No EMI till Possession The Subvention Crisis Haunting India’s Real-Estate Sector

For years, India’s real-estate market sold a dream that middle-class homebuyers found impossible to resist. “Book your home today. No EMI till possession.” The model was marketed as revolutionary.

Builders promised that till possession of the flat, they would service the Pre-Equated Monthly Instalments (“Pre-EMIs”) payable to banks and NBFCs. Buyers were assured that they would only begin repayment after receiving their homes. But when projects stalled and builders collapsed financially, that dream turned into a legal and financial nightmare.

Today, thousands of homebuyers across the country remain trapped between defaulting builders, aggressive recovery actions by banks, damaged CIBIL scores, and endless insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Now, the Supreme Court of India appears to be taking an increasingly firm view on the crisis - signalling a judicial shift towards stronger homebuyer protection in subvention disputes.

The “No EMI Till Possession” Promise

Under a typical subvention scheme, a homebuyer would obtain a housing loan from a bank or NBFC, but instead of the money being released in stages based on construction progress, a substantial portion of the loan amount would be directly disbursed to the builder at the very outset. In return, the builder undertook the responsibility of servicing the EMIs or Pre-EMIs till possession of the flat was handed over to the purchaser.

On paper, the arrangement appeared commercially attractive for everyone involved:

• builders received immediate liquidity and uninterrupted cash flow for large-scale projects,

• banks and NBFCs rapidly expanded their housing loan portfolios in a booming real-estate market,

• and homebuyers believed they were securing affordable homes without the immediate burden of monthly repayments.

The model was aggressively marketed as a “No EMI Till Possession” scheme, making it particularly appealing to middle-class buyers seeking to invest in under-construction properties without facing simultaneous rental and EMI obligations.

However, the entire structure began collapsing once construction activities slowed down or came to a complete halt. Several developers defaulted on their Pre-EMI obligations, projects remained incomplete for years, and promised possession timelines became increasingly uncertain. Despite repeated assurances by builders, banks and financial institutions continued treating the homebuyers as the principal borrowers under the loan agreements and initiated recovery proceedings directly against them.

The consequences proved financially and emotionally devastating for purchasers. Homebuyers who never received possession suddenly found themselves:

• paying EMIs for unfinished or non-existent flats,

• simultaneously paying rent for their current accommodation,

• facing recovery proceedings, default notices, and threats of classification as defaulters,

• and suffering severe damage to their credit scores and financial standing.

In many cases, buyers further alleged that banks and financial institutions had disbursed massive loan amounts to developers without adequately monitoring actual construction progress or verifying the proper end-use of funds. This eventually led to allegations that the risks of failed projects were disproportionately shifted onto homebuyers, despite them having the least control over the financing structure and project execution.

Insolvency Added Another Layer Of Chaos

The crisis deepened when several developers entered Corporate Insolvency Resolution Process (“CIRP”) under the IBC.

Once CIRP commenced, Section 14 of the IBC imposed a moratorium prohibiting proceedings and recovery actions against the corporate debtor. While intended to preserve the company during insolvency resolution, the moratorium often left homebuyers stuck in prolonged uncertainty.

Many purchasers found themselves caught in a legal paradox:

• the builder had stopped construction,

• possession was impossible,

• refunds were delayed,

• but banks still pursued recovery from homebuyers because the loan technically remained in their names.

The situation exposed the uncomfortable intersection between real-estate financing and insolvency law.

In Hridesh Pathak v. Union of India, homebuyers approached the Delhi High Court seeking protection against coercive recovery actions initiated by banks and NBFCs. Recognising the gravity of the situation, the High Court initially restrained banks from taking coercive measures and even directed correction of adverse CIBIL reporting against homebuyers.

However, the relief was later vacated after the matter was viewed as predominantly contractual in nature. The battle eventually reached the Supreme Court in Sanjeev Kumar v. Union of India, where the Court revived interim protection granted to homebuyers a move widely viewed as judicial acknowledgement of the extraordinary hardship faced by purchasers trapped in subvention arrangements.

Supreme Court Expands Protection For Homebuyers

Over the last few years, the Supreme Court’s approach toward homebuyer rights under the IBC has undergone a significant transformation.

Initially, homebuyers occupied a weak and uncertain position within insolvency proceedings. However, legislative amendments and judicial interpretation gradually strengthened their status.

