Who Pays When Builders Delay? The Hidden Cost of Home Loans

By Nihit Nagpal and Avik Gopal

In India, owning a home is a cherished dream for the middle class often made possible through government-backed home loans offering lower interest rates and flexible repayment options. However, this dream is frequently disrupted when builders fail to deliver flats on time or at all, despite having received the principal amount from buyers.

In such cases, while builders are clearly liable to refund the principal with interest, a key legal question arises: Are builders also responsible for the loan interest paid by buyers to banks?

The Hon’ble Supreme Court addressed this in Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors, [1] ruling that builders are not liable for the loan interest accrued by buyers. The Court held that the builder must refund the principal amount with 8% interest, but not the interest paid by the buyer on their home loan.

This judgment has significant implications for homebuyers, placing the burden of loan interest solely on them even when possession is delayed.

Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors

In this case, the Respondent (Anupam Garg and others) booked flats in GMADA’s project by paying 10% of the total cost as booking amount and the flats were supposed to be handed over to them within 36 months of the issuance of the Letter of Intent, but when the Respondents visited the site on May 2015, he found that construction was incomplete and that possession was unlikely for another 2-3 years. Hence, a Consumer Complaint was filed seeking a refund from GMADA

The State Consumer Disputes Redressal Commission (SCDRC) ruled in favor of Anupam Garg, directing GMADA to refund the entire deposited amount (Rs. 50,46,250) with 8% interest compounded annually. The SCDRC also directed GMADA to pay compensation for mental harassment and litigation costs and directed the payment of the interest on loans that Garg had taken from the State Bank of India for purchasing the flat.

Aggrieved by the order of the SCDRC, GMADA approached the National Consumer Disputes Redressal Commission (NCDRC) in appeal, which upheld the order of SCDRC. Aggrieved, GMADA filed an appeal before the Hon’ble Supreme Court that held that GMADA was liable to pay 8% interest on the principal amount and set aside the payment of interest accrued by the Respondent against his home loan financed by SBI.

The Hon’ble Supreme Court held that the relationship between the Respondent (Anupam Garg) and the Appellant (GMADA) is that of a buyer and a seller. Therefore, how the buyer arranges funds such as taking a loan in the present case, to purchase the property is not the concern or responsibility of the seller. The Hon’ble Supreme Court held that since GMADA has failed to deliver the property as per its commitment, its liability is limited to repayment of the amount secured from the buyer along with interest, and the mode used by the buyer to pay for that principal is unrelated.

The Hon’ble Supreme Court placed reliance and analyzed the seven principles laid down in the Bangalore Development Authority v. Syndicate Bank.[2] The seven principles that govern grant/non-grant of relief to an allottee who is aggrieved by non-delivery or delay in delivery of plots/flats are:

1. If the development authority even after receiving the full price fails to deliver the flat on time or refuses delivery without any just reason then the homebuyer is entitled to a refund of principal amount along with specific rate of interest and the court may even grant compensation.
2. If time is not of the essence in the performance of a contract and the buyer does not issue a notice making time as an essence and further accepts the delay, then no deficiency in the service of seller is considered.
3. The buyer is not liable for any compensation if the builder offers an alternate plot/flat at the same price or where the delay in delivery is because justifiable reasons.
4. When the builder and the buyer are tied through the responsibility of being a buyer and seller, then compensation can be awarded for breach, compensation can be awarded to the consumer under the head of mental agony and suffering.
5. If the agreement fixes price in advance, the builder or the building authority may revise it only with lawful justification and any excess if charged unjustifiable shall be returned with interests.
6. In cases where, the delivered property is incomplete and therefore is delayed in delivery, then the buyer is liable for compensation equivalent to the cost of completing the building or rectifying the defects.
7. The amount of compensation which shall be awarded is decided on the factors such as
   1. Whether the layout is developed on ‘no profit no loss’ basis, or with commercial or profit motive;
   2. Whether there is any assurance or commitment in regard to date of delivery of possession;
   3. Whether there were any justifiable reasons for the delay or failure to deliver possession.
   4. Whether the buyer has been subjected to avoidable harassment and mental agony.

A Hidden Burden on Homebuyers

The Hon’ble Supreme Court has firmly established that interest on home loans taken by buyers will not be the liability of the builder even in cases of delayed possession or non-delivery of the property. This decision raises critical questions about the precedent it sets and its impact on the average Indian homebuyer.

Buyers invest their hard-earned money with the expectation of receiving their dream home. Yet, in many cases, possession is delayed for years. Despite this, due to tripartite agreements, banks continue to charge interest even when the builder is not demanding instalments due to project delays.

This judgment imposes an additional financial burden on the middle class. It leaves them with two difficult choices: either refrain from buying a home or be prepared to pay hefty interest even when possession is not granted. Such a stance contradicts the foundational principle of restoration in civil and consumer law, which holds that victims should be compensated for the damages they suffer.

Sujal Sharma, Former Intern at S.S.Rana & Co. has assisted in the research of this article.

[1] Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors, 2025 INSC 808.

[2] Bangalore Development Authority v. Syndicate Bank (2007) 6 SCC 711