Loan Against Property EMI Charged Before Fund Disbursement: Your Legal Rights and Remedies

Rohan Gupta, a small business owner based in Nagpur, had applied for a Loan Against Property (LAP) with Axis Bank in early March 2025. The loan was sanctioned and the bank issued a Demand Draft in his name. But two conditions remained unfulfilled: the Housing Society's NOC and a clearance from the local urban planning authority. Since those documents were pending, the bank withheld the Demand Draft. Rohan considered that fair enough.

What he did not expect was a text message, received around 22 March 2025, informing him that his first EMI would be deducted from his linked savings account on 8 April 2025. He had not received a single rupee of the loan amount. He immediately visited the branch and followed up over three days. The branch manager told him the EMI deduction was triggered the moment the DD was issued — because the bank had "set aside" funds on his behalf. The manager also assured Rohan that any interest charged before full disbursement would be reversed once he submitted the pending documents.

Rohan tried to cancel the loan or at least pause the EMIs, but the manager said neither was possible at that stage. Unsatisfied and increasingly anxious, Rohan approached a general practitioner initially, but found the advice too vague — no clear strategy, no specific forum, no concrete steps. On a colleague's referral, he then contacted Advocate Sudhir Rao. A targeted legal notice was sent to the bank citing unfair trade practice under the Consumer Protection Act, 2019, and a formal complaint was lodged before the Banking Ombudsman under the Reserve Bank of India's Integrated Ombudsman Scheme. Within six weeks, the bank reversed the interest charged during the pre-disbursement period and provided a written commitment regarding future EMI dates tied strictly to actual fund release.

You can read about this case in detail at https://sudhirrao.com/loan-against-property-emi-before-disbursement-legal-rights/