Buyers Paid, Builder Defaulted, Bank Auctions: Karnataka HC on the Voyager Flats

Twelve flat buyers in an apartment complex called Voyager, in Moodanidamboor Village in Udupi, together with their association, say they have paid almost the entire price of their homes and are in possession. But the builder had taken a project loan from Canara Bank, defaulted, and never completed construction or registered the flats in their names. On July 15, 2025, the bank issued an e-auction sale notice. The buyers went to the Karnataka High Court to stop it. On October 6, 2026, the court dismissed their petition.

The order, in Voyeger Apartment Pre-Owners Association v. Canara Bank, Writ Petition No. 23906 of 2025, was passed by Justice Lalitha Kanneganti. The project is in Udupi, but the lesson applies to every Bengaluru buyer who pays a builder whose project is mortgaged to a bank: your contract is with the builder, not the lender.

The short answer. The High Court held that a writ under Articles 226 and 227 is not maintainable because there is no contractual obligation between the bank and the buyers, and said "The private disputes between the petitioners and the 2nd respondent cannot be decided by this Court." It dismissed the petition, left the buyers free to pursue the appropriate remedy in law, and closed all pending applications. The trade-off: the buyers keep their civil and consumer cases against the builder, but the writ route against the bank's auction is closed, and the final order does not separately continue the interim deferment.

How did the buyers end up facing a bank auction?

According to the order, the buyers agreed to purchase apartments from the builder, Amrith Shenoy P., proprietor of Shree Lakshmee Homes and Infrastructures, and paid amounts towards the price. The builder took a project loan from Canara Bank's Arm Manipal branch in Udupi. When he defaulted, the bank moved to sell. The order dates an earlier auction notification to October 6, 2018.

The builder did not complete construction or register the property in the buyers' names. The buyers went to the Consumer Forum, which passed orders in some matters, and to a civil court for specific performance. A Commercial Court decreed one suit, and an appeal against that decree is pending before a Division Bench of the High Court.

The bank's fresh e-auction sale notice of July 15, 2025 was published on July 20, 2025 and fixed the auction for August 22, 2025. On August 21, 2025, a Coordinate Bench deferred the auction on conditions: the buyers had to bear the cost of re-notifying it and collectively deposit Rs 2,00,000 with the Registry. That interim order was later extended.

What did each side argue?

The buyers said they had paid almost the entire consideration and were in possession. They proposed that the bank sell the builder's other unsold flats, and that they would pay their remaining dues to the bank to help clear the loan.

The bank said some flats were covered by tripartite agreements on which the borrower had not defaulted. It argued that the petitioners were only agreement holders with no contractual relationship with the bank and no locus standi, and that since SARFAESI proceedings provide an alternative remedy, a writ should not be entertained. The builder said he was negotiating a one-time settlement with the bank and that the buyers' rights were subject to pending civil litigation.

Why did the High Court refuse to step in?

The court framed the first question as whether the writ petition was maintainable at all. It agreed with the bank that there is no contractual obligation between the bank and the buyers, and held that without one, a writ against the bank does not arise. The buyers' relationship, it said, is with the builder, and they had already pursued remedies before the civil court and the Consumer Forum and could continue to do so.

The order does not discuss specific SARFAESI sections, the RERA Act or the Debts Recovery Tribunal's jurisdiction in the text that was examined. It is a decision on maintainability, not on whether the buyers' claims against the builder or their position against the bank are good or bad.

Does the RERA Act protect buyers from a builder's mortgage?

For projects within its scope, the Act addresses this directly, though the order did not consider it. Section 11(4)(h) of the Real Estate (Regulation and Development) Act, 2016 provides that after a promoter executes an agreement for sale for an apartment, it shall not mortgage or create a charge on that apartment, and if it does, the mortgage or charge shall not affect the right and interest of the allottee who has taken or agreed to take it.

