Banks cannot be converted into developers and builders or an authority to ensure that a real estate project is completed, the Delhi High Court has said.
The high court said the circulars issued by the Reserve Bank of India (RBI) advise banks to appoint auditors to check as to whether there is misutilisation of loans and the banks can only red flag the borrower about misutilisation.
It is for the lenders to take appropriate legal action by approaching the civil forum to ensure that the project is completed within time, the court said.
” it cannot be said that it is the banks’ responsibility to get the project completed and the bank cannot assume the role of the builder to complete the project,” a bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad said in a judgement.
The verdict came on a petition initiated by the court based on a letter which sought directions to the central government to draft and implement a comprehensive scheme to address the grievances of home buyers availing home loans, including those who do not have possession of their flats but are still paying monthly EMI instalments and are unable to claim tax benefits on the payment of such monthly interest.
The complainant prayed for formulation and implementation of a scheme that conclusively addresses the grievances of other home buyers who may not have the capacity to approach courts or forums to seek redress against builders.
The complainant alleged that banks, government and builders operate as part of a nexus and against public interest without any accountability to the public for their hard-earned money. The complainant wanted banks to be held responsible for inordinate delay in real estate projects inasmuch as banks only sanction loans for projects that are verified as genuine after proper scrutiny.
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The high court said when the project 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 an Insolvency Resolution Professional appointed and to take measures to ensure that the project is revived and completed because the banks are also anxious to recover their money.
“The entire problem that has been projected by the complainant has to be looked into to safeguard the interests of the home buyers and also the banks who deal with public money, and the banks cannot be converted into developers and builders or an authority on whom the responsibility is loaded to ensure that the project is completed.
“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 bench said.
It said there is a proper regimen available to redress the grievances of a home buyer and also perused the 2015 master circular (on loans and advances and housing finance) issued by the RBI and said no further orders and directions are required to be passed in the petition.
“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 advices 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,” it said.
The court noted the RBI can only guide the banks to frame their loan policies with the approval of their boards and banks are expected to conduct basic due diligence at the time of approval/ sanction/ disbursement/ renewal of the loans.