Karnataka High Court
Suvidha Reltors And Constructions Pvt ... vs Indian Bank Head Office on 15 December, 2022
Author: N.S.Sanjay Gowda
Bench: N.S.Sanjay Gowda
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WP No. 105271 of 2022
IN THE HIGH COURT OF KARNATAKA,
DHARWAD BENCH
DATED THIS THE 15TH DAY OF DECEMBER, 2022
BEFORE
THE HON'BLE MR JUSTICE N.S.SANJAY GOWDA
WRIT PETITION NO. 105271 OF 2022 (GM-RES)
BETWEEN:
SUVIDHA REALTORS AND CONSTRUCTIONS PVT.
LTD.,
REPRESENTED BY ITS MANAGING DIRECTOR-
SRI DINESH R. MAHAJAN,
AGED ABOUT 64 YEARS,
AND ITS DIRECTOR TEJPRAKASH MAHAJAN,
AGED ABOUT 61 YEARS,
BOTH RESIDING AT NO. 2, CENTRAL LIBRARY
CAMPUS,LAMINGTON ROAD, HUBLI.
...PETITIONER
(BY SRI G.V.CHANDRASHEKHAR, SENIOR COUNSEL FOR
SRI S.S. NIRANJAN, ADVOCATE)
AND:
1. INDIAN BANK HEAD OFFICE
254-260, AVVAI SHANMUGAM SALAI,
PUDUPET, GOLAPURAM,CHENNAI,
TAMIL NADU- 600014.
REPRESENTED BY ITS
CHAIRMAN AND MANAGING DIRECTOR.
2. BANGALORE REGIONAL OFFICE,
REPRESENTED BY ITS FIELD GENERAL MANAGER,
INDIAN BANK, 4TH FLOOR,
EAST WING, 26/27 RAHEJA TOWERS,
M. G. ROAD, BANGALORE 560001.
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WP No. 105271 of 2022
3. HUBLI ZONAL OFFICE,
REPRESENTED BY ITS
ZONAL MANAGER, INDIAN BANK,
V. A. KALBURGI HALL MARK,
1ST FLOOR, DESAI CROSS, PINTO ROAD,
HUBBALLI 580029.
4. HUBLI BRANCH OFFICE:
REPRESENTED BY BRANCH MANAGER,
INDIAN BANK, V. A. KALBURGI HALL MARK,
GROUND FLOOR, DESAI CROSS,
PINTO ROAD, HUBBALLI 580029.
...RESPONDENTS
(BY SRI G.N.RAICHUR, ADV. FOR RESPONDENT NO.1 TO 4)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF CONSTITUTION OF INDIA PRAYING TO ISSUE A
WRIT OF CERTIORARI QUASHING THE LETTER/DIRECTIONS
DATED 30.09.2022 VIDE ANNEXURE-N AND ISSUE A WRIT OF
MANDAMUS DIRECTING THE RESPONDENT TO HONOR THE
TERMS AND CONDITIONS STIPULATED IN LETTER DATED
28.03.2018 VIDE ANNEXURE-D.
THIS PETITION COMING ON FOR PRELIMINARY HEARING,
THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
This writ petition is filed by the Builder challenging a communication dated 30.09.2022 which reads as follows :
"Sub:Repayment of Term Loan sanctioned for Housing project- reg.
Anent the above, we wish to bring to your notice that it is mentioned in the Sanction Ticket issued on 28.03.2018 as "NOC should be obtained by -3- WP No. 105271 of 2022 the Company for sale of each flat and 40% of sale consideration shall be credited to term loan account".
As per out discussions in the Conference call on 28.09.2022 and above accepted norms, kindly repay 40% of all Sale considerations received till date in the Term Loan to enable us to release 60 lakhs."
2. It is not in dispute that the Builder availed a term loan for construction of apartments from the respondent/ Bank in the year 2018. The terms which are relevant for this writ petition are as follows :
"A. Proposal Specific Conditions • The Company should submit CA certificate for the amount already invested/spent on the project.
• Escrow/RERA account for the project should be opened with us and all amounts received through booking of flats should be routed through this account.
• NOC should be obtained by the company for sale of each flat and 40% of the sale consideration should be credited to term loan account.
• The project should be completed on time. COD is 30.09.2020.-4- WP No. 105271 of 2022
• The disbursement from term loan will be pro-rata to the progress made in construction. Any shortfall in margin/cost overrun shall be met by the promoters from their own sources.
