Status as on- 30/09/2020

Many a times, it may so happen that a builder of a real estate project seeks a loan from banks for the construction of a real estate project. Once the loan is sanctioned, the builder would then advertise the project in newspapers, thereby inviting applications from homebuyers for the purchase of flats. After raising money from both the bank as well as the home buyers, the unscrupulous builder diverts and misappropriates the fund. Consequently, the real estate project gets stalled leaving the home buyers and the banks in uncertainty.

Recently, the banks have started issuing an auction notice in respect of real estate projects where the builder has defaulted by not completing the construction of the project. This creates a grave position for the home buyers who have invested their life-savings into purchasing a flat in the real estate projects. In such a situation there are three remedies for aggrieved homebuyers:

1. Filing a complaint against the bank under the Real Estate (Regulation and Development) Act, 2016 [“RERA”]; and
2. Filing intervening application before DRT (if any case is pending)
3. Invoking the Writ Jurisdiction of the relevant High Court.

Both these methods have proven to be successful under limited circumstances.

Filing a complaint against the Bank under RERA

Recently, a home buyer has filed a complaint against a bank, which had issued a notice for auction of the real estate project before the Haryana Real Estate Regulatory Authority [“HARERA”]. The HARERA offered relief to the home buyer by prohibiting the bank from auctioning the real estate project. The HARERA reasoned that by giving the loan for construction of the real estate project, the bank ‘caused the project to be constructed’, thereby it fell under the definition of a promoter under Section 2(zk) of RERA. Therefore, all the obligations of a promoter under RERA are attracted for the banks. The HARERA held that “if the auction is allowed and a third party is allowed to take over the project, the fate of the allottees of the sold inventory will be left in lurch”. Allowing the auction by bank, the HARERA noted, would be a violation of section 15 of RERA. This decision (Deepak Chowdhary v. PNB Housing Finance Limited) has been hailed as giving much relief to the home buyers who are facing coercive actions from the banks.

Filing a Writ Petition before a High Court:

In Anandghan Griharachana Sahakari Sanstha Maryadit v. Union of India, the home buyers approached the Bombay High Court under Article 226 of the Constitution of India to seek relief against the banks. In this case, the banks were forcing the home buyers of a stalled real estate project to pay the EMIs on the home loans taken by them. Noting that the corporate insolvency resolution process had been initiated against the defaulting real estate developer, the Bombay High Court prohibited the banks from recovering EMIs from the homebuyers.

When home buyers face coercive actions from the banks, they can also send a notice to bank citing RBI Circular no 2010-11/368 dated January 14, 2011 [“Circular”]. As per this Circular, an obligation has been put on banks to ensure that the funds given by them are not diverted for corrupt purposes. Thus, the banks cannot ask the homebuyers for money in case the developer has mismanaged the funds.

Conclusion: From the foregoing, it becomes clear that the courts have delivered decisions to protect the interests of the home buyers. Therefore, the home buyers need not worry against the coercive actions taken by banks and must seek immediate legal counsel whenever they face an auction notice from the banks.

Disclaimer– The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in or call the IP expert at 8383011629.