Consumer Connect: Subvention Schemes Promise ‘No EMI Till Possession’ But Trap Homebuyers In Builder-Bank Nexus, Warns Consumer Expert

Q. Some builders are seen announcing subvention schemes for homebuying. Apparently, such schemes are quite attractive. Some time back, I had read about a Supreme Court case in which the builders cheated many homebuyers through subvention schemes.

I want to know what exactly these schemes are. How safe are they? Whether the RBI approves such schemes?

-Alok Hardikar, Vile Parle (East)

A. Subvention schemes are tripartite arrangements between the homebuyer, builder, and bank or a financial institution, where the bank/ financial institution disburses the home loan on behalf of the homebuyer directly to the builder and the builder pays the EMIs on behalf of the buyer until possession is handed over.

These schemes are often advertised and marketed as ‘no EMI till possession’. The home buyer has to pay only a small amount initially, say 10 %. The balance amount becomes payable after the home-buyer gets possession. This sounds quite attractive, and hence many gullible home buyers fall prey to such schemes, even without reading the terms of the tri-partite subvention agreement. However, the catch in this scheme is, if there is a delay beyond the date promised in such a subvention agreement, then the EMI becomes payable by the homebuyer.

Many banks have disbursed loan amounts without even ensuring that there is work going on at the site or not. Builders have misused and diverted these huge amounts and landed the home-buyers in problems. The banks have started recovery proceedings against such defaulting homebuyers who failed or refused to pay EMIs after the possession date expired.

In the National Capital Region (NCR), particularly Noida, Gururgram, and even in Mumbai, Bengaluru, these subventions schemes attracted thousands of homebuyers from 2012 to 2014/2015. Many leading builders, including Supertech, were involved. Many nationalised banks, including Corporation Bank, had advanced loans to the builders under these schemes, which have eventually failed, and homebuyers therein are still suffering. Many of them even approached the National Consumer Disputes Redressal Commission, but their petitions seeking relief were dismissed. However, the Supreme Court realised an unholy nexus between the builders and the banks and took serious note of this mega racket where thousands of homebuyers were cheated under the garb of this scheme.

The Supreme Court in ‘Himanshu Singh and others v/s Union of India, others’ case delivered a landmark ruling in favour of homebuyers who were trapped in the 20:80 subvention scheme offered by a Mumbai-based developer. Buyers had paid 20% upfront, while the builder was supposed to cover preEMIs until possession. The builder defaulted, and the banks started recovery proceedings against the homebuyers, although they had not received possession of their flats. Many were left paying EMIs without receiving their flats. The SC facilitated commercial settlement and saw to it that the builder would pay the outstanding pre-EMIs and deliver possession.

The SC bench led by Justices Surya Kant and N Kotiswar Singh has directed the Central Bureau of Investigation (CBI) to probe into the allegations of a widespread builder-bank nexus. There are hundreds of complaints from homebuyers across multiple states about cheating through similar schemes.

The Reserve Bank of India (RBI) has not formally approved these schemes, nor has it specifically banned them. However, the RBI has issued some guidelines to monitor and regulate their use. RBI has warned banks to ensure due diligence and monitor disbursements, which should be commensurate with the progress of construction work.

In such a scenario, the homebuyers are cautioned to take adequate precautions, carefully go through all terms of the subvention scheme and then opt for it.

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