• At the time of sale of each flat, company has to obtain NOC from the Bank. 40% of the sale value of the flat should be deposited into the escrow account."
3. To this agreement, specific terms and conditions were also enumerated under Annexure-E, which reads as follows:
A. Proposal Specific Conditions * The Company should submit CA certificate for the amount already invested/spent on the project.
* Escrow/RERA account for the project should be opened with us and all amounts received through booking of flats should be routed through this account.
* Branch should monitor the construction and sale of flats. NOC should be obtained by the company for sale of each flat and 40% of the sale consideration shall be credited to terms loan account.-5- WP No. 105271 of 2022
* The project should be completed on time. COD is 30.09.2021.
* The disbursement from term loan will be pro- rata to the progress made in construction. Any shortfall in margin/cost overrun shall be met by the promoters from their own sources. * At the time of sale of each flat, company has to obtain NOC from the Bank. 40% of the sale value of the flat should be deposited into the escrow account.
* Moratorium period will be extended by 12 months after acceptance of terms and conditions by you."
4. According to the Builder, he is only required to obtain a NOC for the sale of the apartment and thereafter pay 40% of the sale value. This 40% of the sale consideration is also required to be deposited into a escrow account.
5. It is the case of the petitioner that a prospective purchaser of the apartment, who intended to take a loan to purchase the flat, was necessarily required to secure a NOC from the respondent-Bank, since 76 flats of the Builder's share had been mortgaged to the Bank. -6- WP No. 105271 of 2022
6. It is submitted that hitherto, on a prospective purchaser making an application for grant of a NOC, the Bank would give a NOC to that specific purchaser in the following terms:
"Sub:- No Objection Certificate for Flat No.A-
701 situated at "Suvidha Indraprastha"
Phase-I to avail housing loan by Mr.Shrikant Balchandrappa Kolhar and other.
Ref:- Your request letter dated 01.03.2019 to issue a "No Objection Certificate" for the Flat No.701 situated in "A" Block on the Seventh floor of Phase-I of the project "Suvidha Indraprastha".
With reference to the above, Indian Bank has sanctioned a Project Loan of Rs.8.00 Cr. For the project "Suvidha Indraprastha" situated at Plot No.1 in R.S.No.106/1C/1+1C/2, Bengeri, Hubli.
The above Loan is inter alia Secured by the property situated at Plot No.1 in R.S.No.106/1C/1+1C/2, Bengeri, Hubli together with construction thereon, both present and future.
Details of NOC sought :
BLOCK- SUPER BUILT UP NAME OF THE
FLAT AREA ALONG CUSTOMER
NO. WITH UDS OF
LAND OF THE
PROPERTY
A-701 1650.00 SQ.FT. Mr.Shrikant
Balchandrappa
Kolhar & Others.
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WP No. 105271 of 2022
Indian Bank here by confirms that it does not have any objection to avail housing loan by Mr.Shrikant Balchandrappa Kolhar from SBI, Zonal Office, Region-1, Hubli for Flat No.A-701 of "Suvidha Indraprastha" subject to fulfilling following conditions:
1. All loan proceeds should be routed through designated RERA Account No.6620041574-
M/s.Suvidha Realtors and Constructions- INDRAPRASTHA;IFSC CODE:IDIB000H015, Indian Bank, Hubli Branch.
2. At the time of registration of sale deed of the above property, M/s. Suvidha Realtors & Constructions Pvt. Ltd. Should deposit 40% of the sale consideration in the designated escrow:Account No.6620042034-M/s. Suvidha Realtors and Constructions Pvt. Ltd., IFSC Code:IDBI000H015.
Note: This NOC is valid only in respect of the Flat number and if the said flat number is allotted in the name of the customer mentioned. In the event of the sale of the above mentioned flat to the respective buyer is cancelled/40% of the sale consideration are not deposited in the above Escrow account as advised/event for any reason whatsoever, this NOC shall automatically stand revoked forthwith."
7. As could be seen from the said 'No Objection Certificate' the Bank basically started in the NOC that it -8- WP No. 105271 of 2022 had no objection for the prospective purchaser to the availing of a housing loan, subject to the two conditions.
8. Firstly, that the loan proceeds should be routed through designated RERA account and at the time of registration of the sale deed, the Builder should deposit 40% of the sale consideration into a escrow account.
9. It is not in dispute that 22 such NOCs' were given by the Bank to the prospective purchasers. It is also submitted that several purchasers, who have not availed of any housing loan, have not requested for issuance of a NOC and they have agreed to purchase the apartment from the Builder under agreements of sale.
