Table of Contents

Introduction

In recent years, Indian homebuyers have found themselves caught in a painful paradox, i.e., Builder Bank Nexus in India, despite having paid for flats under subvention schemes, many have neither possession nor relief from banks demanding EMIs. What has emerged is a disturbing nexus among builders, banks (and housing finance companies), and at times development authorities, systematically exploiting gaps in finance, regulation, and enforcement.

In 2025, the Supreme Court signalled that the time for tolerance had ended for this Builder Bank Nexus in INDIA. It has allowed the Central Bureau of Investigation (CBI) to convert multiple preliminary enquiries into FIRs and expand its probe beyond the National Capital Region (NCR). This marks a turning point: not only are civil remedies under RERA, consumer law, and IBC being invoked, but criminal accountability is now squarely in view.

This article examines:

How the builder–bank nexus takes form;
The Supreme Court’s recent interventions;
Real-life patterns and how fraud is being unearthed;
The role of IBC / homebuyers as financial creditors;
Government/regulator responses; and
Practical strategies for litigators, buyers, banks, and promoters.

1. Anatomy of the Builder–Bank Nexus in India

Subvention / “0 EMI till possession” Models

In many residential real estate projects, developers adopt subvention schemes (also called 80:20, 70:30, etc.) or “no-EMI until possession” offers to lure buyers. Under such models, the bank disburses the loan amount (or a large portion) directly to the builder, while the builder undertakes to service (i.e., pay interest/EMI) until handing over possession to the allottee. The allottee starts paying only after possession.

This creates a tri‐party arrangement: bank ↔ builder ↔ buyer, often documented via a tripartite agreement.

Perverse Incentives & Moral Hazard-Builder–Bank Nexus in India

Builders rush to draw large disbursals as early as possible (even before physical construction has advanced) to meet liquidity needs or divert funds.
Because their commitment is to service the debt till possession (not necessarily to deliver on schedule), delays and defaults may follow.
Once defaults occur, banks shift the burden onto buyers—even though buyers never gained possession.
Meanwhile, oversight of how disbursed funds are used is weak (insufficient escrow monitoring, lax stage certifications, and weak audits).

Weak Oversight & Regulatory Gaps-Builder–Bank Nexus in India

Although RBI / NHB has guidelines restricting disbursement to construction milestones, implementation and enforcement at the project level is weak.
RERA’s escrow and disclosure mechanisms often fail in practice (e.g., weak audit enforcement, poor reporting).
Developers may use related parties, shell companies, false certifications, or bogus milestone reporting to camouflage diversion.

Thus, the Builder Bank nexus in INDIA is structural: finance architecture + lax checks + asymmetric power with the buyer.

2. The Supreme Court’s Intervention: Timeline & Significance-Builder–Bank Nexus in India

April 29, 2025 Order

On 29 April 2025, the Supreme Court recorded that there is a prima facie suspicion of collusion among certain banks, housing finance companies, developers, and officials of development authorities in NCR. It directed the CBI to conduct seven preliminary enquiries into different projects. The Court also ordered the seizure of relevant documents and the filing of status reports.

This was a watershed: from piecemeal consumer / RERA complaints to centralized criminal scrutiny.

July 2025: Converting 6 PEs into 22 FIRs (NCR Projects)

On 22 July 2025, a Bench of Justices Surya Kant & N. K. Singh allowed the CBI to convert six completed preliminary enquiries into 22 FIRs, relating to projects in Noida, Greater Noida, Gurugram, Yamuna Expressway, Ghaziabad, and other NCR areas. The Indian Express+2www.ndtv.com+2

Key observations by the Court:

Over 1,000 persons had been examined; 58 project sites had been visited. The Indian Express+1
Some district courts had issued coercive recovery orders (e.g., in cheque bounce matters) even though possession had not been delivered; SC flagged these as serious. The Indian Express
The Court directed cooperation from state police, development authorities (such as Noida Authority, YEIDA), CEOS, RERA authorities, etc., and ordered them to designate nodal officers. The Tribune+1

Shortly thereafter, the CBI indeed registered 22 FIRs naming prominent builders (Supertech, Jaypee, Ajnara, Vatika, Idea Builders, etc.) and banks / HFCs (SBI, HDFC, ICICI, PNB, Indiabulls, Piramal, Tata Capital) as accused. www.ndtv.com

September 2025: Expanding Beyond NCR — Six More FIRs-Builder–Bank Nexus in India

On 23 September 2025, the Supreme Court, on considering the 7th preliminary enquiry (which pertained to projects outside NCR), permitted the CBI to register six additional regular cases (FIRs) in other cities—Mumbai, Bengaluru, Kolkata, Mohali, Prayagraj, etc. Bench: Surya Kant, Ujjal Bhuyan, N. Kotiswar Singh. The Tribune+3LawBeat+3Live Law+3

The Court accepted the ASG’s submission that a “cognizable offence is made out” from the PE. It allowed search, seizure, and investigation. It also ordered that a portion of the sealed‐cover findings be shared with the Amicus Curiae. Live Law+1

This expansion is significant: the problem is not confined to NCR but is pan‐India; potential exposure is now wider.

