Delayed handing over of possession amounts to ‘deficiency’; flat buyers entitled to compensation: SC

“Flat purchasers suffer agony and harassment as a result of the default of the developer. Flat purchasers make legitimate assessments in regard to the future course of their lives based on the flat which has been purchased being available for use and occupation. These legitimate expectations are belied when the developer as in the present case is guilty of a delay of years in the fulfilment of a contractual obligation.”

Supreme Court: In the case where 339 flat buyers has complained against delayed handing over of possession, the Bench of Dr. DY Chndrachud and KM Joseph, JJ held that the flat buyers are entitled to compensation for delayed handing over of possession and for the failure of the developer to fulfil the representations made to flat buyers in regard to the provision of amenities.

“A failure of the developer to comply with the contractual obligation to provide the flat to a flat purchaser within a contractually stipulated period amounts to a deficiency. There is a fault, shortcoming or inadequacy in the nature and manner of performance which has been undertaken to be performed in pursuance of the contract in relation to the service.”

Brief Background

The complainants had booked residential flats in a project called Westend Heights at New Town, DLF, BTM Extension at Begu, Bengaluru. However, the obligation to handover possession within a period of thirty-six months was not fulfilled. National Consumer Disputes Redressal Commission (NCDRC) dismissed a consumer complaint filed by 339 flat buyers, accepting the defence of DLF Southern Homes Pvt. Ltd. and Annabel Builders and Developers Pvt. Ltd. that there was no deficiency of service on their part in complying with their contractual obligations and, that despite a delay in handing over the possession of the residential flats, the purchasers were not entitled to compensation in excess of what was stipulated in the Apartment Buyers Agreement (ABA).

On ABA being one-sided

Where a flat purchaser pays the installments that are due in terms of the agreement with a delay, clause 39(a) stipulates that the developer would “at its sole option and discretion” waive a breach by the allottee of failing to make payments in accordance with the schedule, subject to the condition that the allottee would be charged interest at the rate of 15 per cent per month for the first ninety days and thereafter at an additional penal interest of 3 per cent per annum.

On the other hand, where a developer delays in handing over possession the flat buyer is restricted to receiving interest at Rs 5 per square foot per month under clause 14. The agreement stipulates thirty-six months as the date for the handing over of possession.

“Evidently, the terms of the agreement have been drafted by the developer. They do not maintain a level platform as between the developer and purchaser. The stringency of the terms which bind the purchaser are not mirrored by the obligations for meeting times lines by the developer. The agreement does not reflect an even bargain.”

On argument that flat buyers are constrained by the stipulation contained in ABA providing compensation for delay at the rate of Rs 5 per square feet per month

The court must take a robust and common-sense based approach by taking judicial notice of the fact that flat purchasers obtain loans and are required to pay EMIs to financial institutions for servicing their debt. Delays on the part of the developer in handing over possession postpone the date on which purchasers will obtain a home. Besides servicing their loans, purchasers have to finance the expenses of living elsewhere. To postulate that a clause in the agreement confining the right of the purchaser to receive compensation at the rate of Rs 5 per square foot per month (Rs 7,500 per month for a flat of 1500 square feet) precludes any other claim would be a manifestly unreasonable construction of the rights and obligations of the parties.

“Where there is a delay of the nature that has taken place in the present case ranging between periods of two years and four years, the jurisdiction of the consumer forum to award reasonable compensation cannot be foreclosed by a term of the agreement.”

Further, the expression “service‟ in Section 2 (1) (o) means a service of any description which is made available to potential users including the provision of facilities in connection with (among other things) housing construction. Under Section 14(1)(e), the jurisdiction of the consumer forum extends to directing the opposite party inter alia to remove the deficiency in the service in question. Intrinsic to the jurisdiction which has been conferred to direct the removal of a deficiency in service is the provision of compensation as a measure of restitution to a flat buyer for the delay which has been occasioned by the developer beyond the period within which possession was to be handed over to the purchaser.

Hence, to uphold the contention of the developer that the flat buyer is constrained by the terms of the agreed rate irrespective of the nature or extent of delay would result in a miscarriage of justice.

Directions

  • Except for eleven appellants who entered into specific settlements with the developer and three appellants who have 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 per cent simple interest per annum to each of the appellants. The amount shall be computed on the total amounts paid towards the purchase of the respective flats with effect from the date of expiry of thirty-six months from the execution of the respective ABAs until the date of the offer of possession after the receipt of the occupation certificate;
  • The above amount shall be in addition to the amounts which have been paid over or credited by the developer at the rate of Rs 5 per square foot per month at the time of the drawing of final accounts; and
  • The amounts due and payable in terms of directions (i) and (ii) above shall be paid over within a period of one month from the date of this judgment failing which they shall carry interest at the rate of 9 per cent per annum until payment.

[Wg. Cdr. Arifur Rahman Kan and Aleya Sultana v. DLF Southern Homes Pvt Ltd, 2020 SCC OnLine SC 667, decided on 24.08.2020]

3 comments

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    ADD-on : “…………Delays on the part of the developer in handing over possession postpone the date on which purchasers will obtain a home…..”
    As regards purchaser of the home, there are other angles requiring attention to be drawn to; especially in a case in which such purchase is by way of a ‘roll over investment’ in a ‘new asset’, with a view to availing of the entitlement to tax exemption in respect of ‘capital gains’otherwise chargeable.

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    According to a view, based on a well-founded reasoning and sound logic, there could conceivably be no doubt that the favourable verdict of the SC should not but be of avail to all the buyers of ‘apartments’ (X Flats) in the DLF Project ; and, premised so, should help and support the claim for interest by all of them.
    In terms of the Judgment delivered in the civil appeal proceedings, of course, interest has been directed to be allowed only to the limited group (s) of the buyers who have taken on, got impleaded and participated as ‘appellants’ in the subject proceedings.
    If differently considered, however, the lawful right of all the buyers, as a class, could have been taken care and secured had, instead of such civil proceedings, the matter been taken up to the apex court, by filing a writ (in the form of a PIL).
    Incidentally, as per the narration of the facts, even the basic interest of 5%, though admittedly due as per the terms of the contract agreement itself, does not seem to have been claimed by, and /or allowed to, all the buyers.

    Over to the concerned buyers for sharing any thoughts/ helpful feedback on the indicted lines; and for pursuing the grievance , if so advised by an eminent counsel, by relying on the cited SC Verdict ?!

    courtesy

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    I had a flat booked in mumbai which has a completion date 30 June 20, however due to COVID 19 MahaRERA revoked the Force Maejure giving an extention of 6 month (Order 14/2020), 95% of the agreement value is paid in Jan 2020. Now builder is not agree to pay the interest for this extended period of 6 months even though the sale deed has a clause to pay interest in case of delay in delivery (Subject to Force Maejure). MahaRERA order 14/2020 has a clause stating “The Force Majeure period will be treated as a “Moratorium period” for the purpose of calculating interest under section 12,18,19(4), and 19 (7) of the Act” . In this case Builder shall pay the interest or not?

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