10. It is submitted by the Builder that out of the 72 flats, the Bank has issued 22 NOCs and the Builder has entered into the agreements in respect of 21 flats. It is therefore submitted that out of the 72 flats, 43 flats are booked for sale and 29 flats were yet to be sold or agreed to be sold.
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11. Learned Senior counsel appearing for the Builder submits that if the Bank refuses to issue a NOC to the prospective purchasers, the prospective purchasers would not be in a position to avail a housing loan from any other Bank and this would be prejudice not only the Builder but also the Bank.
12. He submits that in order to ensure that the apartments are sold and both the Builder and the Bank are thereby benefited by the recovery their investments, it would necessary for both of them to act in a way that would facilitate the execution of the project successfully.
13. He submits that if the NOCs to the prospective purchasers are withheld, it would have the potential of dismantling the entire project. He therefore submits that the impugned communication calling upon the Builder to repay 40% of the sale consideration received sofar, as a condition precedent for releasing sum of Rs.60,00,000/- under the term loan, would be an untenable stand taken
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WP No. 105271 of 2022 by the Bank and this would also be contrary to the terms of the loan agreement.
14. The learned Senior Counsel submits that as a matter of fact the schedule for repayment commences from October-2022 and the Builder has already paid the first installment and according to him, the only obligation on the Builder under the Loan Agreement is to ensure that there is no default in the repayment of the equated monthly installments. He submits that so long as the equated monthly installments are paid on time, the Bank would have no right to impose any condition for release of the balance amount of Rs.60,00,000/-.
15. Learned Senior counsel also submits that in view of the provisions of the Real Estate (Regulation and Development) Act, 2016 (for short, 'the RERA Act') the Builder cannot receive and utilize the entire amount from the prospective purchaser. He submits that as required under the RERA Act the Builder is required to deposit 70% of the amount that he receives from the prospective
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WP No. 105271 of 2022 purchasers into the RERA designated account and this deposited amount can be withdrawn only as provided under the RERA Act. He submits that the Builder is entitled to use 30% of the money that he has collected for the purpose of construction and the Builder is also entitled to withdraw sums from the 70% of the amount that has been deposited in the RERA Act for completing the construction of the project as provided under the Act.
16. He submits that if the Bank were to withhold the term loan and demand payment of 40% of the amounts already received, that would essentially mean the Bank was trying to scuttle the project since that sum had already been spent towards the construction of the apartments.
17. The learned counsel Sri G.N.Raichur, appearing for respondent Nos.1 to 4-Bank, contends that the Builder was bound to pay 40% of the sale consideration to the Bank and unless this amount was paid, the Bank would neither be able to release the balance amount of
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WP No. 105271 of 2022 Rs.60,00,000/- nor issue a NOC to the prospective purchasers. He sought to highlight the fact that the very statement produced by the builder indicate that he had already received more than 60% of the value of the flat in some cases and it was therefore clear that would be impossible for him to deposit 40% of the sale consideration at the time of sale. He submits that the Bank on noticing all these facts, in order to secure the repayment of loan amount, had issued the impugned communication, which cannot be found fault with. A submission is also made that the repayment of the equated monthly installments were irregular, in the sense, that the EMI for the month of October, 2022 had been paid only in the month of November, 2022.
18. In the light of these submissions, the question that arises for consideration is as to whether the Bank can withhold the issuance of a NOC to a prospective purchaser and whether the Bank can insist upon deposit of 40% of the sale consideration that the builder has already
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WP No. 105271 of 2022 received and sale consideration that the builder would receive in future.
19. As already extracted above, the term of the loan agreement clearly states that at the time of sale of each flat, the builder is required to obtain a NOC from the Bank and deposit 40% of the sale value into the escrow account. The use of the expression 'at the time of sale of each flat' would obviously mean the date of conveyance of title to the prospective purchaser. This clause cannot be interpreted or construe to mean that 40% of the money i.e., the builder received at the time of either booking of a flat or entering into an agreement for the flat with a prospective purchaser.
20. Admittedly, there is no bar in the loan agreement for the Builder to enter into an agreement of sale or for receiving an advance. In this view of the matter, it is clear that the impugned communication calling upon the builder to deposit 40% of the sale consideration received till date in order to enable the Bank to release the balance amount
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WP No. 105271 of 2022 of Rs.60,00,000/- would be a contravention of the terms of the loan agreement.