That protection turns on facts the order does not set out, including the dates of the buyers' agreements relative to the mortgage, and whether the project was registered under RERA. PropNewz explained how Section 11(4)(h) works in our guide to a builder's project loan and your flat, and what a lender's name on a brochure signals in our report on mortgagee bank disclosures.

What does the tripartite agreement point tell buyers?

The bank's own submission drew a distinction. It said some flats were covered by tripartite agreements, which, as the name suggests, involve a third party alongside buyer and builder, and that the borrower had not defaulted on those loans. The order records this as the bank's position; it does not decide what rights flow from it.

For a buyer, the practical point is that the documents you sign decide who you have a contract with. An agreement with the builder alone gives you claims against the builder. Whether you also have any standing with the builder's lender depends on what, if anything, ties you to that lender, and in this case the court found nothing did.

What remedies are still open to the Voyager buyers?

Several, on the record described in the order. The Consumer Forum has passed orders in some of the buyers' matters. A Commercial Court has decreed one suit for specific performance, and an appeal against that decree is pending before a Division Bench of the High Court. The order also gives the buyers liberty to avail the appropriate remedy in accordance with law, without naming which remedy that should be.

The builder told the court he was negotiating a one-time settlement with the bank. The order does not record the outcome of those negotiations, and it does not say whether the bank has fixed a new auction date after the dismissal, and buyers in a similar position should check the lender's notices directly rather than assume the earlier deferment still applies.

That gap matters in practice. Here the deferment of the auction was granted as an interim measure in this very petition, and the final order does not separately continue it. Buyers who have relied on an interim order should ask their counsel, on the day a petition is decided, what protection, if any, remains.

The deposit of Rs 2,00,000 that the buyers made as a condition of the deferment was ordered to be held subject to further orders. The final order, as examined, does not record what happens to that deposit, which is a point the buyers' counsel would need to take up.

What should a Bengaluru buyer check before paying a builder?

Find out who holds a charge over the project before you pay, and get the lender's position on your flat in writing. Buyers comparing projects across the city can apply the same steps to any listing.

1. Ask whether the project land or building is mortgaged, and to which lender.
2. Run an encumbrance check on the project property before signing.
3. Ask for a no objection from the project lender for the sale of your specific flat.
4. Check whether the project is registered under RERA and note the registration number.
5. Make sure your agreement for sale is executed and registered before large payments.
6. Pay through banking channels and keep every receipt and bank record.
7. If the builder defaults on a project loan, take legal advice early on the right forum.

Among the Udupi buyers, some hold consumer orders, one suit has been decreed, and an appeal is pending. What they did not get was an order from the High Court stopping the bank. For anyone buying in a mortgaged project, that difference is worth understanding before the first cheque.

Frequently asked questions

What did the Karnataka High Court decide in Voyeger Apartment Pre-Owners Association v. Canara Bank?

On October 6, 2026, Justice Lalitha Kanneganti dismissed the buyers' writ petition against the bank's e-auction, holding it was not maintainable because there is no contractual obligation between the bank and the buyers. The buyers were left free to pursue appropriate remedies, and all pending applications were closed.

Why could the buyers not stop the bank through a writ?

The court agreed with the bank that the buyers had no contract with it. Their relationship was with the builder, against whom they had already gone to the Consumer Forum and a civil court. The court said private disputes between the buyers and the builder cannot be decided in a writ.

Does RERA stop a builder from mortgaging a flat already agreed to be sold?

Section 11(4)(h) of the RERA Act says that after an agreement for sale, the promoter shall not mortgage that apartment, and any such mortgage shall not affect the allottee's right. The Voyager order did not consider RERA, and its application depends on dates and registration facts the order does not set out.

What should a buyer check about a builder's project loan?

Ask whether the project is mortgaged and to which lender, run an encumbrance check, seek the lender's no objection for your flat, confirm RERA registration, and register your agreement before large payments. Keep every receipt, and take legal advice early if the builder defaults on its loan.

Last updated 2026-11-06. PropNewz Team.