DRT Case for Home Loan: Bank Sued, Builder Vanished
The first document that changes everything in a DRT case for home loan default almost never comes from the builder. It comes from the bank — a demand notice under the SARFAESI Act, or a summons from a Debt Recovery Tribunal, sometimes sitting in a city you have to look up on a map, with a date on it that is closer than you expected. The builder's number has been switched off for a while by then. The project site has a watchman and not much else.
What follows is written for the borrower in that position: the loan running, the flat unbuilt, the developer gone, and a bank that has decided to recover from the one person who is still findable. We are working from a one-sided account here, and the details of what was signed and when matter enormously — so treat the general propositions below as a map, not as advice on your own file.
What happens first in a DRT case for home loan default?
Two routes exist and the bank takes whichever is open to it. Usually both, in sequence.
Route one: SARFAESI, and the sixty-day clock
- The demand notice. Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. It gives you 60 days to clear the dues. The clock runs from the date on the notice, not the date you opened the envelope.
- Your reply. Section 13(3A) lets you raise objections or seek a settlement. If you send a representation, the secured creditor is required to respond, ordinarily within about two weeks. This is the cheapest chance you will ever get and most borrowers spend it writing an emotional letter instead of a factual one.
- Enforcement. Once the 60 days lapse, Section 13(4) permits the bank to take possession, sell the secured asset, or take over its management.
- The challenge. An application under Section 17 goes to the Debt Recovery Tribunal. The limitation is 45 days from the Section 13(4) measure, extendable up to 60 days on sufficient cause being shown. Tribunals are strict about this.
- The appeal. Section 18 takes you to the Debt Recovery Appellate Tribunal — 30 days, extendable by a further 15 — and requires a pre-deposit, normally 50% of the debt due, which the appellate tribunal may reduce, though not below 25%.
Route two: the bank files directly before the DRT
Under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993, a bank can simply apply to the tribunal for recovery. There is no sixty-day dance, no representation stage. You receive summons, you file a written statement, evidence is led, and an order follows. Section 31A of that Act gives secured creditors priority over most other debts in the distribution of the sale proceeds — which is why unsecured creditors of the same builder rarely recover anything.
Which route you face depends on whether the loan is actually secured and on which court the bank finds more convenient. Check the documents before assuming.
Key facts to establish before anything else
- Whether the loan is secured by a mortgage of the flat, and whether the mortgage was ever validly created and registered.
- Whether there is a tripartite agreement between you, the bank and the builder. Many construction-linked loans have one. Its terms decide whether the bank had any monitoring duty over disbursement.
- The tranche release history — how much was released, on whose certification, and against what stage of construction.
- Whether the account has already been classified as a non-performing asset, and the date of that classification.
- The RERA registration number of the project and its current status on the state RERA portal.
- Whether the builder is in insolvency, struck off, or simply untraceable.
- Whether you are the sole borrower or one of several, and whether anyone stood guarantor.
The three-cornered problem
Your contract with the bank is separate from your contract with the builder
This is the part people find hardest to hear. The general position in Indian law is that the loan agreement stands on its own footing. You borrowed money and agreed to repay it. The builder's failure to hand over the flat does not, by itself, extinguish that obligation. The bank is enforcing a loan, not a promise about an apartment.
That said, the position is not always as clean as the bank's notice suggests, and there is room to argue on facts. Where the bank itself released construction-linked instalments without any corresponding construction, where its own engineer signed off on progress that did not exist, or where the tripartite arrangement gave it oversight it did not exercise, borrowers have raised the point. Whether it assists you depends entirely on what the file shows. We do not have those documents here, and neither does anyone reading this piece.
There is a second, blunter reality. The flat, if it exists at all, may be worth less than the outstanding debt, or may be unsaleable for want of occupancy. The bank knows this. That is why it comes after your salary and your savings as well as the security.
