Bank Not Liable for Builder's Default: NCDRC Ruling.


21 October 2024 Banking Law >> Business & Commercial Law   |   Civil Appeals >> Civil & Consumer Law  

In a significant ruling of HDFC Bank Ltd., Bengaluru, Through Its Authorised Officer v/s Divya Michelle Rajiva & Another, the National Consumer Disputes Redressal Commission (NCDRC) has overturned a state commission's order that held a financing bank liable for a builder's failure to deliver a flat. The case involved a complainant, Respondent No. 1, who had secured a loan from HDFC Bank (formerly HDFC Ltd.) to purchase a flat in the "Richmond Pride Phase-2" project in Bengaluru.

The complainant had filed a consumer complaint after the builder, Respondent No. 2, failed to deliver possession of the flat, despite the bank disbursing the loan amount as per a tripartite agreement. The State Commission, citing the bank's delayed submission of a written version and alleging a "hidden agenda" to support the builder, held the bank jointly liable with the builder for a refund and damages.


 

 

However, the NCDRC, upon hearing the bank's appeal, found that the State Commission's conclusions were based on "surmises and conjectures" and contradicted the evidence on record. The complainant's own statements in the complaint revealed that the loan disbursements were made according to her instructions and consent, released periodically as requested.

The NCDRC highlighted that the bank's role was limited to financing and disbursing the loan, and it had no contractual obligation to ensure the project's completion. Citing a precedent from the Delhi High Court, the commission emphasized that a bank cannot be expected to assume the builder's responsibilities.

"The disbursement of the loan, as well as its further disbursement details, were as per the instructions of the complainant from the loan account of the complainant that has been admittedly made on the instructions of the complainant," stated the NCDRC.

Furthermore, the builder, who had consistently remained absent throughout the proceedings at both the state and national commission levels, was deemed solely responsible for the project's failure. The NCDRC noted the builder's "absconding" behavior and affirmed the State Commission's decree against them.

Consequently, the NCDRC allowed the bank's appeal, setting aside the State Commission's order to the extent that the bank was no longer liable for the refund. The complainant was granted the right to pursue the entire decretal amount from the builder.

The ruling clarifies the limited role of financing banks in real estate transactions and reinforces the principle that they cannot be held responsible for the builder's deficiencies. This decision provides significant relief to the banking sector and sets a precedent for similar cases.