The court affirmed that banks and housing finance companies must link loan disbursement to construction stages, thus protecting home buyers from liability for the developers' defaults.

Headnote:(A) Constitution of India - Articles 226 and 227 - Banking Regulation Act, 1949 - Section 35A - Home buyers petitioning against banks and housing finance companies for charging EMIs despite non-completion of construction by developers - Court emphasized the necessity of linking loan disbursement to construction stages as mandated by RBI and NHB guidelines. (Paras 4, 10, 17)

(B) Legal obligations and duties - Banks and HFCs are required to act in accordance with prescribed guidelines of the RBI and NHB. Court noted collusion between banks/HFCs and developers, harming the interests of home buyers. (Paras 4, 21)

(C) Interim relief - The necessity of protecting home-buyers from coercive action amidst uncertainty regarding developers' completion of projects and adverse financial impacts due to the pandemic. (Paras 22, 27)

Facts of the case:
Petitioners, as home buyers, engaged in tripartite agreements for loans under subventions, claim they are wrongfully subjected to EMI payments despite not receiving possession of their purchased flats, with developers defaulting and banks allegedly ignoring regulatory guidelines.

Findings of Court:
The court found that the banks/HFCs acted without due diligence, permitting loan disbursements contrary to regulatory guidelines, and that home buyers should not face coercive measures while the issue is under consideration.

Issues: The primary issues included whether banks could enforce EMI payments from buyers in light of developers’ defaults, and the validity of the subvention scheme arrangements.

Ratio Decidendi: The court ruled that the banks/HFCs failed to adhere to regulatory requirements in disbursing loans, which must be linked to construction progression, and hence the buyers cannot be coerced for payments.

Result: Coercive actions against the petitioners are restrained until further orders.

Table of Content
1. home buyers' grievances against developers and banks. (Para 4 , 5 , 6)
2. allegations of collusion between banks and developers. (Para 8 , 9 , 12)
3. impact of developers' defaults on home buyers' obligations. (Para 10 , 11)
4. regulatory guidelines for loan disbursement linked to construction stages. (Para 18 , 19 , 20)
5. judicial precedents supporting home buyers' rights. (Para 23 , 24 , 25)
6. interim relief for home buyers against coercive steps by banks. (Para 27 , 28)

JUDGMENT

Via video conferencing

Rekha Palli, J. (ORAL)

CM APPL.5399/2022 in W.P.(C) 14828/2021

1. Exemption allowed, subject to all just exceptions.

2. Notarized affidavit be filed within two weeks of this Court resuming physical hearing.

3. The application is disposed of.

W.P.(C)10223/2021, W.P.(C)11168/2021, W.P.(C)11184/2021, W.P.(C)11266/2021, W.P.(C)11995/2021, W.P.(C)11998/2021, W.P.(C)12222/2021, W.P.(C)12250/2021, W.P.(C)12368/2021, W.P.(C)12461/2021, W.P.(C)13159/2021, W.P.(C)13232/2021, W.P.(C)13257/2021, W.P.(C)13335/2021, W.P.(C)14359/2021, W.P.(C)14828/2021, W.P.(C)14859/2021, W.P.(C)1251/2022, W.P.(C)6466/2021, W.P.(C)9491/2020, W.P.(C)9493/2020, W.P.(C)5542/2021, W.P.(C)5870/2021, W.P.(C)5879/2021, W.P.(C)6165/2021, W.P.(C)7749/2021, W.P.(C)7766/2021, W.P.(C)7956/2021, W.P.(C)387/2021, W.P.(C)1144/2021, W.P.(C)1149/2021, W.P.(C)1225/2021 & W.P.(C)1377/2021

4. The present batch of petitions preferred under Articles 226 and 227 of the Constitution of India, brings into light the well-known sorry state of affairs which has been recently going on in the construction industry. The petitioners, who are all home buyers, having booked their flats by giving the initial advance instalments from their hard-earned income, have approached this Court with a grievance that despite the Circulars issued by the Reserve Bank of India (hereinafter referred to as RBI), and the National Housing Bank (hereinafter referred to as NHB), which clearly mandate that the banks and other financial institutions should desist from offering loans in subvention schemes offered by the developer, and should disburse the loan only on the basis of the stages of construction, the banks, as also the various housing finance institutions, have been disbursing the loan amount to the developers without even examining the fact as to whether the developers are in a position to complete the construction.

5. The petitioners herein, booked their flats with the respondent developers and took home loans under the subvention scheme by entering into a tripartite agreement with the developers and the bank/Housing Finance Companies (hereinafter referred to as HFCs). The scheme provided for the banks/HFCs to disburse the sanctioned amount directly to the accounts of the developers, who were to then pay the pre-EMIs or the full EMIs on the sanctioned loan amount, until such a time that the possession of the booked residential units would be handed over to the home buyers. In most cases, it was also provided that if the possession of the residential flats could not be delivered in the time stipulated by the developers, it would be up to the developers to continue payment of the pre-EMIs, till the finally handing over possession to the home buyers.

6. However, when the developers started defaulting in making the payments towards the EMIs to the banks/HFCs, action had been initiated by most banks and HFCs against the petitioners. The said action was taken based primarily on the premise that, in terms of the home loan agreement entered into between the parties, the petitioner borrowers, had made a categorical assurance to the banks/HFCs, that there would be no default in payment of the EMIs, and the petitioner borrowers' liability to repay the loan was an independent contractual obligation, irrespective of any dispute that may arise between the developer and the borrower. It was at this stage that the present petitions have been filed, seeking a direction to the bank/HFCs not to