The court quashed criminal proceedings against a borrower whose unfinished flat was sold to a third party, but legal experts warn that stopping EMIs without written consent or a court order can still trigger penalties and other consequences.
The Karnataka High Court has drawn a sharp line between a stalled housing deal and a criminal case, holding that a lender cannot turn a borrower’s unpaid home loan into a criminal matter merely because the builder failed to complete the project. But the ruling does not wipe out the borrower’s repayment obligation, and experts say homebuyers in this position still need to tread carefully before stopping EMIs.
The case, Pritesh Bari v State of Karnataka, involved a home loan of ₹39.92 lakh from State Bank of India for a flat in a project that was never completed. According to reports of the judgement, the apartment was not registered in the buyer’s name and was later sold on to a third party without the loan being cleared. The court quashed the criminal proceedings against the borrower, saying there was no material to show that he had participated in, benefited from or colluded in the builder’s conduct.
For homebuyers, however, the practical question is what to do next. Lawyers quoted by Business Standard said borrowers should generally continue paying EMIs unless the loan agreement or the tripartite arrangement specifically allows suspension, or unless the lender gives written consent or a court orders otherwise. Manmeet Kaur, a partner at Karanjawala & Co, said repayment can be paused only where the loan documents expressly link disbursement or repayment to construction milestones. Otherwise, borrowers risk default, penalty charges and escalation of the account into a non-performing asset after 90 days of overdue payments.
The legal options also depend on what the buyer wants most: possession, a refund or compensation. Shankey Agrawal, a partner at BMR Legal, said borrowers should preserve the loan documents, allotment letter, payment records and all correspondence with the developer, then send a formal notice demanding an explanation and a completion timeline. If the project remains stuck, the next step is typically an approach to the state Real Estate Regulatory Authority, or Rera. Under Section 18 of the Real Estate (Regulation and Development) Act, buyers can seek a refund with interest or, if they prefer to stay in the project, claim compensation for delay.
In more distressed projects, the Insolvency and Bankruptcy Code may also come into play. Adnan Siddiqui, a partner at King Stubb & Kasiva, said homebuyers are treated as financial creditors, but insolvency proceedings can be lengthy and do not guarantee a refund. He added that a Section 7 insolvency application requires a threshold of at least 100 allottees or 10% of the project’s allottees, whichever is lower. In practice, experts say the right route depends on the builder’s financial health, how close the project is to completion and whether the buyer is realistically seeking the flat or the money back. If the bank released funds beyond the agreed construction-linked schedule, buyers may also have grounds to complain about deficiency in service.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
