Delhi High Court Advises Home Buyers to Approach RERA: Not Bank’s Responsibility to get Project Completed

Delhi High Court Advises Home Buyers to Approach RERA: Not Bank’s Responsibility to get Project Completed

The Delhi High Court by its division bench comprising of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad, observed that, it is not banks’ responsibility to get the project completed and the bank cannot assume the role of the builder to complete the project. The banks can only give a red flag to the borrower for the misutilization and it is for the lenders to take appropriate legal action by approaching the civil forum to ensure that the project is completed within time.

In the present case, the bench was dealing with a letter by one of the complainant- Vinod Kumar Naugain, who had sought a comprehensive scheme to address the grievances of home buyers availing home loans, including those buyers who were yet not given the possession of their flats by their builders and are still paying monthly instalments towards EMI payment. The letter had been converted into a writ petition in the nature of a Public Interest Litigation in 2019.

The complainant had alleged before the Court that despite the fact that banks sanction home loans for projects that are verified as genuine, they do not own any responsibility. Therefore, banks should be held responsible for the inordinate delay in completion of real estate projects, pleaded the complainant..

However, the bench was not impressed with the contentions and pointed out that a well-structured regimen has been created by the Reserve Bank of India (RBI), which includes guidelines to various banks on the issue of advancing loans to home buyers, there is a proper system available to redress the grievances of a home buyer.

The bench on perusal of the master circulars issued by the RBI dated 01.07.2015, titled as “Master Circular – Loans and Advances – Statutory and Other Restrictions,” and “Master Circular – Housing Finance” stated that, RBI had given advice to various banks as to which all projects should loans be advanced and the precautions which the banks must take while extending loans. The Master Circular also advised that the quantum of loans which are to be granted by the banks for housing finance and also to maintain loan to value ratio in case of individual housing loans.

The Court opined that Reserve Bank of India can only guide the banks to frame their loan policies with the approval of their boards and advices that the policies must be within the framework/guidelines issued by the RBI. The banks are expected to conduct basic due diligence at the time of approval/sanction/disbursement/renewal of the loans. The Master Circular advices banks to appoint auditors to check as to whether there is misutilization of loans.

The bench clarified that when the projects proponent defaults in completing a project, it is always open for the banks to approach the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for getting a Insolvency and Resolution Professional appointed and to take measures to ensure that project is revived and the project is completed because the banks are also anxious to recover their money.

Thus, the Court observed that banks cannot be converted into developers and builders or an authority on whom the responsibility is loaded to ensure that the project is completed.

Other than the remedies in Insolvency and Bankruptcy Code, 2016, it is always open for the home buyers to approach the Real Estate Regulatory Authority (RERA) to ensure that the project is completed, stated the bench.

Accordingly, the petition was dismissed.