Violation of Subvention Scheme
Subvention Schemes in Real Estate:
“Buy Now, Pay Later” Promise or a Legal Trap for Homebuyers?
“Book a home now, pay later”, “No EMI till possession”, “Pay 10% now & rest after completion” — these attractive slogans have made subvention schemes one of the most popular marketing tools in India’s real estate sector.
However, behind this appealing façade lies a growing history of builder defaults, delayed possession, EMI fraud, and legal disputes, leaving thousands of homebuyers financially stranded. Recognising the rampant misuse of these schemes, regulatory bodies like the RBI and National Housing Bank (NHB) have issued strict warnings, and courts — including the Supreme Court of India — have stepped in to protect buyers.
What Is a Subvention Scheme in Real Estate?
A subvention scheme is a tripartite financial arrangement between:
- The homebuyer
- The builder/developer
- The bank or housing finance company
Under this model:
- The buyer pays a small upfront amount (usually 10–20% of the property value).
- The remaining amount (generally 80–90%) is disbursed by the lender as a home loan.
- The builder agrees to pay the EMIs or interest on the loan on behalf of the buyer until possession or for a specified period.
In essence, the buyer gets to own a home now and pay later, with no immediate EMI burden.
Popular Example: The 20:80 Subvention Plan
One of the most common formats is the 20:80 subvention scheme, where:
- 20% is paid by the buyer at booking
- 80% is paid by the bank to the builder
- EMIs are paid by the developer until possession
While this looks buyer-friendly, its success entirely depends on timely project completion and builder credibility.
Why Subvention Schemes Became Risky for Homebuyers
Over the years, subvention schemes have been widely misused by developers. The most common problems include:
Builder Stops Paying EMIs
When developers face liquidity issues, they often stop servicing EMIs. Since the loan is in the buyer’s name, banks immediately hold the buyer liable, damaging credit scores and triggering recovery actions.
Delay in Possession
If possession is delayed:
- Buyers are forced to pay pre-EMIs without receiving the flat
- Rent + EMI burden doubles
- Property prices often escalate
Poorly Drafted Tripartite Agreements
Most agreements:
- Contain shifting liability clauses
- Do not clearly fix builder responsibility
- Are drafted in favour of builders and lenders
One-Sided Loan Disbursement
Banks have historically disbursed 70–80% of the loan upfront, violating RBI norms of construction-linked disbursal, leaving buyers exposed if the project stalls.
RBI & NHB Ban on Subvention Schemes
- RBI (2013) directed banks to stop upfront loan disbursement and link payments strictly to construction milestones.
- National Housing Bank (August 2019) explicitly banned housing finance companies from funding subvention schemes, citing widespread fraud and misuse.
Despite this, builders continue to offer repackaged versions of subvention plans through loopholes, reimbursements, or non-bank lenders.
Pros and Cons of Subvention Schemes
Pros
- Low upfront payment
- No immediate EMI burden
- Helpful for buyers living on rent
Cons
- High risk if project is delayed
- Credit score damage due to builder default
- Shifting liability clauses
- Buyer bears maximum risk
Subvention Schemes Under RERA: Legal Position
The Real Estate (Regulation and Development) Act, 2016 (RERA) does not ban subvention schemes but regulates them strictly.
Key RERA Safeguards for Subvention Plans
Mandatory Disclosure
All subvention terms must be clearly mentioned in the registered Agreement for Sale, including:
- EMI responsibility
- Duration of subvention
- Buyer liability conditions
- Possession timelines
Any oral promise or advertisement has no legal value.
RERA Registration Is Mandatory
Only RERA-registered projects can legally offer subvention plans.
Protection Against Misleading Ads
Claims like “No EMI till possession” without conditions are treated as misleading advertisements, attracting penalties under RERA.
Builder’s liability in case of delay in Possession
If possession is delayed or EMIs are unpaid:
- Buyer can claim interest
- Seek refund with interest
- File a RERA complaint against the developer
Regulation of Loan Disbursement
RERA discourages bulk disbursals and promotes construction-linked payments to protect buyers.
Precautions Before Opting for a Subvention Scheme
- Verify RERA registration
- Check builder’s financial health and past delivery record
- Read the tripartite agreement carefully
- Avoid schemes with fixed subvention periods instead of possession-linked
- Seek advice from a RERA lawyer or legal expert
When Can a Buyer File a RERA or Consumer Complaint for Subvention Fraud?
A homebuyer can file a RERA or Consumer complaint when:
- The builder fails to pay EMIs under the subvention scheme
- Possession is delayed beyond the promised date
- The builder refuses to cancel booking or refund money
- Buy-back promises under the scheme are not honoured
Supreme Court’s View on Subvention Schemes
The Supreme Court has taken a strong stance against subvention frauds, especially in large delayed projects.
Landmark Case: Bikram Chatterji v. Union of India (Amrapali Case) and Himanshu Singh vs union of India (Supertech Case)
Background of the Case
The petitioners were homebuyers who had booked residential units under subvention schemes in projects where:
- A substantial portion of the home loan was disbursed upfront to the builder
- The builder had undertaken to service EMIs until possession
- The projects suffered abnormal delays
- Builders defaulted on EMI payments
- Banks initiated coercive recovery proceedings against homebuyers despite the absence of possession
The buyers approached the Supreme Court seeking protection against recovery actions and clarification on liability under such subvention arrangements.
Key Issues Before the Supreme Court
The Court was called upon to decide:
- Whether homebuyers could be held liable to pay EMIs without receiving possession
- Whether banks were justified in disbursing large loan amounts without monitoring construction progress
- Whether coercive recovery measures against buyers violated principles of fairness and due diligence
- Whether regulatory authorities failed in preventing systemic abuse of subvention schemes
Supreme Court’s Observations
The Supreme Court made strong and buyer-centric observations, holding that:
- Homebuyers cannot be treated as defaulters when possession has not been handed over and the builder has failed to honour the subvention commitment.
- Banks and housing finance institutions are obligated to strictly comply with RBI and NHB guidelines, particularly regarding construction-linked disbursement.
- Disbursing 70–80% of loan amounts at an early stage amounts to gross negligence and exposes buyers to unjust financial risk.
- Coercive recovery actions such as:
- EMI demands
- Cheque bounce cases
- SARFAESI proceedings
are impermissible against buyers awaiting possession.
The Court emphasised that institutional lenders cannot wash their hands of responsibility by shifting the entire burden onto unsuspecting homebuyers.
The Court held:
- Fraud vitiates everything
- Buyers cannot be forced to pay EMIs when builders and banks acted negligently
- Banks must perform due diligence before loan disbursement
- Coercive recovery against buyers without possession is impermissible
The Court also warned of possible CBI investigations into builder-bank collusion.
Conclusion
Subvention schemes may look like a smart shortcut to homeownership, but in reality, they are often a double-edged sword. While legally permissible under RERA, their misuse has caused immense financial and emotional distress to homebuyers across India.
With stricter judicial scrutiny, regulatory oversight, and increasing buyer awareness, the future of subvention schemes depends on transparency, accountability, and legal compliance. Homebuyers must approach such offers with caution, conduct due diligence, and remember — if an offer sounds too good to be true, it probably is.