3. On the Ground: Real-Life Patterns & How Fraud Surfaces

Here are recurring patterns gleaned from media reports, court orders, and investigatory steps:

Scenario A: “You pay EMIs, but no flat in hand”

Many allottees report that banks began issuing demands/notices to pay EMIs, even though possession was never delivered and construction had stalled. The banks rely on the tripartite / subvention agreement as justification. Buyers are caught between a non-delivering builder and a bank insisting on repayment.

Scenario B: Milestone-disregard in Disbursements

In many cases, large disbursements were made well before the construction stage justified them. The developer obtained upfront funds, paused or slowed construction, but had already consumed cash. Once delayed, servicing becomes hard, leading to defaults.

Scenario C: Authority records sought by investigators

In the NCR context, the CBI (per SC directions) has sought from YEIDA (Yamuna Expressway authority) land allotment files, maps, lease deeds, building plan approvals, and communication files for multiple projects (Supertech’s “UP County”, Grandstand, Kove, Kassia, etc.). These are crucial to trace title, plan compliance, and actual developer obligations. The Times of India+2www.ndtv.com+2

By comparing bank disbursal ledgers with physical progress/authority approvals, investigators aim to detect diversion (money allocated but work not done).

Scenario D: Searches and Seizures in Non-NCR Cities

Following recent orders, the CBI has conducted searches in Mumbai, Bengaluru, Kolkata, and other cities, targeting offices and residences of builders/finance officials, and seized documents, laptops, digital data etc. The Economic Times+2The Economic Times+2

In this wave, six new FIRs were registered against builders and financial institution officials for alleged cheating of homebuyers. The Economic Times

4. IBC, Homebuyers’ Status & Strategic Levers about the Builder Bank Nexus in India

Pioneer Urban & Homebuyers as Financial Creditors

In Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019), the Supreme Court upheld the 2018 amendment to the IBC, which classifies amounts paid by an allottee to the developer as financial debt, thus making homebuyers financial creditors. Mondaq+2IBC Law+2

This decision grants homebuyers:

The right to file a Section 7 petition under IBC (if a default is made out).
Seat in the Committee of Creditors (CoC), via an authorized representative, with proportional voting power.
The ability to challenge the conduct of the developer, including possible avoidance / preferential transactions.

The Court clarified that RERA and IBC must co-exist; in case of conflict, IBC prevails. Homebuyers may simultaneously pursue consumer law, RERA, or other remedies. Mondaq+2repository.nls.ac.in+2

Manish Kumar / “Threshold” Constraint

In Manish Kumar & Ors. (2021), the Supreme Court affirmed that for aggregate homebuyers to file under Section 7, they must satisfy the threshold (minimum of 100 allottees or 10 % of total allottees in that project). This constraint prevents small, isolated claims. Aggregation and project-level clarity become critical.

Further, in recent times, courts have cautioned against speculative investors dragging IBC processes in projects not truly stalled. The distinction between genuine allottees versus speculative claims bears on admissibility.

Interplay with CBI Investigations-Builder–Bank Nexus in India

The criminal or fraud investigations (via CBI) may strengthen evidence for IBC/claimant arguments (like diversion, misstatement, breach). However, they run in parallel; the pendency or outcome of FIRs does not necessarily delay or derail insolvency or civil actions unless specifically stayed.

Lawyers may leverage cross-disciplinary pleadings: e.g., present copies of FIR or investigative disclosures in IBC / injunction petitions; file avoidance claims in insolvency proceedings based on misappropriation identified in the criminal probe.

5. Regulatory & Institutional Response-Builder–Bank Nexus in India

RBI / NHB Guidelines & Circulars

RBI’s Master Circular on Housing Finance mandates the disbursement of housing loans in stages tied to construction progress, subject to internal audit, inspection, and control systems.
In 2019, NHB issued a circular restricting interest-subvention via developers (i.e., banks / HFCs cannot allow builders to pay EMIs on behalf of buyers indiscriminately).
RBI has publicly flagged the risk of “innovative financial structures” and the need for stricter monitoring, especially of subvention models.

Yet, real enforcement lags because supervision is at a macro level; micro compliance enforcement (site audits, lien checks, escrow compliance) is often weak.

Read also-Homebuyer’s Right to Compensation for Delayed Flat Delivery- Supreme Court Explains Principles

RERA and State Laws

RERA mandates:

Escrow accounts: deposits of a portion of the sale proceeds into escrow for construction.
Periodic progress disclosure and audit.
Penalties for delay, interest, and refund obligations.

However, where promoter/bank collusion is at play, RERA monitoring sometimes fails in detecting fund diversion or upstream noncompliance. Moreover, RERA itself lacks criminal investigation power in many states.

