, restrained the banks from taking any coercive steps against the Petitioners or the homebuyers.

Contention by Respondents/ Banks/HFC

The Respondents submitted that once the Petitioners had knowingly signed a Tripartite Agreement, they cannot now shift the blame solely on the banks for any default on the part of the builders, and evade their liability to re-pay EMIs in respect of the loans issued in the favour of the Petitioners.

Contention On Behalf Of RBI

Further, the learned Senior Counsel, Mr. V. Giri appearing for the RBI, submitted that the banks are required to comply with the directions and guidelines issued by the RBI whereby the banks were directed to ensure that the disbursal of the loan amount shall be strictly linked with the stages of construction, and no upfront disbursement shall be made in case of under-construction projects.

Order

The Hon’ble Justice Rekha Palli noted relevant extracts of the RBI circular dated 01.07.2015, pertaining to the issue of subvention schemes or “innovative housing loan schemes” wherein it was observed that such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. in case of dispute between the individual borrowers and builders, default or delayed payment of EMIs by the builder during the agreed period on behalf of the borrower, non-completion of the project on time, etc. The Hon’ble Justice further noted circular dated 09.07.2019 issued by the NHB, wherein it was observed that the housing finance companies (HFC’s) shall desist from offering loan products involving servicing of the loan dues by builders on behalf of the borrowers and the disbursal of housing loans sanctioned to the individuals shall be closely linked to the stages of construction of the housing projects and disbursal shall not be made in case of incomplete or under-construction projects.

The Hon’ble Justice vide this interim order observed that despite the banks having disbursed the loan amounts when the construction was admittedly incomplete, the Petitioners were being asked to pay the amount that was initially required to be paid by the builders.

The Court further observed that the Petitioners who are individual homebuyers are also facing grave financial hardship on account of the devastating impact of the Covid-19 pandemic. Therefore, the Petitioners have made out a prima facie case, balance of convenience also lies with the Petitioner and grave and irreparable loss would be caused to the homebuyers if they are forced to pay the EMIs in this challenging times due to the default of the builders. Thus, the Court vide this order granted an interim stay in favour of the homebuyers against the recovery of EMIs for pending projects where the builders were supposed to pay the EMIs till the possession.

Conclusion

This interim order in favour of the homebuyers, highlights the sorry state of affairs of the construction industry, where without any possession, innocent homebuyers are being forced by the banks/HFC’s to pay EMIs due to the default of the builders. Thus, the approach of the Hon’ble Delhi High Court in interim order restraining the Banks/HFC’s from taking any coercive steps against the homebuyers is a big positive steps, and especially in such cases where the builders in collusions with the banks/ HFC’s have flagrantly violated the guidelines of the Reserve Bank of India and the National Housing Bank.

[1] W.P. (C) 10223/2021

[2] W.P. (C) 6774/2021

[3] W.P. (C) 10759/2021

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