Bank disbursing loan to builder without verifying construction progress - Bank held liable

National Consumer Commission Upholds Partial Liability of SBI for Loan Disbursement Without Due Diligence. Ordered to Compensate Consumer for Deficiency in Service in Housing Loan Disbursement

In a significant judgment, the National Consumer Disputes Redressal Commission (NCDRC) in New Delhi has upheld the partial liability of the State Bank of India (SBI) for deficiency in service concerning the disbursement of a housing loan. The judgment, delivered by Mr. Sudip Ahluwalia, Presiding Member, and AVM J. Rajendra, AVSM VSM (Retd.), Member, in the case of Vinod Sharma v. State Bank of India, found that SBI failed to adhere strictly to the conditions outlined in the sanction letter while disbursing loan instalments to a builder.

The case revolved around Vinod Sharma, who had booked an apartment with a builder, availing a housing loan of Rs. 21,88,000 from SBI. The loan was meant to be disbursed in phases corresponding to the construction progress. However, Sharma alleged that SBI continued to release instalments without verifying the progress or obtaining the necessary Architect's Certificates, thereby violating Clause 13(c) of the sanction letter.

Initially, the State Consumer Dispute Redressal Commission, Punjab, had partially allowed Sharma's complaint against SBI, directing the bank to pay Rs. 75,000 as compensation for the financial loss suffered due to the violation of sanction conditions. SBI subsequently filed an appeal challenging this decision, which was dismissed by the NCDRC.

The NCDRC's judgment emphasized that while SBI was not responsible for the builder's failure to complete the project, the bank was deficient in service to the extent of not exercising due diligence in ensuring compliance with the sanction conditions. The Commission held that the bank was partially liable for the improper disbursement of loan instalments, reaffirming the previous decision to award Sharma compensation for the deficiency.

The judgment underscores the importance of banks adhering to their contractual obligations and exercising due diligence in the disbursement of loans. It sets a precedent for financial institutions to ensure compliance with agreed-upon conditions to protect consumer interests.

Bottom Line:

Banking Services - Deficiency in service upheld to limited extent due to failure of bank to strictly adhere to sanction conditions while disbursing housing loan instalments.

Statutory provision(s): Consumer Protection Act, 1986, Clause 13(c) of sanction letter from SBI

This decision serves as a reminder to banks of their duty to ensure thorough verification processes in loan disbursement, safeguarding consumers from potential financial risks. The NCDRC's ruling reinforces the accountability of financial institutions in adhering to loan conditions, providing a framework for consumer protection in banking services.

Vinod Sharma v. State Bank of India, (NCDRC)(New Delhi) : Law Finder Doc Id # 2769535