Supreme Court Stays Recovery Actions By Banks/Builders Against Homebuyers Of Certain Stalled Projects In Noida

In an interim relief to several homebuyers who took loans for certain housing projects in Delhi-Noida which got eventually stalled, the Supreme Court recently stayed coercive recovery steps by banks/financial institutions and builders/developers against them. The stay order will also apply to proceedings for cheque dishonour as per Section 138 of the Negotiable Instruments Act.

A bench comprising Justices Surya Kant and Ujjal Bhuyan was considering a batch of petitions filed by homebuyers challenging the proceedings initiated by the Banks before the Debts Recovery Tribunal and under the SARFAESI Act.

There were tripartite agreements involving the petitioners, builders and banks and the loan amounts were directly disbursed to the builders. The petitioners argue that the banks disbursed the amounts upfront to the builders in violation of the instructions of the Reserve Bank of India which mandate that the disbursals should be done in instalments depending on the stage of the construction.

They cited RBI's Circular No. RBI/2013-14/217 DBOD.BP.BC.No.51/08.12.015/2013-14 for linking the disbursement of the housing loan to the various stages of construction. The RBI advised all the nationalized banks that upfront disbursals should not be made in cases of incomplete/under-construction/green field housing projects.  

It was submitted that the loan amount disbursed by the bank was sent directly to the builder and not to the petitioners, and the bank had initiated proceedings against the homebuyers/allottees before the DRT when they failed to recover the loan amount from the builder.

In one of the matters, Himanshu Singh and others v. Union of India, the petitioners had booked for Noida-based Future Estate Projects. When there were loan defaults, the Punjab & Sindh Bank initiated proceedings before the Debts Recovery Tribunal against them. The petitioners approached the Delhi High Court challenging the DRT proceedings. As the High Court refused to interfere, the petitioners approached the Supreme Court.

Observations of the Apex Court:

Before the Supreme Court, the petitioners submitted that the bank had proceeded against them for the default in repayment of the loan released to the property developer, who has neither developed the property nor delivered the property to the petitioners. Since the amounts were released by the bank directly to the property developer, the petitioners had no control over its utilisation. They contended that it would be unfair for the petitioners to be coerced to pay the monies when they have neither received the money nor the property but are asked to repay the loan enjoyed by somebody else.

The Supreme Court agreed to consider the matter and issued notice to the respondents.

The Court also passed an interim order as follows :

"In the meantime, there shall be interim stay in all the matters, to the effect that no coercive action including complaint under section 138 of the Negotiable Instruments Act, 1881 shall be entertained on behalf of the Banks/Financial Institutions or Builders/Developers against the home buyers."

The respondent-Builders/Developers were asked to file reply affidavit including details of their assets within two weeks. If they fail to do so, the Court cautioned that coercive action will be taken to secure their presence.

Counsel for Petitioner: AOR Nitesh Ranjan and Advocates Yashvardhan, Piyush Singh [The team of Svarniti Law Offices consisting of, Mr. Amit Mishra, Ms. Mitakshara Goyal, Mr. Akshat Hansaria, has appeared in the batch matters along with Mr. Tushar Bhushan, Advocate-on-record]

Counsel for Respondents: Solicitor General Tushar Mehta, ASG K M Natraj, Raj Bahadur Yadav, AOR Kanu Agarwal, Anuj Srinivas Udupa

Case Title: Himanshu Singh vs. Union of India

Case Number: Special Leave Petition (C) No(s). 7649/2023 and other connected matters

Click here to read/ download the Order