Are You Instead Of Your Developer Paying EMIs Under Subvention Scheme? There’s A Way Out

If you have booked a home with a builder under the subvention scheme, which calls for the builder to service the equated monthly instalments (EMIs) till possession, and the bank or lending institution is harassing you for non-payment of the same by the builder, you can take a sigh of relief. 

With the Delhi High Court extending its interim stay order on February 28, which it had originally passed on January 31st this year in favour of such homebuyers, it is sure to come as a big relief to several thousand beleaguered homebuyers and borrowers. Besides, it has also directed the lending banks and housing finance companies (HFCs) to provide appropriate information regarding the petitioners (buyers) to the Cibil authorities so that their ratings are suitably amended. 

What Is a Subvention System? 

A subvention system is essentially a three-way agreement between the builder, the homebuyer, and the bank in which the buyer pays an upfront cost of 5-20 percent as a downpayment and the bank pays the rest to the builder in the form of a loan.The builder pays the EMI till possession. 

What Does the Court Order Say? 

The court had observed in its order on January 31 that though the buyers had paid the required downpayment, the flats had still not been completed. In many instances, the builders had stopped paying the EMIs, and banks and HFCs were pressuring the buyers to pay the same.  

The court had observed in its interim order that, under such circumstances, the buyers should not be expected to pay the EMIs because of some collusion between the banks/HFCs and the developers.

The buyers had also petitioned before the court that their Cibil scores, which might have been affected due to the non-payment of the EMIs, should be restored to their pre-EMI period, and the pre-EMIs paid by them should also be refunded by the builder.

The court had further observed that, prima facie, it seemed that the loans were disbursed without any regard to the advisories of the Reserve Bank of India (RBI) and the National Housing Bank (NHB). 

Earlier in 2013, the RBI had advised that home loans sanctioned to buyers should be linked to the construction stage of the projects, and where the project is incomplete or under construction, the loan should not be disbursed in full. The National Housing Bank (NHB) had also come up with its guidelines for HFCs in 2019, and had asked them to desist from offering loans under interest subvention schemes following complaints of default. 

The next hearing is scheduled for July 11, 2022, according to a report by Money Control.