21. Be that as it may, since the ultimate objective of the Bank and Builder is to ensure that the project is completed and all the apartments are sold, it would be necessary for the Bank to issue a NOC to the prospective purchaser when they are approached in this regard without insisting upon payment of 40% of the sale consideration.
22. It is to be borne in mind that admittedly the provisions of the RERA Act apply to the Builder, as the project has been registered under the RERA Act, and the builder is therefore statutorily obliged to deposit 70% of the amount that he receives from the prospective purchaser and he is entitled to keep only 30% of sum for execution of the project and thereafter seek for withdrawal of the 70% of the amounts invested in the RERA accounts as provided under the RERA Act i.e., by establishing that
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WP No. 105271 of 2022 the project is successfully being proceeded with as per the agreed time schedule.
23. Having regard to the fact that the builder has to obtain the approvals to withdraw the 70% of the amount that has been deposited in the RERA account, after due certification, it is quite obvious that the payment of 40% of the sale consideration would lead to a contravention of the provisions of the RERA Act.
24. In this view of the matter, in my view, it would be appropriate to make an arrangement which would ensure that the interest of the both the Bank and the Builder are safeguarded.
25. The Builder has infact filed an undertaking by way of affidavit before this Court today, in which, it is stated as follows :
"7. Petitioner now undertakes that as and when petitioner company executes the sale deed/s upon issuance of NOC by the respondent-Bank, petitioner will pay 40% of the sale consideration amount for each flat as per term loan sanction letter dated 28.03.2018 till
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clearance of the loan amount of Rs.8 crores along with interest which is nothing but the EMI payable which has been spread over from October 2022 to March 2025. 1st EMI in a sum of Rs.27,00,000/- as already paid by the petitioner. Upon payment of 40% of sale consideration of each flat so much of pending loan amount would get deducted from the term loan account and adjusted.
8. Petitioner hereby undertakes that in the event of petitioner executing registered sale deeds earlier to clearance of loan amount through EMI, petitioner would pay 40% of the sale consideration amount as and when sale deeds are executed and registered. Petitioner has already entered into an agreement to sell with 22 buyers out of 76 flats. Petitioner has not executed any sale deed/s till date. The project is still under construction and is in finishing stages. In order to secure the loan amount of the bank, petitioner hereby undertakes to pay 40% of the sale consideration amount as agreed in the sanctioned letter dated 28.03.2018. Hence, this affidavit of undertaking. This undertaking is given subject to (i) Respondent releasing Rs.60,00,000/- balance loan amount immediately, (ii) issuing NOC's to avail housing loan to the prospective buyers at the time of entering into agreement to sell or as and when requested on the same terms and conditions issued earlier and (iii) issuing NOC's at the time of executing the sale deed/s in respect of the flat which is the subject matter of the sale deed."
26. Having regard to these facts, it would be appropriate to direct the Bank to issue a NOC to a
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WP No. 105271 of 2022 prospective purchaser to facilitate the prospective purchaser to avail a housing loan from any other Bank.
27. At the same time, on issuance of the NOC by the Bank, the builder, while required to deposit 70% of the purchaser's money into the RERA a designated account, would have to deposit 5% of the amount that he receives from the prospective purchaser out of his entitlement of 30%.
28. The builder shall as and when he receives any sale consideration from a prospective purchaser on the basis of NOC will have to necessarily deposit 5% of the amount to the Bank and the Bank shall adjust the same to the loan amount of the petitioner by making a proportionate deduction in the principal.
29. The builder shall continue to make the payment of the equated monthly installments, regularly without fail.
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WP No. 105271 of 2022
30. If the Builder were to commit a default in the payment of the EMI's, the Bank would be at liberty to initiate appropriate proceedings under the appropriate law.
31. The Bank shall be obliged to abide by the terms of the loan agreement and release the amount to the Builder as agreed upon in the loan agreement, in accordance with the terms of the loan agreement.
32. It is needless to state that the Bank would be entitled to only 35% of the sale consideration at the time of the sale of the apartment, in view of the fact that the builder has undertaken to pay 5% of whatever money that he received from the prospective purchaser who has been given an NOC by the Bank.
33. In otherwords, the Bank shall have to deduct the 5% of the money that it is going to receive from the builder while computing the 40% that becomes payable at the time of sale of the flat.
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WP No. 105271 of 2022
34. Resultantly, Annexure-N, the impugned communication, shall not be given effect to by the Bank and the Bank is directed to abide by the terms of the loan agreement and act in terms of this order.
Writ petition is accordingly disposed off.
SD JUDGE CKK