SC Puts Interests of Homebuyers above That of Banks 

A recent Supreme Court order has put the interests of homebuyers above that of banks in the event of a real estate builder defaulting in repayment of bank loans and handing over possession of the unit.

The apex court also said that in case of a conflict between the Real Estate (Regulation and Development) Act and recovery proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), the former will prevail.  This order, say legal experts, would provide much-needed protection to homebuyers who invest their life’s savings in a home and are awaiting delivery and possession but get entangled in the tussle between creditors and builders.

Dismissing an appeal by Union Bank of India against a Rajasthan High Court ruling that complaints against banks can be filed before the state Real Estate Regulatory Authority (RERA) if bank had taken possession of the project following default by the builder, the apex court said it is in “complete agreement” and that complaints against banks can be filed before RERA in cases where the such proceedings have been initiated by homebuyers to protect their interests.

Keeping in view the spirit of RERA, by its recent order the Supreme Court has upheld the Rajasthan High Court order and ensured that the interest of homebuyers is protected and has preference over the interest of banks. 

By virtue of this judgment, interests of the homebuyers will get priority over that of banks, and aggrieved homebuyers will get the opportunity to approach the appropriate statutory forum (RERA) that can specifically address their concerns. The Supreme Court has also directed  the Union government to inform the court, within a period of two months, on how the rules and conditions on RERA are being implemented by various states. This directive should prod the central and state governments to take necessary steps for proper implementation of RERA.

Having said that, the order would impact bank recoveries. “It would make liquidating assets and recoveries difficult. Bank NPAs (non-performing assets) may increase.