Loan Recovery: Karnataka High Court Restrains PNB Housing Finance From Taking Coercive Measures Against Apartment Buyers

In a significant order, the Karnataka High Court has restrained Punjab National Bank Housing Finance Limited from taking any coercive measures to recover the amount from loan borrowers who had entered into a tripartite agreements after booking their apartment units with M/S Mantri Developers Private Limited, in terms of "Pre-EMI Scheme".

A single judge bench of Justice Krishna S Dixit allowed a batch of petitions filed by the loan borrowers and said,

"A Writ of Mandamus is issued restraining the Respondent-PNB Housing Finance Limited from taking any coercive measures against the petitioners for recovering any amount comprised in the Loan Agreements and Tripartite Agreements in question."

Further the court directed the respondents— Reserve Bank of India, National Housing Bank, Punjab National Bank Housing Finance Limited & TransUnion CIBIL Limited, to process petitioners' claim for reframing the CIBIL scores and for issuing No Due Certificates in accordance with law, within sixty days.

It also directed M/S. Mantri Developers Private Limited, to comply with the subject orders made by the Adjudicating Officer, RERA within sixty days.

Case Details:

All the petitioners had booked their apartment units with the Respondent – Developer i.e., M/S Mantri Developers Private Limited, in terms of "Pre-EMI Scheme" i.e., Pre-Sanctioned loans vide Tripartite Loan Agreements entered into by & between the Petitioners, Developer & the PNBHFL. Not being happy with the pace of construction, they withdrew their bookings with intimation to PNBHFL and the same came to be endorsed by the Developer. However, in terms of arrangement, the PNBHFL had disbursed the loan amount directly to the Developer allegedly without ascertaining the stages of construction, though the extant RBI Circulars mandate such ascertainment.

Petitioners too had made certain payments to the Developer towards their contribution which included the remittance of 'margin monies'. Despite withdrawal from the project, they did not get their monies back from the Developer and therefore had complained to the RERA under Section 31 of the Real Estate (Regulation and Development) Act, 2016. PNBHFL was not a party to these proceedings. The RERA directed the Developer "to return the own contribution amount to the complainant within 30 days, if not, it will carry interest at 10.25%."

Further it also directed the Developer "to discharge the loan raised in the name of the complainant with all its EMI and interest if any." The Developer having not obeyed the orders of the RERA, coercive proceedings for the recovery of housing loans were taken up by the PNBHFL and this gave the 'base cause of action'.

Findings:

Firstly the bench noted that the clauses mentioned in the Tripartite Housing Loan Arrangements between the Petitioners, the Developer & PNBHFL stated that, "Where the borrower desires to withdraw and/or fails to pay" the differential of the amount as mentioned in the above clause, the entire loan amount advanced by the PNBHFL, has to be repaid exclusively by the Developer only."

Rejecting the argument of the bank that both the borrower and the Developer are jointly & severally liable to repay the loans. The bench said,

"A conjoint reading of various clauses in the Tripartite Agreement makes it very clear that even when the booking/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 stagewar construction of the apartments, in terms of extant RBI Guidelines and Circulars issued by National Housing Bank."

Further the bench junked the contention of the bank that there is a separate Bipartite Loan Agreement whereunder petitioners obligation to serve the debt continues independent of the Tripartite Agreement. The bench said, "No specific clause of the Bipartite Agreement is notified to the Court justifying PNBHFL to coerce the petitioners to undertake debt servicing disregarding the protection bestowed by the subject clauses."

It observed ,

"If a bank has erred in the course of its business and suffers loss, the poor borrowers who wanted to have a shelter of their own, cannot be put to peril, the Right to residence being constitutionally guaranteed under Article 19(1)(e)."

It then opined,

"The constitutional mandate for fairness in the acts of instrumentalities of 'State' under Article 12, respondent PNBHFL answering this description, will fail, if they are not animated by the elements of justice & fairplay."

The bench rejected contention of the respondents that the case of petitioners arises under a private loan agreement and therefore they should be relegated to ordinary civil remedy.

The bench said ,

"PNBHFL is not a private lending agency and it functions inter alia under the umbrella of the National Housing Bank Act, 1987. The Tripartite Agreement cannot be said to be in the exclusive realm of private law of contract. The PNBHFL is an instrumentality of State in the light of R.D.SHETTY vs. INTERNATIONAL AIRPORT AUTHORITY AIR 1978 SC 1628."

It added, "The impugned action & inaction of the PNBHFL far transcend the limits of private law by any public law standard. Thus, loan transactions of this kind are animated by abundant elements of public law. The provisions of section 14 of the 1987 Act lend credence to this view."

The bench also rejected the contention raised by respondents of availability of alternate remedy to the petitioners. It said,

"It is not that in every case involving disputed facts, this should happen as a matter of course. If what is disputed can be fairly adjudged on the basis of evidentiary material availing on record in the light of pleadings of parties, the constitutional court cannot shirk its responsibility of adjudging a fit cause brought before it; it cannot divert the injured litigant to some other legal clinic for treatment, he having already spent time, money & energy."

The bench opined that,

"The Magna Carta (1215) which is considered to be a foundational document of constitutional jurisprudence world over, at stanza 40 declares: "Nulli vendemus, nulli negabimus, aut differenmus, rectum aut justiciam: To no one will we sell, to no one will we deny or to no one we shall delay right or justice." A stanza like this is a North Star for Courts to sail through to the destination in the vast ocean of laws."

It also said that Article 226 of our Constitution confers extraordinary jurisdiction on the High Courts not only to issue prerogative writs for the enforcement of Fundamental Rights but also for 'any other purpose'; it is wide & expansive, although discretionary & equitable."

Allowing the petitions in part the bench said,

"Nothing observed herein above shall be constructed as constricting the respondent-Punjab National Bank Housing Finance Limited from taking up any proceedings for recovering the outstanding loans in question from respondent-M/S. Mantri Developers Private Limited."

Case Title: MUDIT SAXENA v UNION OF INDIA

Case No: W.P.NO.17696/2021 Citation: 2022 LiveLaw (Kar) 366

Date of Order: 14TH DAY OF SEPTEMBER, 2022

Appearance: Senior Advocate C K NANDAKUMAR, A/W Advocate M D RAJKUMAR for petitioners; S B TOTAD, CGC FOR R1 & R2; R V S NAIK, SENIOR COUNSEL A/W RASHMI SUBRAMANYA AND ADITHI SHETTY, ADVOCATE FOR R3; S RAJASHEKAR, ADVOCATE FOR R4; ELLANKI RAVI, ADVOCATE FOR R5; UDAYA HOLLA, SENIOR COUNSEL A/W VENUGOPAL M S, ADVOCATE FOR R6; MAHESH S, ADVOCATE FOR R7.

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