Government / Ministry of Housing & Urban Affairs (MoHUA)

While the government may not shortly enact a special statute for builder–bank collusion, policy emphasis on housing delivery (PMAY) and coordination across ministries (finance, urban development) may prompt tighter controls, centralized monitoring, or model agreements.

Indeed, in many of the Supreme Court orders, the top Court has asked for cooperation from MoHUA, state housing departments, local authorities, and RERA bodies. The Tribune+2The Indian Express+2

6. Litigation & Strategy: What Practitioners Should Do

For Homebuyers / Plaintiff Side

Document meticulously: preserve all tripartite agreements, bank disbursal statements, project updates, correspondence, photographs, site visits, and certified progress reports.
Early intervention: file interlocutory reliefs (stay of coercive recovery, restrain bank demands) in High Courts or via writs.
Choose the proper forum:
1. RERA (refund, compensation, delay interest)
1. Consumer forums (deficiency, unfair trade practice)
1. Section 7 IBC (if threshold met)
1. Civil suit (declaration, injunction, specific performance)
Aggregate claims: where a project has many allottees, pool claims to cross the threshold and strengthen representation.
Leverage CBI / FIR disclosures: once FIR is registered, ask for sealed cover extracts or use investigative findings in your civil / IBC pleadings (subject to confidentiality).
Apply for avoidance/preference claims (in insolvency process) to retrieve diverted funds.
Ensure inclusion in CoC: engage seriously in the CoC, propose plans, or challenge mismanagement.

For Banks / HFCs (Defensive Strategy)

Maintain audit trail: document linkage between disbursal and certified construction monitoring.
Site inspections before disbursal.
Escrow monitoring and third-party certification.
Avoid coercive measures (repossession, recovery suits) if possession is not delivered or the project is stalled.
Engage in early restructuring or settlement with buyer groups to avoid litigation escalation.
Cooperate transparently with investigative agencies to minimize exposure.

For Builders / Promoters

Maintain strict funds discipline.
Use independent certifiers for milestone reports.
Avoid related party transfers or circular flows.
Update and comply with RERA disclosures.
Consider early resolution plans or voluntary settlement with buyers rather than prolonged default.
Engage forensic accountants/auditors to produce clean books if investigations begin.

7. Policy & Reform Suggestions-Builder–Bank Nexus in India

To reduce recurrence and strengthen buyer protection, policy steps may include:

Standardized tripartite / subvention templates vetted by RBI, NHB & RERA with enforceable clauses (escrow, default waterfall, audit rights).
Central registry or flagging system of subvention-based loans accessible to regulators, RERA, and public users.
Real‐time data linkage among banks, RERA, and development authorities (project status dashboards).
Stricter sanctions (cancellation of licenses, blacklisting) for promoters/banks violating milestone norms.
Stronger on-site supervision/audit powers for RERA / MoHUA / HUDCO.
Incentivizing repurchase or refund obligations if possession is delayed beyond stipulated timelines.
Coordination committees at the state / central level (RBI, SEBI, UHCD, Housing Ministry, Pollution, Town planning) for holistic monitoring.

8. FAQs for Readers-Builder–Bank Nexus in India

Q1. What is a subvention scheme, and why is it risky?
A subvention scheme is when the bank pays the builder directly, and the builder promises to pay EMIs till handing over possession. The risk is that if the builder delays or defaults, buyers—who never got possession—are asked to pay anyway, and oversight is weak.

Q2. Can the bank force me to pay when I haven’t got possession?
That depends on your agreement and whether the builder failed obligations. Under recent SC scrutiny, coercive demand notices in such cases face a serious challenge.

Q3. Can I file under RERA, Consumer Court, or IBC?
Yes — you may pursue compensation, delay interest under RERA; deficiency/unfair trade practice demands under consumer law; or, if the threshold allows, initiate insolvency under IBC (as a financial creditor) under the Pioneer Urban doctrine.

Q4. What recent steps has the Supreme Court taken?
The Court has allowed the CBI to register 22 FIRs in NCR and six more FIRs in other cities, converting preliminary enquiries into full investigations. The Economic Times+3www.ndtv.com+3LawBeat+3

Q5. What to do if my project is under investigation?
Preserve all records, join buyer associations, file interlocutory reliefs to restrain coercive steps, consider the collective or IBC route, monitor CBI / media updates, and pursue parallel civil / consumer / RERA routes.

Conclusion-Builder–Bank Nexus in India

The Supreme Court’s decisions in 2025 have shifted the builder–bank dispute from mere financial/civil concerns into the realm of criminal accountability. For affected homebuyers, this is an opportunity to press claims more forcefully. For banks and promoters, it is a warning: structural laxity and opaque practices will no longer evade scrutiny.

As legal practitioners, we must now adapt: build multi-pronged litigation strategies combining civil, insolvency, and criminal angles; use investigative disclosures in pleadings; and push for regulatory reforms to plug systemic loopholes.