Homebuyers gets priority over banks

Putting the interest of homebuyers above that of banks when a real estate company defaults in repaying bank loans and handing over possession, the Supreme Court held that in case of 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, the former will prevail.

Putting the interest of homebuyers above that of banks when a real estate company defaults in repaying bank loans and handing over possession, the Supreme Court held that in case of 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, the former will prevail.

The bank alleged that Rera did not have any jurisdiction over the bank as lenders do not fall under the definition of ‘promoters’ for the purpose of Rera Act and the recovery proceedings of the bank cannot be halted by the authority. The interests of creditor banks and homebuyers often clash when a real estate company fails to complete the project on time, and also fails in repaying the loan and both start legal proceedings against the default company.

The HC held that complaints against banks can be filed before Rera if lenders took possession of a project as a secured creditor, following a default by the promoter in repaying loans.
The moment the bank takes recourse to any of the measures under sub-section (4) of section 13, it triggers statutory assignment of right of the borrower in the secured creditor. Till this stage arises the bank or financial institutions in whose favour secured interest may have been created may not be…amenable to the jurisdiction of Rera. However the moment the bank or the financial institution takes recourse to any of the measures available in the section 13(4) of the SARFAESI Act, Rera would have jurisdiction to entertain the complaint filed by an aggrieved person,” the HC had said.

Upholding the verdict of the HC, the SC said it was in “complete agreement” anddismissed the appeal of the bank. The bench, however, clarified the HC ruling would only be applicable to cases where the proceedings in Rera are initiated by homebuyers to protect their interest. The HC had passed the verdict while deciding a petition filed by the Union Bank of India against the order passed by Rajasthan Rera wherein while cancelling the bank auction, Rera directed the bank to hand over the possession of the semi-constructed residential project to Rera.