The Delhi High Court has said that the banks cannot be converted into developers or builders to ensure that the real estate project for which the loans were sanctioned was completed well within time.

The Bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed that “The entire problem that has been projected by the Complainant has to be looked into to safeguard the interests of the home buyers and also the banks who deal with public money, and the banks cannot be converted into developers and builders or an authority on whom the responsibility is loaded to ensure that the project is completed.”

“...it is well settled law that while considering matters pertaining to economic policy, courts ought to yield to the wisdom of policy makers who are fully equipped to decide on matters of policy in their domain, and therefore to refrain from exercising powers of judicial review.” the Bench further added.

ASC Gautam Narayan, CHSC Kirtiman Singh appeared for the respondents.

In this case, petition was initiated by the Court based on a letter which sought directions to the Central Government to draft and implement a comprehensive scheme to conclusively address the grievances of home buyers who had availed home loans, including those who did not have the possession of their flats but were still paying monthly EMI instalments and were unable to claim tax benefits on the payment of such monthly interest.

It was alleged that banks, government and builders operated as part of nexus and against public interest without any accountability to the public for their hard-earned money. It was also argued that the banks should be held liable for inordinate delay in the real estate projects since banks only sanctioned the loans for projects that were verified genuine, after proper scrutiny.

Considering that there existed a proper regimen to redress the grievances of a home buyers, the Court said that -"when the projects proponent defaults in completing a project, it is always open for the banks to approach the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 for getting a Insolvency and Resolution Professional appointed and to take measures to ensure that project is revived and the project is completed because the banks are also anxious to recover their money.”

Further, it was always open for the home buyers to approach the Real Estate Regulatory Authority (RERA) to ensure that the project was completed.

The Court further said that the 2015 Master circulars issued by the Reserve Bank of India (RBI) provided advice to various banks as to which all projects should loans be advanced and the precautions which the banks must take while such loans were extended. The Master Circular also advised that the quantum of loans which were to be granted by the banks for housing finance and also to maintain loan to value ratio in case of individual housing loans.

"The Master Circular (Supra) advices banks to appoint auditors to check as to whether there is misutilization of loans. The banks can only give a red flag to the borrower for the misutilization and it is for the lenders to take appropriate legal action by approaching the civil forum to ensure that the project is completed within time." said the Court.

Accordingly, the Court dismissed the petition and noted that the RBI could only guide the banks to frame their loan policies with the approval of their boards and banks were expected to conduct basic due diligence at the time of approval/sanction/ disbursement/ renewal of the loans.

Cause Title- Court on its own motion v. Govt. Of NCT of Delhi & Ors. (Neutral Citation Number : 2023/DHC/001827)

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Chief Justice Satish Chandra SharmaJustice Subramonium PrasadDelhi High CourtReserve Bank of India

Sanjoli N Srivastava