Delhi HC issues notice to RBI, Supertech for not paying instalments under subvention scheme

The petition claims that the builder had promised as per the subvention scheme to  take the sole responsibility to pay all the pre-EMIs and in some cases also full EMIs till the possession of the booked residential units was not offered. Most of the units were booked in 2013 and later.

The banks were aware of the arrangements that the builder would be paying the pre-EMIs/full EMIs and therefore they ought to have demanded the same from the builder. They had also directly disbursed the loan amount to the builder. The buyers are completely deprived of their residential units and heavily burdened with the illegitimate demands of banks, the petitions said.

The builder had defaulted on the payments following which the banks had demanded that it was the buyers’ obligation to pay the pre-EMIs or full EMIs even when the possession of the residential homes has not been given by the builder.

“Respondents have completely failed to protect the fundamental rights of the Petitioners 8 guaranteed under Article 19 and 21 of the Constitution of India on the basis of following grounds: Because the Respondent State has duly failed to protect the rights of the numerous innocent and bonafide homebuyers who have gravely suffered not only financially but also emotionally and mentally and have duly deprived of their right to have a peaceful home and shelter and a dignified life as guaranteed under Article 19 and 21 of the Constitution of India,” the writ petitions said.

The state has duly failed to frame any sort of guidelines to protect the innocent homebuyers who have for years been suppressed by the atrocious and illegal acts of the builder who has misappropriated the funds/life savings of the buyers, the petition said.

The banks who ought to have conducted due diligence before disbursal of any amount have failed to do so as the loan amount has been disbursed completely in a mechanical manner and in complete violation of the rules and regulations surrounding the banking sector, it said.

The Supreme Court, in an earlier  matter concerning Supertech Ltd versus Emerald Court Owner Resident Welfare Association, had while adjudicating a similar issue of subvention scheme against the builder and banks had held that it was the duty of the builder to pay pre-EMIs/EMIs as stipulated in schemes rolled out by the builder.

The order had noted that the buyers had not been handed over possession of their units and that the banks had disbursed the bank loans in contradiction to the rules and regulations governing the disbursement of the home loans and that the innocent homebuyers ought not to suffer due to illegal acts of the builder and banks. It had noted that in the event of non-payment, the CIBIL score of the buyers would be drastically impacted.

Subventions schemes are nothing but ponzi schemes which are floated by unscrupulous builders to dupe innocent consumers. It is a classic case of profile funding, which in itself is illegal. In the light of such schemes builders ask buyers to take bank home loans and as much as 90% of the money is received by the builder at the very initial stage of the project even though no construction has taken place, Aditya Parolia, advocate, told Moneycontrol.

“In many cases it is seen that banks and NBFCs have accepted direct payments in these loan accounts from the builder. Once the money is received by the builder the buyer is left at the mercy of the builder and the banks. In many cases, builders have stopped paying the EMIs and have not even delivered projects forcing banks to initiate cases against innocent buyers for default,” he added.

"We are not defaulters. We have not made any commitment to homebuyers for paying instalments. We will obey the High Court’s decision," Supertech MD Mohit Arora said.

Under subvention schemes, homebuyers pay the initial amount, and the bank pays the loan amount to the developer according to the construction stage, while the interest portion on the loan disbursed is paid by the developer until possession. What this means is that the real estate developers pay pre-EMIs (equated monthly instalments) on behalf of homebuyers for a certain period specified in the contract or the date of possession.

Subvention schemes were beneficial to the extent that they provided relief to homebuyers who found it difficult to afford both rent and interest. In 2013, the Reserve Bank of India had advised banks to exercise caution while financing purchases under the interest subvention schemes “in view of the higher risks associated with such lump sum disbursal of sanctioned housing loans and customer suitability issues.”

It had advised that disbursal of housing loans sanctioned to buyers should be linked to the stages of construction of the housing projects and that upfront disbursal should not be made in case of incomplete or under construction or greenfield housing projects.

In 2019, the National Housing Bank (NHB) had asked housing finance companies (HFCs) to "desist" from offering loans under interest subvention scheme after there were complaints of default.

The result of the two advisories was that several banks and later the HFCs stopped funding under the scheme. However, there are still some homebuyers whose loans bought on subvention schemes are still continuing.

While homebuyers may have benefited by not having to pay interest on the home loan and the rent under the subvention scheme and developers also gained in terms of increased sales, the actual borrowers remain the homebuyers and in the event of any default by the builder, it is the homebuyers whose credit history gets impacted.