What the bank can and cannot reach
A recovery officer can attach and sell movable and immovable property, and can attach bank accounts. Attachment of salary is possible in principle but is subject to statutory exemptions, and the extent of protection depends on which provision is applied. Do not assume your salary is untouchable, and do not assume it is gone. It turns on the order and the exemption applied in your case.
What your options actually are
- Reply to the Section 13(2) notice properly. Facts, documents, dates. Ask for the statement of account and the disbursement record. This is where you build the record you will use later.
- File under Section 17 within time. If the bank has already taken a Section 13(4) step, the clock is running.
- Approach RERA against the builder. Section 18 of the Real Estate (Regulation and Development) Act, 2016 allows a buyer to seek a refund with interest, or interest for delay, where the promoter fails to complete. An order from a state authority or the appellate tribunal is enforceable — but against a builder who has vanished, a paper order recovers nothing. Take it anyway; it establishes the default on the record.
- Consider the insolvency route. Homebuyers have been treated as financial creditors, which means an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is, in principle, open to a group of buyers who meet the threshold currently notified. This is a collective remedy and needs numbers. On your own, it is rarely practical.
- Consider an FIR. Where money was collected and the project never materialised, cheating and criminal breach of trust under the Bharatiya Nyaya Sanhita, 2023 are the natural heads, and economic offences wings are the usual forum. A criminal complaint does not get your money back and does not stop the bank. It can create pressure and it builds a record. Weigh it honestly.
- Negotiate a one-time settlement or restructuring. Banks do settle. What they respond to is a realistic offer supported by a statement of what you can actually pay, not a request for waiver on grounds of hardship.
Should you keep paying the EMIs? There is no general answer. Stopping makes the default worse and costs you the argument that you were a bona fide borrower. Continuing may mean paying for something you will never get. This is the single decision in the whole matter that most depends on facts we do not have here, and it should not be made on the strength of an internet article.
Frequently Asked Questions
Can the bank recover the full loan if the builder never delivered the flat?
In most cases the bank will try, because the loan agreement and the builder-buyer agreement are separate contracts. Whether it succeeds in recovering the whole amount, or on what terms, can be contested. The strength of that contest depends on the disbursement record, any tripartite agreement, and whether the bank had oversight duties it ignored.
What is the deadline to challenge a SARFAESI demand notice?
Sixty days from the notice to respond or pay, and then the challenge to enforcement measures goes to the DRT under Section 17 within 45 days, extendable to 60 on sufficient cause. Missing the 45-day window is the most common reason borrowers end up without a hearing on the merits.
Should I go to RERA or the DRT first?
They are not alternatives. RERA is against the builder, for refund or interest. The DRT is against you, at the bank's instance. If a Section 13(4) step has already been taken, the DRT filing carries the deadline, and RERA waits. If the bank has only issued a demand notice, you have more room.
How long does a DRT case take?
In practice these matters run in years, not months. That is not a reason to skip a hearing date, and it is a reason to keep every document in order from the beginning.
Is there any point in contesting if I genuinely stopped paying?
Sometimes there is, and sometimes there is not. If the bank released money to a builder against false progress reports, or if the security was never validly created, or if the amounts claimed are inflated, those are real issues. If none of that is present and the default is straightforward, the realistic goal is a negotiated figure rather than a defence. A lawyer who tells you otherwise before reading the file is guessing.
What to send
Send the bank's notice — the Section 13(2) letter, the tribunal summons, or the possession notice — with its date clearly visible, and a two-line note saying what you signed, with whom, and when the payments stopped. Attach the loan sanction letter and the builder-buyer agreement if you have them. Photographs of the pages are fine. If you have a RERA complaint number, mention it.
You can write to /contact-us or /book. The chamber is at Lawyers' Chamber, Chamber No. 86, Supreme Court of India, New Delhi - 110001. Phone +91 97295 06771, email me@sudhirrao.com.
This is general information about Indian law and procedure, not legal advice on your own situation.
Advocate Sudhir Rao, Supreme Court of India