Preeti Nair 28 Oct 2023


Dont fall for attractive advertisements where Builder offers to pay installments of home loan prior to the handing over of possession of allotted flats.

Allottees of flats often get attacted to offers wherein the Builder offers to pay loan installments  prior to handing over possession from banks or financial institution. This culminates in a Tripartite Agreement between the Allottee, Bank and the Builder. When the Builders wash their hands off, the default in installments lands none other than the Allottee in the defaulter's list of CIBIL. The banks/financial institutions now haul the Allottees to pay the EMIs before the possession of flats are handed over for the defaults committed by the Builder.

Unfair Trade Practices by Banks/Financial Institutions

Banks or the financial institutions do not bother to undertake the requisite monitoring, scrutiny or investigations as to the Project, the viability, capability and capacity of the Builder in developing the project before sanctioning loan. Bear in mind that such clauses requiring the bank to do so often exist in the Tripartite Agreement or the MOU that is entered into with banks. One of my clients who had booked a flat under a project namely "ACTIVE ACRES" discovered through a RTI that the construction of the project had been halted years ago owing to non procurement of the requisite environmental clearances. The financial institution (India Bulls Housing Finance Ltd.) kept sqeezing the EMI out of him for a non existent project. Both Indiabulls and the Developer (Ruchi Realty Holdings Ltd.) kept quiet and he is not going to get the flat, but he has put up a fight for refund. In "My Liberty Home" project, the bank disbursed loan without taking any securities to the Builder who offered to pay installments on behalf of the the Allottee even when the land underlying the project was mortgaged with Rajasthan Finance Corporation. Such lapses on the part of banks/financial institutions are violation of banking norms and 'unfair trade practice'.

Mandate of the RBI and the National Housing Bank

As per the Master Circular of the RBI on Housing Loans dated 01.07.2015, it is mandated that in housing loan schemes that the bank introduces in association with builders the disbursal of sanctioned loans must be linked to the stages of construction and that upfront disbursal should not not be made in respect of projects that are incomplete/under construction or greenfield housing projects. However banks may make such disbursals in cases of projects sponsored by government/statutory authorities even when payments sought from the homebuyers are not linked to stages of construction. However, these authorities must not have any history of non completion of projects. Its further emphasized banks while introducing any kind of product should take into account the customer suitability and appropriateness issues and also ensure that the borrowers/customers are made fully aware of the risks and liabilities under such products. A similar Policy Circular was issued by National Housing Bank vide Policy Circular dated 19.07.2019.

It may be stated with profit that Banks/financial institutions cannot demand EMIs before the possession of flats are handed over as per the dictum of the National Consumer Disputes Redressal Commission. The same shall amount to 'Unfair Trade Practice' as well as 'Deficiency in Service'

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