Compensation in real estate

Supreme Court: In a set of appeals by special leave, against the order of the National Consumer Disputes Redressal Commission (‘National Commission’), wherein, while answering a revision petition by the appellants, the National Commission denied interfering with the Judgment passed by the State Consumer Disputes Redressal Commission, Delhi (‘State Commission’). The Division Bench of Dinesh Maheshwari* and Sanjay Kumar, JJ., allowed the appeals and set aside the impugned order passed by the State Commission and the National Commission and held that awarding compound interest as a compensation in real estate disputes by the Consumer Forum, exercising jurisdiction under the Consumer Protection Act, 1986, stands disapproved.


The appellants had launched a residential project, namely Siddharth Shila Apartments at Ghaziabad. On 01.08.1989, the respondent, a Non-Resident Indian, applied for allotment of three flats in the said project and the appellants had issued an allotment letter in her favour, purportedly allotting three residential flats, for a consideration of Rs. 7,37,000/-, Rs. 7,35,625/- and Rs. 7,35,625/- respectively. The entire consideration was payable by the respondent in 12 instalments. It has been the case of the appellants that the respondent made payment up to 6th instalment but, defaulted thereafter and did not make remaining payment despite numerous reminders. On 15.10.2005, the respondent issued a notice to the appellants, stating that even after 16 years, the appellants had kept them waiting despite having received more than 60% of the total cost of the flats.The appellants replied to the notice stating that it had been a matter only of provisional allotment and no agreement as such was executed between the parties, and the allotment had been cancelled due to default on the respondent’s part. However, a cheque in the sum of Rs. 10,68,031/- was sent as refund to the respondent.

Thereafter, the present respondent preferred a complaint in the District Forum against the appellants. The District Forum dismissed the complaints on the grounds of lack of jurisdiction. The respondent approached the State Commission and placing its reliance on Manjeet Kaur Monga v. K.L. Suneja, (2018) 14 SCC 679, (‘Dr. Monga’s Case’), the State Commission directed that the appellants shall refund the amount deposited by the respondent with ‘compound interest at the rate of 14% from the date of deposit’.

Aggrieved by the order of the State Commission, the present appellants preferred a revision petition before the National Commission. The National Commission dismissed the appellant’s petition and refused to interfere with the order of the State Commission, in view of the correct reliance placed on Dr. Monga’s Case. Therefore, aggrieved by the order of the National Commission, the appellants approached the Court.

Analysis of the Issues

1. Whether the decision in Dr. Monga’s Case could be construed as a principle of universal applicability for awarding compensation by way of compound interest, whenever the deposited money is to be returned by the builder or developer in case of default in its obligations under the agreement and in failing to deliver the property envisaged by the agreement.

The Court noted that the State Commission and National Commission had strongly relied upon the Dr. Monga’s Case while passing their respective orders in awarding compensation in terms of compound interest to the respondent. The Court said that in Dr. Monga’s Case, the Competition Appellate Tribunal, while exercising powers under Section 12-B of the Monopolies and Restrictive Trade Practices Act, 1969 (‘MRTP Act’), directed the builder to pay compound interest at rate of 15% p.a. from the date of deposit and until the date on which allotment was cancelled. Moreover, the Dr. Monga’s Case was related to claiming compensation under the provisions of MRTP Act, whereas the present case was related to claiming compensation under the Consumer Protection Act, 1986.

The Court agreed with the appellant’s contentions and said that a judgment is considered as an authority only regarding its ratio decidendi, which is required to be discerned, and not on the basis of its conclusion alone or even based on what could be deduced therefrom. The Court said that Dr. Monga’s Case cannot be read in support of the principle that compensation and/or punitive damages in terms of the Consumer Protection Act, 1986 (‘Act of 1986’) could also be by way of compound interest.

Thus, the Court said that Dr. Monga’s Case cannot be taken as a universal principle in awarding compensation by way of compound interest in real estate disputes and the State Commission had wrongly enunciated the present case, the substratum of the orders impugned was knocked to the ground.

2. Whether compound interest could have been allowed in this case under the Act of 1986 and if so, until which date and for what period.

The Court said that in certain eventualities, the legislature has indeed specified the award of compound interest, mostly in relation to any monetary involvement having the trappings of public interests in it. The Act of 1986 has empowered the Consumer Forums to direct payment of compensation to the consumers for any loss or injury suffered due to the negligence of the opposite party. However, the Court referred to Alok Shanker Pandey v. Union of India, (2007) 3 SCC 545, wherein, it was said that there could be no hard and fast rule as to how much interest should be granted and it would depend on the facts and circumstances of each case.

Further, the Court referred to IREO Grace Realtech (P) Ltd. v. Abhishek Khanna, (2021) 3 SCC 241, (‘Ireo Grace’), wherein, a claim for compensation by way of compound interest, was declined by a three-Judge Bench of the Court for having no nexus with the commercial realities of the prevailing market. Therefore, the Court said that, going by the principles governing the nature of jurisdiction of the Consumer Forum and, the principles enunciated in Ireo Grace, the proposition of awarding compound interest in the cases of monetary refund in such dealings of real estate, was disapproved. Further, for award of compound interest, relevant factors must be taken into account which would include uncertainties of market and several other imponderables. The Court observed that, for determination of compensation, the Consumer Forum must examine the time value for money, an in-depth and thorough analysis would be required of all the facts and material surrounding factors, including those of realities as also uncertainties of market.

Thus, the Court said that a shortcut in awarding compound interest is neither envisaged by the Act of 1986, nor could any such term of contract between the parties or any such usage be found.

3. Whether the directions given by the State Commission to the appellants, to refund the amount deposited by the respondent with compound interest at the rate of 14% was valid?

The Court viewed that, awarding of compound interest with reference to Dr. Monga’s case and without examining any other factor has led to serious inconsistencies, the State Commission and the National Commission have passed rather assumptive orders that compound interest was required to be allowed. The Court said that the State Commission had straightaway jumped to the conclusion of awarding compound interest at the rate of 14%, without considering the fact of attempted refund of sum of Rs. 10,68,031/- by the appellants through cheque dated 08.11.2005, and without even specifying the period of such operation of compounding of interest. It was viewed that the State Commission’s decision was bereft of logic and the National Commission’s order had been no better and in fact, the Commissions proceeded as if nothing else was required to be considered apart from Dr. Monga’s case.

The Court viewed that if at all compounding of interest was to be allowed, that could not have run beyond 08.11.2005, at least in regard to the said sum of Rs. 10,68,031/-, and the said interest does not exceed the amount of Rs. 2,48,52,000/-, which has already been received by the respondent pursuant to the order passed by the Court on 09.05.2022. The Court said that considering the peculiar circumstances of the case, as an extraordinary measure, the respondent was allowed to retain the received amount.

Thus, the Court held that such a proposition of awarding compound interest as compensation in matters of monetary refund in dealings of real estate, by the Consumer Forum, exercising jurisdiction under the Act of 1986, stands disapproved.

[Suneja Towers (P) Ltd. v. Anita Merchant, 2023 SCC OnLine SC 443, Decided on 18-04-2023]

*Judgment Authored by: Justice Dinesh Maheshwari

Know Thy Judge | Justice Dinesh Maheshwari

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