The 2018 amendment to Section 5(8)(f) of the IBC formally recognised homebuyers as “financial creditors,” enabling them to initiate insolvency proceedings against defaulting developers. The constitutional validity of this recognition was upheld by the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. v. Union of India.

Subsequent decisions further reinforced homebuyer rights.

In a recent judgment, the Supreme Court held that once claims of homebuyers are verified and admitted by the Resolution Professional, such claims cannot later be downgraded merely on technical grounds to deny possession under a resolution plan. The Court strongly reaffirmed that verified homebuyers cannot be pushed aside after investing substantial amounts into housing projects.

Similarly, the Court has clarified that homebuyers who secure RERA orders cannot be discriminated against vis-à-vis other financial creditors during insolvency proceedings.

The broader judicial trend now appears clear:
courts are increasingly unwilling to allow insolvency proceedings to become instruments that defeat substantive homebuyer rights.

The Larger Concern: Who Bears The Risk?

The subvention crisis has also raised serious concerns regarding institutional accountability within India’s real-estate financing framework. Homebuyers have consistently argued that they were drawn into financing structures aggressively designed, marketed, and promoted by builders in collaboration with banks and NBFCs. While the arrangements were presented as secure and consumer-friendly, the risks ultimately fell disproportionately upon purchasers once projects began collapsing.

When construction stalled and developers defaulted on their Pre-EMI obligations, the financial burden shifted almost entirely onto homebuyers, despite them being the weakest stakeholders in the transaction. Buyers who neither received possession nor refunds suddenly faced recovery proceedings, mounting interest liabilities, and damaged credit histories.

This has compelled courts to increasingly scrutinize the role played by financial institutions in such transactions. Questions are now being raised regarding whether banks exercised adequate due diligence before disbursing massive loan amounts to developers, whether disbursals were properly linked to actual construction progress, and whether homebuyers were sufficiently informed about the financial and legal risks embedded within subvention arrangements.

Simultaneously, courts are also examining the fairness of permitting coercive recovery actions against homebuyers who continue to remain without possession of their flats. Consequently, what initially appeared to be a purely contractual dispute between borrowers and lenders has now evolved into a much larger issue concerning consumer protection, institutional responsibility, and financial accountability within the real-estate sector.

Beyond Contracts: A Systemic Real-Estate Failure

The subvention litigation presently unfolding across courts and tribunals reveals concerns far greater than isolated instances of builder default. What initially appeared to be individual contractual disputes has now exposed deeper structural weaknesses within India’s real-estate financing ecosystem.

The crisis has highlighted several systemic failures, including unchecked project financing, weak monitoring mechanisms, delayed regulatory intervention, and fragmented legal remedies spread across multiple forums such as RERA authorities, consumer commissions, civil courts, and insolvency tribunals. The absence of coordinated oversight has often resulted in prolonged uncertainty for homebuyers, many of whom continue to remain trapped in overlapping proceedings for years.

For several purchasers, the litigation process itself has become an additional form of hardship. Years are spent navigating insolvency proceedings, resolution plans, recovery actions, and execution battles, while projects remain incomplete and possession remains uncertain. In the meantime, homebuyers continue servicing loans and financial liabilities for properties they may never ultimately receive.

Conclusion

The subvention crisis has fundamentally altered the conversation surrounding homebuyer rights, real-estate financing, and institutional accountability in India. What was once projected as an innovative financing model promising “No EMI Till Possession” has, over time, exposed serious structural failures within the relationship between builders, banks, and purchasers.

The Supreme Court’s recent interventions signal a clear judicial shift toward recognising the disproportionate hardship faced by homebuyers who continue to bear financial liabilities despite prolonged project delays and failed possession commitments. Increasingly, courts appear unwilling to permit technical contractual arrangements or insolvency proceedings to operate in a manner that leaves purchasers remediless while developers and financial institutions distance themselves from accountability.

At the heart of the controversy lies a larger legal and policy question: who should ultimately bear the consequences of failed real-estate projects? The emerging judicial trend suggests that homebuyers - often the weakest and least informed stakeholders in such transactions - cannot indefinitely be made to shoulder the burden of institutional failures, stalled construction, and flawed financing structures.

As scrutiny intensifies over builder defaults, bank recoveries, CIRP proceedings, and moratorium-related disputes, the subvention litigation may ultimately shape a new phase in India’s real-estate jurisprudence - one that places consumer protection, financial transparency, and equitable risk allocation at the centre of housing law.