BUILDER-BANK and home buyer & Subvention
scheme
In case of delay in possession, the liability to pay EMI shall not
be that of home buyers
The word “subvention” implies grant of money. The
Subvention Scheme is a three party agreement made between the buyer, the
seller, and then the finance company providing the home loan. As per the scheme
the buyer doesn’t have to pay any amount in the form of interest until an
agreed period of time and that time period is specified as part of the
agreement. The buyer, generally has to
pay 5% or 10% of the cost of the house as part payment in advance. The
remaining amount shall be payable in terms of agreement. The scheme is devised
with a view to aid the people to pay the loan amount later and after a
specified period.
However, the subvention scheme has been the
subject of intense debate and court dockets are full to deal with the dispute
and law has evolved gradually.
The Consumer Commissions are the forums which
often finds with huge number of complaints lodged in this regard. Even
Extra-ordinary jurisdiction of High Courts under article 226-227 of
Constitution of India are invoked by several stake holders and a view appeared
to have evolved. The discussion shall follow hereinafter.
CIRCULARS
OF RBI/NHB
The home buyer under subvention scheme take
recourse to Circulars issued by the Reserve Bank of India (RBI), and the
National Housing Bank (NHB), which mandate that the banks and other financial
institutions should desist from offering loans in subvention schemes offered by
the developer, and should disburse the loan only on the basis of the stages of
construction. However, in many cases, it is noted that, the banks and/or finance institutions, have been disbursing
the loan amount to the developers without even examining the fact as to whether
the developers are in a position to complete the construction.
It is also worth mentioning that the scheme
provides for the banks/HFCs to disburse the sanctioned amount directly to the
accounts of the developers, who were to then pay the pre-EMIs or the full EMIs
on the sanctioned loan amount, until such a time that the possession of the
booked residential units would be handed over to the home buyers. In most
cases, it was also provided that if the possession of the residential flats
could not be delivered in the time stipulated by the developers, it would be up
to the developers to continue payment of the pre-EMIs, till the finally handing
over possession to the home buyers. Significantly, when the developers started
defaulting in making the payments towards the EMIs to the banks/FIs, the
Bank/FIs used to start against the consumer , on the premise that in terms of
the home loan agreement entered into between the parties, the borrowers had
made a categorical assurance to the banks/Housing Finance Company (HFCs), that
there would be no default in payment of the EMIs, borrowers' liability to repay
the loan was an independent contractual obligation, irrespective of any dispute
that may arise between the developer and the borrower. The home- buyers then
seeks direction to the bank/HFCs not to charge the EMIs from the consumer, till
possession is delivered to them by the developers. The home buyer also contends
that in such a situation that cannot be obligated to pay the EMI. Should there
be default, in such a circumstances, the home buyers could be saddled with
negative CIBIL, when there is no fault of their and the home buyers may not be
able to procure finance in genuine cases.
The directions and guidelines issued by the
RBI issued under section 35A of the Banking Regulations Act, 1949 and the
Master Circular on Housing Finance dated 01.07.2015, the RBI has emphasised
that the banks, while introducing any kind of product, should take into
account, the customer suitability and ensure that the borrowers are made fully
aware of the risks and liabilities under such products. It may also be noted
that vide para 3 (f) of the said circular, the banks have been advised that disbursal
of housing loans to individuals should be closely linked to the construction of
the housing project and upfront disbursal should not be made in cases of
projects which are still under construction. The banks are also advised to
appoint an architect to certify the various stages of construction of the
projects, and to ensure that there is no
diversion or siphoning of funds, for which purpose, the banks should consider
engaging their own auditors.
