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

To rescue homeless buyers who had bought apartments under the subsidy scheme, the Delhi Supreme Court (HC) extended a temporary injunction in their favor, preventing banks and housing finance companies (HFCs) from taking enforcement action. EMI recovery for unfinished projects. Further, in a series of far-reaching implications, HC has also instructed lending banks and financial institutions of some home buyers who have invested in projects by unselected developers to provide the relevant information to the Credit Information Bureau (India). ). Limited (CIBIL) to facilitate the appropriate modification of their ratings. The court clarified that its interim orders will freeze the lending banks before it as well as the debtors.

What is a subsidy 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 equivalent monthly installments (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. According to the plan, the manufacturer was expected to pay pre-EMI to the bank and in many cases did so until the pandemic when they stopped paying. There are also countless cases of builders forcing home buyers to pay before EMIS, something the former are required to do. These builders said they would adjust the amount against 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 that they will 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 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 ».

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 caused to the petitioners if they were not granted temporary protection, adding that the matter “brings to light the well-known sad state of affairs, which is in progress recently. 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 It appears that the loans were 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.

Therefore, the Delhi Supreme Court asked the banks to send to CIBIL the restoration of the creditworthiness of the 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 Delhi Supreme Court extending its temporary injunction on March 28, which it had originally voted on January 31 this year in favor of such home buyers, it is sure to be a great relief for several thousand besieged 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.

Further on most of these issues the builder had undertaken to pay the pre-EMIs until the occupation actually paid for them for a while, too. Today, the situation is such that most of the money has been taken by the builder, the banks have paid it without any care, the projects have not been delivered and the home buyers are forced to bear most of the EMI, rent and now legal costs. In many cases, such as Supertech, the manufacturer has gone bankrupt, “said Delhi-based lawyer Aditya Parolia, who appeared on behalf of the petitioners while 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 also to date has not handed over the apartments to home buyers.

A veteran banker we spoke to acknowledged the problem and explained his side of the story: “There is no doubt, the real estate sector was under pressure and the pandemic made it worse. However, as the proper process progresses, the banks will continue to demand EMI payments indefinitely and if the obligated customer fails, the 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 this flat-rate mortgage disbursement 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, NHB also asked HFCs to “abstain” from offering loans under interest rate subsidy schemes following breach complaints.

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