SC orders CBI to probe builder-banker nexus

Apex court orders crackdown

- Abraham Thomas

The Supreme Court on Tuesday directed the Central Bureau of Investigation (CBI) to undertake a probe to unearth a possible nexus between builders and banks in sanctioning huge amounts under so-called subvention schemes without following any due diligence.

A bench headed by justice Surya Kant passed the order on a bunch of over 170 petitions filed by homebuyers who approached the court complaining that huge loans were disbursed by banks to the builders under the scheme even before construction of the underlying projects was complete. After builders/developers defaulted on getting the flats constructed, the banks demanded EMIS for recovering the loan amounts from the homebuyers.

Subvention schemes involve a tripartite agreement between the buyer, banker, and developer.

Under these, buyers typically pay between 5% and 20% up-front, while the bank loans the rest to the developer in instalments.

The developer pays the interest on a loan for a certain fixed period, usually two to four years, until the buyer takes possession.

The buyer starts paying back the loan in equated monthly instalments after this.

The petitions sought an investigation into the systematic failure of statutory and government authorities, and banks. The money was released to builders but the projects were never completed and banks then started pushing the buyers to pay back the loans for houses that had not been built.