Insofar as the Housing Finance company are
concerned, the regulatory control qua them, which was earlier with the NHB, has
now been transferred to the RBI with effect from 09.08.2019 where after, the
RBI has, on 17.02.2021, issued 'Master Direction- Non-Banking Financial
Company-Housing Finance Company (Reserve Bank) Directions, 2021', which
reiterate the directions earlier issued by the NHB vide its circulars
18.11.2013 and 19.07.2019.The directions issued by the RBI on 17.02.2021 are in
line with the earlier guidelines issued
by the NHB, whereby the HFCs were directed to ensure that the disbursal of the
loan amount is strictly linked with the stages of construction, and no upfront
disbursement is made in case of an under-construction project.
In several ongoing litigations what has
transpired that when the construction was not even in incipient stage, however,
the Bank/FIs raised their contention to the effect that the payment was
released on the basis of specific requests received from the consumer and
therefore, the consumer cannot claim discharging their liabilities under the
contract.
LAW
1.
The
National Commission for Consumer Disputes in First Appeal No.162/2020 captioned
as M/s
Morpheus Developers Vs Ravi Ranjan & Ors, dated 04.03.2020 while
disposing of the appeal relating to subvention scheme has restrained the bank
from recovering the loan amount and interest from the complainant till the
disposal of the complaint or till the date of possession of flat. The bank was
restrained from recovering EMI from complainant pursuant to terms of Tripartite
Agreement relating to the loan disbursed to the borrower till the handing over
of possession of duly completed allotted flat to the complainant. The bank was
at liberty to recover the interest & EMI from the builder.
2.
In FA 163/2020 captioned as Morpheus Developers Pvt Ltd Vs Lalit
Chandola & Ors the National Commission for Consumer Disputes has
held that (i) The entire amount which Bank/FI paid to the appellant on behalf
of the complainants, shall be refunded by the appellant to the Bank/FI within
three months from the date of order along with such interest to which Bank/FI is
entitled from the complainants. It shall however be open to the appellant to
arrive at a settlement with bank/FI with respect to the said amount, but the
said settlement has to ensure that no liability comes upon the complainants
either in respect of the principal amount paid by the bank/FI or in respect of
interest or penalty, etc. on that amount.
3.
In a
matter captioned as Hridesh Kumar Pathak v. Bank of Maharashtra W.P.
(C) 6774/2021 and being Jayanta Kumar Mishra and Another v. Union of
India, W.P. (C) 10759/2021wherein the Division Bench has, by way of
interim orders, restrained the banks/HFCs from taking coercive steps against the
petitioners/home buyers.
4. In Hridesh Kumar Pathak (Supra)
it is held as under:
"In our view, prima facie, it appears
that the petitioner has been taken for a ride by the builder and it is not the
petitioner, who has received the loan amount. The Bank has disbursed the loan
amount to the builder, and in these circumstances, it remains to the seen as to
whether, or not, the petitioner is at all liable. Moreover, the Resolution Plan
appears to be on force and there would be no justification to subject the
petitioner to the ongoing proceedings before the DRT at this stage. We,
accordingly, stay further proceedings in O.A No. 166/2019 pending before the
DRT-II, Delhi, till further orders."
5. In
Jayanta Kumar Mishra (Supra) it is held as under:
"Let the respondent bank file its
counter-affidavit before the next date. Till the next date, we direct that
though the proceedings before the DRT in the pending Original Application may
continue and the DRT may even proceed to pass the final order to issue Recovery
Certificate, no recovery shall be made
from the petitioner till further orders in these proceedings."
6.
The
Apex Court in Supertech Ltd. vs. Emerald Court Owner Resident Welfare Association
(2021) 10 SCC 1, wherein, after noticing the plight of the homebuyers, the
Court has directed the developer to refund the entire amount with interest. It
is held as under:
"Mr.
N. Swaminathan, learned counsel appearing for one of the persons falling in the
last category submits that EMI is not being paid by the petitioner-developer.
Having appreciated the controversy, we direct that the petitioner- Supertech
Ltd. shall pay the EMI, so that the home-buyers do not get any kind of notice
from bank(s)."
7.
