Proper System Available To Redress Grievances Of Home Buyer, Not Bank’s Responsibility To Get Project Completed: Delhi High Court

The Delhi High Court has said that banks cannot be loaded with the responsibility of getting the real estate projects completed and they cannot assume the role of a builder to complete the project.

The division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad said that banks "can only give a red flag" to the borrower for misutilization of funds by the builder, and it is for the lenders to take appropriate legal action by approaching the civil forum to ensure that the project is completed on time.

The high court was dealing with a letter by one Vinod Kumar Naugain, who had sought a comprehensive scheme to address the grievances of home buyers availing home loans, including those buyers who haven’t been given 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.

Naugain 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, he pleaded.

Noting 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, the court said that there is a proper system available to redress the grievances of a home buyer.

Apart from the remedies available under the Insolvency and Bankruptcy Code, 2016 (IBC), it is always open for the home buyers to approach the Real Estate Regulatory Authority (RERA) to ensure that the project is completed, the court said.

The court, while referring to the relevant ‘Master Circulars’ issued by the RBI under Section 35-A of the Banking Regulation Act, 1949, said that the circulars lay down a set of guidelines or framework for the scheduled commercial banks to follow and implement. The banks are directed, through the master circulars, to ensure that activities such as lending of loans or advances are done in line with principles of economic prudence and profitability, the court noted.

Observing the master circulars set out extensive detailed norms for lending activities -including the housing loans- for banks to follow and implement, the bench said, “A perusal of the same shows that a well-structured regimen has been created by the RBI which includes guidelines to the various banks on the issue of advancing loans to home buyers. A perusal of the said Master Circular shows that RBI has given advice to various banks as to which all projects should loans be advanced and the precautions which the banks have to take while extending loans.”

While holding that the banks are expected to conduct basic due diligence at the time of approval/sanction/disbursement/renewal of the loans, the court said, “However, it cannot be said that it is the banks’ responsibility to get the project completed and the bank cannot assume the role of the builder to complete the project. The Master Circular (Supra) advises banks to appoint auditors to check as to whether there is misutilization of loans. 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.”

The court added that when a builder defaults in completing a project, it is always open for the banks to approach the National Company Law Tribunal under IBC for getting an Insolvency and Resolution Professional appointed, and to take measures to ensure that the project is revived and completed since the banks are also anxious to recover their money. 

Dismissing the writ petition, the court concluded, “In view of the fact that there is a proper regimen available to redress the grievances of a home buyer and also in view of the Master Circular (Supra) issued by the Reserve Bank of India, no further Orders and directions are required to be passed in the instant petition.”

Case Title: Court on Its Own Motion vs. Govt of NCT of Delhi & Ors.

Citation: 2023 LiveLaw (Del) 237

Dated: 13.03.2023

Counsel for the Respondents: Mr. Gautam Narayan, ASC for Respondent No.1/ GNCTD. Mr. Ramesh Babu, Ms. Manisha Singh & Ms. Jagriti Bharti, Advocates for Respondent No.2/ RBI. Mr. Kirtiman Singh, CGSC with Mr. Waize Ali Noor, Mr. Madhav Bajaj, Ms. Kunjala Bhardwaj, Ms. Shreya V. Mehra & Mr. Yash Upadhyay, Advocates for RespondentNo.3/ UOI. Mr. Siddharth Panda, Advocate for Respondent/ L&B Dept, GNCTD.