Karnataka HC Holds that Homebuyers Cannot be put in Danger if Loans are Sanctioned Recklessly

Priyanka Singh

Published on: September 26, 2022 at 19:41 IST

The Karnataka High Court held, in a recent case, that on release of loans by banks to developers without ascertaining the stage of construction of a project, they cannot impose coercive methods on homebuyers.

Justice Krishna S Dixit granted the relief to more than 30 homebuyers (Petitioners) who had been through such coercive measures by the Punjab National Bank Housing Finance Ltd., post withdrawal of their flat bookings in an ongoing construction project.

The judge noted that the Bank had disbursed loans recklessly to the developer, Mantri Developers, where no ascertainment regarding status of construction at site had taken place.

The homebuyers had booked their flats in the project that contained close to 1600 apartments. They had entered into a tripartite agreement with the bank and the developer of the project.

In the view of the agreement, the homebuyers had availed loans under a ‘pre-EMI’ loan scheme, which violates the RBI Guidelines.

It was also promised that on withdrawal/cancellation of bookings, the loan amounts would be paid back to the bank by developer.

Yet, initially, the bank went on to disburse loan amounts to the developer and, later, on demand, on behalf of the homebuyers.

The homebuyers moved the Real Estate Regulatory Authority (RERA) in the State, where the authority ordered the developer to refund the amounts paid by homebuyers as a part of their contribution.

On the other hand, the banks claimed that clauses of their agreement state that the homebuyers and developer shall jointly refund the money.

Noting the submissions, the Bench dismissed the contention of the bank regarding the liability of the homebuyers to pay back.

“A conjoint reading of various clauses in the Tripartite Agreement makes it very clear that even when the booking or the allotment is cancelled and as a consequence thereof, borrowers’ obligation to serve the debt evaporates into thin air, the interest of lending agency is protected, provided that the sanctioned housing loan was released to the Developer only after ascertaining stage war construction of the apartments, in terms of extant RBI Guidelines and Circulars issued by National Housing Bank,” said the Court.

Therefore, the Court ordered the bank to not take any coercive actions against the homebuyers.

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