Delays in handing over the possession of flats has become a rampant practice in the Indian real estate industry, due to which numerous innocent home buyers are being penalised. With developers indulging in the delay tactics in handing over possession of flats, home buyers are not only left in the lurch, but are also being forced to pay ‘equated monthly instalments’ (“EMIs”) on home loans. However, over the years various forums have come to the rescue of the flat buyers.
In the case of Anuj Biswas and others v. Kapstone Construction Private Limited, the complainants had paid certain earnest amount for a 750 square feet of flat on the 12th floor of Rustomjee Urbania Azziano, and thereafter in 2013 they made an additional payment aggregating to 90% payment of the sale consideration through a bank loan and other sources.
Despite being informed that they would receive possession by December 31, 2015, with a maximum grace period of six months, the complainants claimed that the date of handing over possession was listed in the registration document as December 2016. The complainants claimed that after numerous attempts to contact the developer, they were informed in August 2018 at a meeting to take possession of the purchased apartment subject to payment of possession charges. Aggrieved by such absurd proposition, the complainants refused to take possession of apartments and filed a complaint before National Consumer Disputes Redressal Commission (“Commission”). The Commission relied on Emmar MGF Land Limited & Ors. v. Amit Puri, wherein it was laid down that after the expiry of the promised date of delivery, the complainant has the discretion to accept the offer of possession, if any, or seek refund of the amounts paid with reasonable interest. Thus, it was held that it is well within the complainant’s right to seek for refund of the principal amount with interest and compensation.
The Commission held that a flat purchaser is entitled to a refund with 9% interest and a compensation for construction delays. Kapstone Construction Private Limited was ordered to refund the purchase consideration along with interest thereon to the complainants.
Similarly, Maharashtra Real Estate Regulatory Authority (“MahaRERA”), in its recent order Sapna Shukla and others v. Sanket International Limited, directed a builder to refund the entire amount paid by the complainant and permitted the complainant, who had booked a flat, to withdraw from the residential project. Sapna Shukla and Vivek Gaonkar had booked a 715 square feet carpet area flat on the ninth floor of a free sale building in 2013 and had waited for almost a decade for possession despite having paid the entire purchase amount.
MahaRERA directed the builder to refund the entire purchase amount along with interest to the complainants at the rate prescribed by it i.e., Marginal Cost of funds-based Lending Rates (MCLR) of State Bank of India plus 2% in two months’ time, failing which the builder would have to pay Rs. 5,000/- per day for default in refund of the amounts till actual date of compliance of the said order.
Notably, the Supreme Court of India in DLF Home Developers Ltd. v. Capital Greens Flat Buyers Association (“DLF Case”) came to the rescue of flat buyers. The Court had come down heavily on the developers and directed that even if the developers were given exit offers to the flat buyers, they would still be entitled to claim compensation from the developers on account of delay in handing over the possession of the flats.
Factual Background and Contentions
In the DLF Case, the order passed by the Commission, granting relief of compensation and refund of money to the homebuyers, was upheld by the Apex Court and set the tone for developers to undertake completion of ongoing projects. Under the said appeal, DLF sought to eliminate the possibility of demand for any additional compensation apart from the contractual rate of compensation (Rs 10 per square foot per month) as agreed in the Apartment Buyers Agreement (‘ABA’). In addition, DLF also denied the obligation to refund the club and parking charges as directed by the Commission.
DLF contended that the delay was caused due to force majeure events beyond their control, and hence, they should not be made liable to pay additional compensation to the flat buyers. They submitted to the Supreme Court that delay in the approval of the building plan as well as stop-work orders given due to the fatal accidents invoked the force majeure clause. They submitted that since the flat owners were given exit offers on account of delay caused by the developers, it would bar the flat buyers from seeking compensation later, as they have forgone the chance of claiming a full refund of the amount along with the interest rate of 9%.
The respondent Flat Buyers Association said that the Commission, after detailed deliberation, had rightly rejected the force majeure defence. It argued that the exit offers, and contractual rate of compensation did not compensate the flat buyers sufficiently. Hence, additional compensation at the rate of 7% was rightly awarded to the flat buyers, along with compensation at the contractual rate as stipulated in the ABA.
In the present case, the Supreme Court held that there was no force majeure event in the present case, as delay in obtaining building approval is a common phenomenon that the developers should consider while committing the date of handing over possession. Relying on the principle laid down in Wing Commander and Pioneer, the Court held that additional compensation should be granted at the rate of 6% per annum until the delivery of possession is given to the flat buyers, apart from the agreed contractual rate. Moreover, the Court also held that merely because exit offers were given to the flat buyers, it would not disentitle them to claim additional compensation.
By way of the aforesaid decision, the Supreme Court came to the rescue of the flat buyers who do not have any bargaining power to decide the contractual rate of compensation by entitling them to seek additional compensation from the developers on account of delay in handing over possession of flats. The decision will rein in developers who shrug off the liability of paying just compensation to the flat buyers on account of delay.
For further information, please contact:
Taher D Mandviwala, Partner, Cyril Amarchand Mangaldas