HC Delhi Guides Banks to Facilitate Modification of Housing Buyers’ CIBIL Ratings in Stopped Projects

To rescue stuck home buyers who had bought apartments under the subsidy scheme, the Delhi Supreme Court (HC) extended a temporary injunction in their favor, preventing banks and home finance companies (HFCs) from taking enforcement action. for the recovery of EMI (equal monthly installments) for unfinished projects. Further, in a series that will have far-reaching implications, HC has also instructed lending banks and financial institutions of some home buyers who have invested in projects by developers who do not provide the appropriate information to the Credit Information Bureau (Credit). Information Bureau). India) Limited (CIBIL) to facilitate the appropriate modification of their ratings. The Court clarified that its interim injunctions would bind the lending banks before it as well as the debtors.

What is a Grant Scheme?

A subsidy system is essentially a three-way agreement between the builder, the home buyer and the bank in which the buyer pays a down payment of 5% -20% as a down payment and the bank pays the rest to the builder. in the form of a loan. The manufacturer pays the EMI until possession.

Under the subsidy scheme, the financial institution releases 80% of the loan amount to the developer, even before construction begins. The home buyer pays a certain amount (say, 15% of the cost of the apartment) as an advance, while 80% of the cost was received by the builder from the bank, on behalf of the buyers in the beginning. Under the plan, manufacturers were expected to pay pre-EMIs to the bank and, in many cases, did so until the pandemic, when they stopped paying. There are also countless cases of builders making home buyers pay before EMIS, something the former are required to do. These builders said they would adjust the amount to the remaining 5% that home buyers had to pay at the time of the occupation. However, in the end, the buyers ended up paying much more than the cost of the apartment and, ironically, they are still not sure how to get their homes.

In many such cases, home buyers had booked under the “no EMI until the occupation” schemes. After paying some pre-EMIs, the builder stopped paying them, saying it was facing an economic crisis and home buyers were forced to consent and pay on behalf of the builder.

While some buyers continue to pay their EMIs for fear of being affected by their CIBIL rating, some have stopped paying and approached the Court.

Earlier, Delhi HC in its interim order, which was released on January 31, had said that home buyers do not need to do this. HC came to the rescue of these buyers and issued a temporary standstill order in their favor, preventing banks and housing finance companies (HFCs) from taking action against them to recover EMI for unfinished projects.

The buyers, through their lawyer Aditya Parolia, had informed HC that banks and financial institutions had disbursed loans to builders even before construction began. Banks continued to expect buyers to service EMIs when it was the manufacturers who undertook to pay the amount until the occupation. HC noted that the petitioners “appear to have been left in the lurch and despite paying the down payment and investing the hard-earned money to buy their homes, the construction of the houses / apartments has not been completed to date ยป.

Most importantly, the court added: “Buyers who have invested their savings and income hard to buy homes can not suffer the consequences of this apparent collusion between banks / HFCs and builders.”

The court also noted that “serious and irreparable loss” would be inflicted on the petitioners if they were not granted temporary protection, adding that the issue “brings to light the well-known sad state of affairs that has recently occurred in the construction industry”.

“The balance of convenience, at this interim stage, is in favor of besieged home buyers, given that they are being punished despite not being guilty,” said Judge Rekha Palli.

The Court said “at first sight the loans appear to have been disbursed without heeding the advice of the Reserve Bank of India (RBI) and the National Housing Bank (NHB). ” He said banks and HFCs had disbursed the loan when construction was incomplete and were now asking home buyers to pay the amount initially owed by the developers.

Mr. Parolia said buyers also prayed before HC to restore their CIBIL rating and return the pre-EMIs paid by buyers by the manufacturer. They will also have to pay back the default ECS charges that have been imposed.

HC Delhi therefore asked banks to transfer to CIBIL to restore the creditworthiness of home buyers who stopped paying EMI for unfinished projects.

The Delhi HC interim mandate restricts lenders from coercive action to borrowers under the subsidy scheme and instructs them to provide appropriate information to CIBIL authorities regarding non-payment of EMI by manufacturers. With the extension of Delhi’s temporary residence order on March 28, which it had originally approved on January 31 this year in favor of such home buyers, it is sure to be a great relief for several thousand besieged home buyers and borrowers. In addition, it also instructed lending banks and HFCs to provide appropriate information about the petitioners (buyers) to the CIBIL authorities so that their ratings could be modified accordingly. With this, such home buyers can get a sigh of relief.

“Home buyers have been suffering for some time, and the way in which all these transactions between the builders and the banks took place is clearly against the instructions of the RBI. In many of the cases up to 80% of the total consideration was disbursed by the banks when the project had not even started or had received all the approvals from the authorities.

“Moreover, in most of these cases the builder had undertaken to pay the pre-EMIs until the occupation actually paid them for a while. Today, the situation is such that most of the money has been taken by the manufacturer, the banks have paid without “The projects have not been delivered and home buyers are being forced to bear most of the EMIs, rents and now legal costs. In many cases, such as Supertech, the builder has gone bankrupt,” the Delhi headquarters explained . lawyer Aditya Parolia, who appeared on behalf of the petitioners welcoming the order.

After ordering, home buyers will not have to pay pre-EMI. The Court noted that, in all cases, the manufacturer, banks and buyers have entered into a tripartite agreement. The manufacturer promised to pay the pre-EMIs to the banks until the possession of the blocked units is handed over to the home buyers.

The Court noted that simply because home buyers entered into a tripartite agreement with banks / HFCs and the developer, they could not be held liable for repayment of the loan due to default by developers who not only stopped paying pre-EMI, but and has not yet delivered the apartments to home buyers.

A veteran banker we spoke to acknowledged the problem and explained his side of the story: “Undoubtedly, the real estate sector was under pressure and the pandemic made it worse. “But as the process progresses, banks will continue to demand EMI payments indefinitely, and if the obligated customer defaults, lenders can strategically seize other assets to claim their legal debts.”

Lawyers admit that consumer courts, RERA and other allied forums have failed to address the plight of such distressed home buyers.

To be fair, in 2013, the RBI advised banks to be careful when financing interest rate subsidy programs “in view of the higher risks associated with such one-time mortgage disbursements and customer suitability issues”. The banks’ regulatory authority had also advised that the disbursement of mortgages imposed on buyers should be linked to the stages of construction of housing projects and that no disbursement should be made in the case of unfinished or under construction or eco-housing projects. . Furthermore, in 2019, the NHB also asked the HFCs to “abstain” from offering loans under interest rate subsidy schemes following complaints of default.

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