However, when banks line up commercial loans for housing projects, they too create an encumbrance on the same property.
Published: 24th February 2022 07:16 AM | Last Updated: 24th February 2022 07:16 AM | A+A A-
Supreme Court (Photo | EPS)
In a seminal ruling that comes as a relief to thousands of homebuyers, the Supreme Court refused to interfere with the judgment of the Rajasthan HC over the jurisdiction of real estate regulator RERA. The HC had held that RERA had the authority to entertain a complaint by an aggrieved person against a bank as a secured creditor if the financial institution takes recourse to any of the provisions contained in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.
Section 13 of the SARFAESI Act, inter alia, empowers secured creditors such as banks to take possession of real estate assets, and take over the management of the business of the borrower including the right to transfer by way of lease and assignment or sale for realising the asset. An amendment introduced to Section 5(8) (f) of the Insolvency and Bankruptcy Code (IBC) by the Centre clarified that payments made by an allottee to a promoter of a real estate project would be deemed financial debt and homebuyers will be considered creditors. Yet banks do not give precedence to homebuyers during liquidation of assets of failed real estate companies.The ruling, which is in line with the previous SC orders in Amrapali, Unitech Residential Resorts and Jaypee Associates cases, empowers homebuyers to file complaints against banks before RERA if these financial institutions take possession of projects and liquidate them. The verdict also points to a deeper malaise in the banking system where two encumbrances are sought to be created on a single asset. When people buy a housing unit or flat, they get a lien over the property.
However, when banks line up commercial loans for housing projects, they too create an encumbrance on the same property. When the realtor fails to honour their financial liability, banks exercise their rights under SARFAESI Act and liquidate the assets, ignoring homebuyers. The SC order establishes the rights of homebuyers over banks and provides legal recourse to get compensated in case of liquidation. But the issue of multiple entities being allowed lien on a single asset has to be addressed expeditiously to resolve potential conflicts between parties invoking SARFAESI Act and those seeking relief under RERA.