Builder Cancelled Allotment? Trace Refund vs Home Loan
Builder cancelled your flat allotment? Trace who gets the refund under the tripartite agreement, close the home loan cleanly and claim interest under RERA.
In this article (7 sections)
When a builder cancels your allotment, the refund and your home loan have to be tracked as two separate trails that meet at one point: the bank must be repaid first. Get the cancellation letter, the builder's refund calculation and the bank's outstanding statement, check who the refund is payable to under your tripartite agreement, keep paying EMIs until the loan is closed, and claim interest or compensation through your state RERA authority if the cancellation or deduction is not allowed. Status as of October 2026.
First, find out why the allotment was cancelled
The route depends on who is at fault.
| Situation | What the law says | What you can claim |
|---|---|---|
| Builder cannot complete or give possession on time, or its registration is revoked | RERA Section 18(1) and 19(4): refund on demand with interest at the prescribed rate, plus compensation | Full amount paid, with interest |
| Builder cancels without valid reason under the agreement | RERA Section 11(5): cancellation only as per the agreement for sale; you can approach the authority if it is unilateral and without sufficient cause | Restoration of the flat, or refund with interest |
| Builder cancels because you missed payments, as allowed by the agreement | Agreement terms apply; authorities often limit forfeiture (Haryana's Gurugram authority, for example, caps earnest money forfeiture at 10% of consideration under its 2018 regulations) | Refund of balance after allowed deduction |
| Project dropped or land dispute | Section 18 refund with interest; compensation for defective title under Section 18(2) | Refund with interest and compensation |
Interest on refunds is set by state RERA rules. Many states use the State Bank of India's highest marginal cost of lending rate (MCLR) plus 2%, as seen in Haryana and Bihar RERA orders, but check your own state's rules and recent orders. Refund deadlines in orders also vary, commonly 60 to 90 days from the order.
How the refund and the loan connect
For under-construction flats, most banks sign a tripartite agreement with you and the builder. Typical clauses say that if the allotment is cancelled, the builder will refund the amount the bank disbursed directly to the bank, and the bank's charge stays until it is repaid. Read your copy for:
- Refund clause: to whom and within how many days the builder must pay
- Subvention or interest-payment clause: if the builder agreed to pay pre-EMI interest, whether that stops on cancellation
- Buy-back or guarantee clause: some agreements make the builder liable to repay the bank on cancellation
If you cannot find your copy, ask the bank for a certified copy in writing.
Worked example: tracing a refund
Illustrative figures.
- Flat price: ₹60 lakh. You paid ₹6 lakh of your own; the bank disbursed ₹30 lakh to the builder.
- Rate 8.5%. You paid simple pre-EMI interest of ₹21,250 a month (₹30,00,000 × 8.5% ÷ 12) for 18 months = ₹3,82,500.
- The builder cancels.
Case A: builder is at fault (delay) and refunds in full. The builder pays ₹36 lakh. Under the tripartite agreement ₹30 lakh (plus any accrued interest due that month) goes to the bank, which closes the loan; ₹6 lakh comes to you. You then claim interest on the full ₹36 lakh at the RERA rate from the dates of payment. Your ₹3,82,500 of pre-EMI interest is a real loss to show the authority or adjudicating officer when claiming compensation.
Case B: builder cancels for your default and deducts 10% of the price (₹6 lakh). The refund is ₹30 lakh. All of it goes to the bank, which just closes the ₹30 lakh principal; you get nothing back of your ₹6 lakh. If any interest is due on the closing date, you pay it.
Case C: builder deducts ₹8 lakh. The refund is ₹28 lakh, below the ₹30 lakh outstanding. You must pay the ₹2 lakh shortfall (plus interest) to close the loan, then dispute the excess deduction through RERA.
| Case A | Case B | Case C | |
|---|---|---|---|
| Builder refund | ₹36,00,000 | ₹30,00,000 | ₹28,00,000 |
| Paid to bank | ₹30,00,000 | ₹30,00,000 | ₹28,00,000 |
| You receive / pay | +₹6,00,000 | nil | −₹2,00,000 |
Check your loan balance and the interest on it with the EMI calculator.
