25 September 2020
In a recent decision[1] passed by the Hon’ble Supreme Court, developers were directed to pay compensation in excess of the contractually stipulated amount to flat purchasers, on account of delay in handing over possession and non-fulfilment of certain representations made to them. It was also held that consumer forums established under the Consumer Protection Act, 1986 (CP Act, 1986), are empowered to award just and reasonable compensation (even beyond the contractually stipulated amount, wherever necessary) to alleviate the harassment and agony caused to a consumer.
Facts of the case:
The respondents[2] had undertaken to develop residential flats in a project called Westend Heights at New Town, Begu, Bengaluru (Residential Project). The entire area of New Town comprised 80 acres of which the Residential Project was being developed in an area admeasuring 27.5 acres. The Residential Project comprised four blocks, totalling 1980 units, spread across 19 towers. The brochure of the first respondent[3] not only advertised the nature of the Residential Project but also made certain representations regarding the amenities to be provided by the developers. Relying inter alia on these representations, flat purchasers entered into Apartment Buyers Agreement (ABA) with the developers. Clause 11(a) of the ABA stipulated that the developers would endeavour to complete construction within a period of 36 months from the date of the execution of the ABA, save and except for force majeure conditions.
However, the developers could not hand over possession of the flats within the indicated period of 36 months. Additionally, they were unable to provide certain amenities represented in the brochure. Clause 14 of the ABA stipulated a certain amount of pre-decided compensation (i.e compensation @ Rs 5/- per sq. feet of the super area of the said apartment per month for the period of such delay) in case of delay in handover of the flats beyond the contractually stipulated time period.
Based on the compensation provision under the ABA in case of delay in handover of flats, certain flat purchasers filed a consumer complaint, inter alia alleging deficiency in services, against the developers, before the National Consumer Disputes Redressal Commission (National Commission). The said complaint was subsequently amended to constitute a complaint under Section 12 (c)[4] of the CP Act, 1986, representing all the aggrieved flat purchasers.
The National Commission dismissed the complaint observing that (i) there was no deficiency of service on the part of the developers in complying with their contractual obligations; and (ii) the purchasers were not entitled to compensation in excess of the amount stipulated in the ABA.
The said order of the National Commission was appealed before the Supreme Court.
Primary Arguments advanced by flat purchasers:
The flat purchasers inter alia contended that there was an inordinate delay in handing over the possession of the flats and that the developers had also failed to provide certain amenities as represented by them, earlier. It was also contended that the terms of the ABA were one-sided and unreasonable, and the flat purchasers should not be constrained by them.
Primary Arguments advanced by the developers:
The developers inter alia contended that the expression ‘endeavour’ contained in Clause 11(a) of the ABA indicated that the period of 36 months to hand over possession of the flat was not binding on the developers.
They further contended that the flat purchasers were bound by the terms of stipulated compensation amount and could not demand anything in excess of the same. The developers also asserted that flat purchasers had failed to cite evidence to indicate that the rate which had been prescribed in the ABA was inadequate, and no proof or measure of actual loss had been adduced.
Lastly, it was contended that the amenities referred to in the brochure were meant for the entire township comprising 80 acres, which would be developed, and that the flat purchasers had no right, interest or title outside the Residential Project.
Findings
ABA was unilateral
Observing that whilst default in payment obligations by a flat purchaser attracted an interest rate of 18%, default by the developers in handing over possession was restricted to interest at Rs 5 per square foot per month, the Hon’ble Court noted that the ABA was clearly one-sided as it did not reflect an even bargain.
Breach of representations made in the brochure
Observing that the developers had invited prospective flat purchasers to invest in the Residential Project on the basis of a representation that the surrounding area of New Town situated on 80 acres was being developed to provide a wide range of amenities, the Supreme Court held that the developers ought to have provided such amenities and the absence of the same resulted in deficiency of services as contemplated under the CP Act, 1986.
It was further held that a party who has breached a clear representation made in an agreement (i.e. ABA in this case) should be held accountable to the process of law.
Compensation not restricted to ABA:
While considering the issue of whether the flat purchasers were restricted by the compensation amount provided in Clause 14 of ABA, the Supreme Court observed that the existence and extent of delay in handing over possession of the flats, in excess of the contractually stipulated period, was an admitted fact. Further, the developers had already paid compensation to certain flat purchasers as per the provisions of the ABA.
Accordingly, it was held that the compensation payable to the flat purchasers in the instant case could not be restricted to the amount stipulated in the ABA as it would fail to sufficiently recompensate the flat purchasers in the instant case.
Consumer Forums can award compensation beyond the contractual limit, where necessary
Discussing the extent of the jurisdiction of the consumer forums, the Hon’ble Court emphasised that the Parliament had consciously designed remedies in the CP Act, 1986 to protect consumers. It found that even though Courts ordinarily hold parties down to a contractual bargain, they cannot be oblivious to ancillary circumstances, which may surround the facts of a particular case. It was held that the jurisdiction of the consumer forum to award just and reasonable compensation as an incident of its power to direct the removal of a deficiency in service under the CP Act, 1986, is not constrained by the terms of a rate which is prescribed in an unfair bargain.
Accordingly, while allowing the appeal and setting aside the Impugned Judgment, the Supreme Court held that the said dismissal of the complaint by the National Commission was erroneous and suffered from ‘clear perversity’ and ‘patent errors of law.’
The flat purchasers were awarded compensation for delay in handing over possession of flats and non-fulfilment of the representations made to them, earlier. In this regard, the Court issued certain directions which inter alia provided that: (i) apart from the 11 flat purchasers who entered into specific settlements with the developers and three flat purchasers who had sold their right, title and interest under the ABA, the respondents shall, as a measure of compensation, pay an amount calculated at the rate of 6 (six) per cent simple interest per annum to each of the flat purchasers, over and above the amounts that had already been paid under the ABA. Such amount was ordered to be paid over within a period of one month from the date of the judgment failing which an interest at the rate of 9 per cent per annum until payment would be applicable.
Conclusion:
With the revamped Consumer Protection Act, 2019 in force, the consumer-oriented stance taken by the Supreme Court in the instant case will further fortify the rights and interests of consumers in India. However, this approach and contractual interpretation adopted by the Court may also have some serious ramifications for builders and developers in India. Despite parties having entered into watertight contracts comprising limitation of liability provisions, a delay in delivery of residential projects may attract compensation in excess of the stipulated amount.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Wg. Cdr. Arifur Rahman Khan and Aleya Sultana and Ors. v. DLF Southern Homes Pvt. Ltd. and Ors., Civil Appeal No. 6239 of 2019 along with Civil Appeal No. 6303 of 2019 decided on 24th August 2020
[2] DLF Southern Homes Pvt. Ltd. and Annabel Builders and Developers Pvt. Ltd.
[3] DLF Southern Homes Pvt. Ltd.
[4] Section 12(1) in the Consumer Protection Act, 1986:
(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by—
…(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or…
