In a significant judgment, a single judge bench of Karnataka High Court has held that if banks have erred in the course of their business and suffered loss, the poor borrower who wanted to have a shelter of their own, cannot be put in peril.
The judgment, delivered by Justice Krishna S Dixit, has given a ray of hope to lakhs of homebuyers who are facing coercive action from the financial institutions for availing loans but not paying the EMIs because of the delay in offering possession of their flats by developers.
Homebuyers claim that it is the first case in which they have been given protection from any coercive measures taken by the bank and the builder has been asked to pay the bank in delayed projects without burdening flat buyers.
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The matter relates to a housing project Mantri Webcity by Mantri Developers Private Limited in Bangalore where the developer launched over 1600 apartments. Hundreds of homebuyers had booked a flat around 2014 under the pre-EMI Scheme also called the pre-Sanctioned loan scheme or subvention scheme in violation of RBI and NHB guidelines of 2013.
The Punjab National Bank Housing Finance Limited (PNBHFL) disbursed the loan to the developer on behalf of the homebuyers as and when the developer raised a demand without ascertaining the stages of construction.
The loan disbursement was in violation of a circular issued by the Reserve Bank of India (RBI) which mandates the banks and housing finance companies to ascertain the stages of construction before handing out any money to the developer.
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The three parties – the buyer, the developer and the bank - entered into a Tripartite Loan Agreement and one of its clauses said that if the homebuyers wanted to withdraw, the entire amount would be refunded by the developer.
Dissatisfied with the slow pace of development, many buyers decided to withdraw their bookings from the project and intimated it to both the PNBHFL and the developer.
Besides loans, they had also paid certain payments from their own pocket which they asked the developer to refund. On refusal from the developer, they filed a complaint with RERA which directed the developer to pay within 30 days or else it would carry 10.25 percent interest.
The RERA of Karnataka also ordered the developer to discharge the loan raised in the name of homebuyers to PNBHFL with all its EMI and interest if any. When the developer failed to obey the directions of RERA, PNBHFL initiated coercive proceedings for the recovery of housing loans against the homebuyers.
About 30 homebuyers approached the High Court where their advocate, senior lawyer CK Nandakumar referred to the various clauses of tripartite agreement and argued that the agreement imposes an obligation on the developer to refund the amount received from the PNBHFL as well as the buyers.
However, the bank argued that both the buyer and the builder are jointly and severally liable to repay the loans.
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“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 stage-wise construction of the apartment…,” the high court said.
It added, “However, the non-fruition of such protective clauses, because of reckless release of sanctioned loan even in the absence of any construction on the site cannot put the borrowers to peril, such a release being made with the consent of the borrowers concerned, notwithstanding.”
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Senior lawyer Uday Holla, who appeared for the PNBHFL, also argued that the loan was disbursed to the developer on the instruction of the homebuyers only and therefore they should be barred from filing a case against the developer.
Dismissing the argument, the judge said that in any loan transaction of this kind, "the bankers take consent of the borrowers as a precautionary measure to release the amount in favour of Developers. That does not dilute the protection otherwise to them under the base arrangement, i.e., Tripartite Agreement.”
In its judgment, the court restrained the PNBHFL from taking any coercive measures against the homebuyers and directed RBI, National Housing Bank, PNBHFL and TransUnion CIBIL Limited to process homebuyers’ claims “for reframing the CIBIL scores and for issuing no dues certificate in accordance with law within sixty days.”
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