New Delhi, Nov 15.
The Supreme Court has recalled an earlier order capping interest rates to be charged from builders at 8 per cent but asked the authorities in Noida and greater Noida to calculate their dues based on a June 9, 2020, order passed by the Uttar Pradesh government capping it at SBI’s MCLR rate plus one percent interest.
The Marginal Cost of Funds Based Lending Rate (MCLR) refers to the minimum interest rate below which financial institutions can’t lend, except in certain cases. The current MCLR rate is between 7 to 8 per cent. That mandates the authorities to cap the interest on delayed payments at an additional more per cent.
A bench, led by former Chief Justice of India Uday Umesh Lalit, recalled a previous order passed on June 10, Aug 19 and Aug 25, 2020, capping the interest rate to be charged from builders at 8 per cent. The bench also comprised Justices Ajay Rastogi.
An earlier bench had capped the interest rate on the ground that the lockdown hit companies would find it difficult to pay the higher contractual rates. Over 60 per cent of the projects were not complete, the court had then noted. The bench had also directed the authorities to ensure timely completion of the pending projects.
Noida authority later moved the court for recall of this order on the ground that the court could not have capped the interest rate for all builders when it was hearing a case related to only one builder i.e., Amrapali. The interest rate as per separate contracts signed with builders ranged from 15 to 23 per cent for delayed payments.
On Nov 7, a bench, led by former CJI Lalit, recalled the order conceding Noida authority’s arguments.
“The matter was dealt with by the bench dealing with questions relating to the Amrapali group…. The circumstances delineated also show that a completely different matter came to be dealt with by the bench principally concerned with matters of Amrapali group…,” the order said.
“No adequate notice was given to the concerned authorities and the exact impact of the decisions was also not made known to the court when these orders were passed.”
“In conclusion, we must say that this court erred in granting relief to projects other than Amrapali group of companies vide its orders dated 10.06.2020, 19.08.2020 and 25.08.2020.”
“Consequently… orders dated 10.6.2020, 19.8.2020 and 25.8.2020 are recalled. Noida and greater Noida authorities are directed to calculate the amount due in respect of builders other than Amrapali group after taking into consideration the effect of the order dated 09.06.2020 issued by the state government.”
The June 9, 2020, order caps the rates to be charged at the MCLR, which now stands at 7 to 8 per cent, plus one per cent. The MCLR was 7.45 per cent in 2020.
On their part, the builders charge 18 per cent from the home buyers for delayed payments, Noida advocate Ravindra Kumar argued in court. This could be simple or compound interest depending on the contract between the home buyer and the builder.
Builders pay simple interest at the rate of 1.2 to 5 per cent for any delay on their part in delivering projects to home-buyers. The courts have earlier frowned on this dichotomy in standard form agreements between buyers and builders.
In the first round of litigation, the top court had asked the Noida authority to explain how much it proposes to charge the Amrapali group following a note from the receiver that the bankrupt company would not be in a position to pay its dues unless the terms were softened.
Several other companies such as Ace, Prateek, Paramount and Ajnara then sought similar relief.
The court had directed that the rate of interest on the outstanding premium and other dues be realized in all such cases at the rate of 8% per annum. It had directed the authorities to do a restructuring of the repayment schedule so that amount is paid.
In case of failure to pay, the concession would be withdrawn, the court had said.
The authorities sought recall of this order on the ground that this would give a huge windfall to the companies and set them back by over Rs 7000 crores.
The financial loss to Greater Noida Authority in all housing projects would exceed Rs 4,279 crores while that to the Noida Authority would be over Rs 3,000 crores, they argued.