The
Apex Court in the case of Bikram Chaterjee vs. Union of India,
[2018]147 SCL 154 wherein the Apex Court while taking note of the fact
that the banks had failed to comply with their duties, and also colluded with
the developer in committing a fraud on the home buyers, and breaching public
trust. The paragraphs 69 and 127 of the judgment, which reads as under-
"69.
In the instant matter, the question of larger public importance is involved. It
is a shocking and surprising state of affairs that such large scale cheating
has taken place and middle and poor class home buyers have been duped and
deprived of their hard-earned money and lifetime savings and some of them had
taken a loan from the bank and they are not getting houses. Bank has made
payment to the builder, owners have the liability of making payment of amount
with interest, homebuyers are still waiting for their dream houses to be
completed.
127.
The Forensic Auditors' report makes it apparent that Bankers have failed to
ensure and oversee that the money was invested in the projects. It was diverted
elsewhere as rightly found by the Forensic Auditors. Even what was paid by the
home buyers, had not been used in the projects and stands diverted. There was,
in fact, no necessity for raising the loans from the bank. The money borrowed
from banks was used to create other assets worth thousands of crores. Thus, the
banks can realise their money from those assets and from guarantors and not
from the investment of home buyers, not from the buildings in which loans
granted by banks have not been invested, which have been erected partially or
some are at the nascent stage, for which hard- earned money has been paid by
the home buyers"
8.
The
Delhi High Court in a matter captioned as Ashish Tiwari vs Union Bank of India
W.P.(C) 10223/2021 and after taking
note of the aforesaid precedents has held that the balance of convenience at this interim
stage lies in favour of the beleaguered home buyers, keeping in view that they
are being penalized despite not being at fault. The respondents' plea that the
petitioners are obligated to pay the amount in the pre-EMIs and the EMIs,
despite the admitted position that under the terms of the tri-partite
agreement, it was incumbent upon the developers to pay the amount of EMIs until the possession of the flats was transferred
to them, will need to be examined. However, at this interim stage, grave and
irreparable loss will be caused to the petitioners if they are not granted any
interim protection.
9.
The similar issues were raised before
another co-ordinate bench of Delhi High Court in a matter captioned as SUPERTECH
URBAN HOME BUYERS ASSOCIATION (SUHA) FOUNDATION Vs Union of India & Ors WP
(C) 9491/2020 along with several writ
petitions to the same effect, the Delhi High Court has deliberated on vast range
of issues relating to subvention scheme and references are made to Karnataka
High Court judgment reported as Mudit Saxea Vs UOI Karnataka High Court W.P.(C) 17696/2021,
besides, reliance is placed on a decision of the Hon'ble Supreme Court in the
case of Godrej Sara Lee Ltd. v. Excise and Taxation Officer-cum-Assessing
Authority and Others 2023 SCC OnLine SC 95. The reference was
also made to the Division Bench of Delhi High court in the
case of Vineet Gupta v. Reserve Bank Of India & Ors. W.P.(C) 14508/2022.
However, the Delhi High Court in Supertech Urban (Supra) did not
entertain the writ petition on the premise of availability of alternate remedy
and also due to the fact that private parties may not be amenable to writ
petition. The subvention issue was therefore not adjudicated and it was held
that The Real Estate (Regulation and Development) Act, 2016 (RERA) or
consumer Courts or such other authorities are in place for adjudicating such
disputes.
That from the catena of judgments as referred to
above, it is clear that in subvention scheme, in case of any delay by the
builder in handing over possession of flat to the home buyer, irrespective of
liability cast upon the home buyer in terms of agreement/MoU or tripartite
agreement and liability arising out of that, the build4er shall have to pay the
EMI and interest thereon and the banks/ FIs shall have to recover the loaned
amount from the builder and no EMI, despite the agreement could be claimed from
the complainant/homebuyers. The subvention scheme and its terms as per the agreement
and liability cast on the home buyer is negated by the National Commission and that
is the broad view emerging from courts.
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Anil
K Khaware
Founder & Senior Associate
Societylawandjustice.com
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