Step-by-step: trace and close it cleanly
- Get the cancellation letter and the refund working. Ask the builder for a statement listing every receipt, split into your payments and bank disbursements with dates, deductions with the clause relied on, taxes, and the net refund.
- Get the bank's outstanding statement. Ask for principal, interest to date and per-day interest, and the account for refund credit.
- Match the two. Every bank disbursement in the bank statement should appear as a receipt in the builder's statement. Gaps mean a payment is unaccounted for.
- Write to the builder with the bank copied. Ask the builder to pay the bank's share directly to the loan account and confirm the date. Do not accept the bank's share into your own account unless the bank agrees in writing.
- Keep paying EMIs or pre-EMI until the bank confirms closure. A missed EMI is reported to credit bureaus regardless of the builder dispute. See EMI bounce charges and consequences.
- Close the loan properly. Get the closure letter, NOC, release of documents and removal of the charge. RBI rules require lenders to return original documents and remove registry charges within 30 days of full repayment, with ₹5,000 a day compensation for delay attributable to the lender. Follow the loan closure checklist.
- Ask about fees. Processing fees are often non-refundable, but ask for a breakdown; see processing fee refund when a loan is cancelled. Floating-rate home loans to individuals cannot carry foreclosure charges.
- File with the state RERA authority if the cancellation or deductions are not allowed, or the builder does not pay. Attach the agreement, receipts, bank statements and correspondence. Compensation claims are decided by the adjudicating officer under the Act.
Where to complain
- Builder: state RERA authority (online complaint on the state RERA portal). A consumer commission is an alternative route for deficiency in service.
- Bank or NBFC: grievance officer first; if unresolved in 30 days, the RBI Integrated Ombudsman at cms.rbi.org.in or 14448.
- Housing finance company: grievance officer first, then the National Housing Bank's GRIDS portal at grids.nhbonline.org.in.
What not to do
- Do not stop EMIs because the builder is at fault.
- Do not sign a "full and final settlement" from the builder until you have checked it against the bank's outstanding.
- Do not pay anyone offering to "speed up" a refund into a personal account, and never share OTPs or banking PINs.
- Do not accept a cheque in your name for money owed to the bank without the bank's written consent.
Key takeaways
- Read the tripartite agreement: the bank's disbursed amount is usually refunded to the bank first.
- RERA Sections 18 and 19(4) give a refund with interest when the builder fails; Section 11(5) limits cancellation to the agreement's terms.
- Match every bank disbursement with the builder's receipts before accepting any refund figure.
- Keep paying EMIs until the closure letter; pay any shortfall and dispute it separately.
- Collect the NOC and documents within RBI's 30-day release rule after closure.
Frequently asked questions
If the builder cancels my flat, does the refund come to me or to the bank?
Where there is a tripartite agreement, it usually says the builder must first repay the lender the amount it disbursed, and only the balance comes to you. Read the refund clause in your tripartite agreement and ask the bank for a written outstanding statement.
Do I have to keep paying EMI after the builder cancels the allotment?
Yes, until the loan is actually closed. The loan is your contract with the bank, so missed EMIs hurt your credit score even if the builder is at fault. Ask the builder to pay the bank quickly and claim the interest you pay as part of your refund claim.
Can a builder cancel my allotment without reason?
No. Under Section 11(5) of RERA, the promoter can cancel an allotment only in terms of the agreement for sale. If the cancellation is unilateral and without sufficient cause, you can approach the state RERA authority.
What interest does RERA give on a refund?
Where the refund is due under Section 18 or 19(4), the amount is returned with interest at the rate prescribed in state rules. Many states use SBI's highest MCLR plus 2%, but check your state's RERA rules and orders.
What if the builder's refund is less than my outstanding loan?
You still owe the bank the shortfall. Pay it to close the loan, collect the closure letter and documents, and claim the gap from the builder through RERA or a consumer commission if the deduction was not allowed by your agreement.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 30 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
