Banks cannot assume role of builders to complete projects: Delhi high court
The court was hearing a Public Interest Litigation (PIL) it had initiated for the creation of a comprehensive scheme to address the grievances of home buyers who had taken out home loans
The Delhi High Court has observed that banks cannot be charged with the responsibility of completing real estate projects, nor can they act in the capacity of a builder to complete projects.
The court was hearing a Public Interest Litigation (PIL) it had initiated for the creation of a comprehensive scheme to address the grievances of home buyers who had taken out home loans, including those who had not been given possession of their flats despite paying equated monthly installments (EMI).
In 2019, the court converted a letter from Vinod Kumar Naugain into a PIL. Naugain had claimed in court that, despite the fact that banks sanction home loans for legitimate projects, they do not bear responsibility.
Disposing of the plea on Monday, a bench of chief justice justice Satish Chandra Sharma and justice Subramonium Prasad noted that the 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.
“When the projects proponent defaults in completing a project, it is always open for the banks to approach the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for getting a Insolvency and Resolution Professional appointed and to take measures to ensure that project is revived and the project is completed because the banks are also anxious to recover their money,” the court added.
It added that other than the remedies in Insolvency and Bankruptcy Code, 2016, 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 that there is a well-structured regimen created by the Reserve Bank of India (RBI), which includes guidelines to various banks on the issue of advancing loans to home buyers, adding that there is a proper system available to redress the grievances of a home buyer.
“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. The Master Circular also advises that the quantum of loans which are to be granted by the banks for housing finance and also to maintain loan to value ratio in case of individual housing loans.
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,” the court said.