Homebuyers have been ensnared between banks and builders in circumstances when the builder is unlikely to give them ownership of the properties they had reserved, especially those paying both EMIs to repay their loans and rents for the apartments they are living in. That’s because if a builder defaulted on a loan, the lenders would seize the incomplete property and auction it off to recoup their losses, leaving would-be homeowners in the stagger and causing further delays in receiving their apartments.
However, the recent order of the Supreme Court in the Union Bank Of India vs Rajasthan Real Estate Regulatory Authorityhas prioritized the interests of homebuyers over those of banks in cases where a real estate builder defaulted on the bank loan and handed over possession of the property.
A brief background of the case
By issuing an order, Rajasthan RERA cancelled the bank auction and demanded the possession of the unfinished project. The bank alleged that they are not subject to RERA’s jurisdiction because RERA can only issue directives against a promoter, allottee, or real estate agent, and the bank is neither of these entities. As a result, RERA cannot hear any proceedings against the bank.
The High Court while citing the definitions of terms like “promoter,” “assignee,” and so on in RERA and SARFAESI Act stated that when the bank uses any of the methods under sub-section (4) of Section 13, it triggers the statutory assignment of the borrower’s right in the secured creditor.
The High Court ruled that banks can be sued under RERA if they took possession of a project as a secured creditor after the promoter defaulted on loan repayments. Further, it stated that in the case of conflict between RERA and the SARFAESI Act, RERA’s provisions will take precedence because RERA is a later enactment. Against this order, an appeal has been filed by the Union bank in Supreme Court.
Supreme Court on Homebuyers
Supreme Court stated that they agree completely with the High Court’s decision. However, the court stressed that the High Court’s ruling will apply in cases where home buyers file a complaint with the RERA authorities to safeguard their rights.
Further, the Supreme Court ordered the Union government to report to the court within two months on how various states are implementing RERA’s regulations and conditions. This directive should compel the Central and state governments to take the required steps to ensure that RERA is properly implemented.
A gap in the Judgement
The High Court judgment is silent on what should be done when the bank auctions the property, whether the bidder needs the approval of two-thirds of the property’s allottees to change promoter status, or whether, like a bank, it simply becomes the assignee and is declared a promoter.
Under Section 11(4)(h) of the Real Estate Act, homebuyers are afforded such protection, which this judgment reinforces. According to the provision, the promoter shall not mortgage or create a hold on an apartment, plot, or building, as the case may be, after executing an agreement for sale for such property, and if any such mortgage or hold is created, it shall not affect the right and interest of the allottee who has taken or agreed to take such property.
This judgment will undoubtedly provide relief to homeowners because they will no longer have to fight two wars, one with the developers and the other with the banks.