Developer cannot escape liabilities of project completion after promoters change: NCDRC

The National Consumer Disputes Redressal Commission (NCDRC) has held in the case of a Bengaluru-based developer that the promoter will be responsible for homebuyers' investments even after the project has been transferred to another company. Legal experts say that the judgment will set a precedent in protecting homebuyers' rights in delayed projects.

In this case brought against Bengaluru-based developers Nitesh Estates by a person who had paid for a house but hadn’t got possession by the promised date, the developer argued that it had transferred the entire Nitesh Cape Cod Project to INESA Ventures LLP through a Karnataka Real Estate Regulatory Authority (KRERA) order in April 2023.

However, the commission noted that there was a delay of around seven years from the promised date of possession. The developer has definitely committed a deficiency of service under the Consumer Protection Act, said the order dated May 30.

The buyer had paid Rs 88.6 lakh for a flat in 2013. The developer informed the buyer in 2015 that the project had been delayed due to reasons beyond their control.

Additionally, in April 2023, KRERA transferred the entire project to INESA Ventures.

"The incoming promoter will be responsible for completion and delay of the project," the order mentioned.

However, it was unclear if the transfer happened under Section 8 of the Real Estate (Regulation and Development) Act, 2016.

Section 8 deals with the obligation of the authority consequent upon lapse of or on revocation of registration of the project. The registration of the project in the matter had expired at the time of the KRERA order.

The developer argued that INESA Ventures has undertaken all the liabilities towards the project and should be a party to the case. However, NCDRC pointed out that Section 18 of the Real Estate (Regulation and Development) Act holds the promoter liable for a refund.

"Subsequent agreement between the parties will not affect the pending litigation. Section 52 of the Transfer of Property Act, 1882, protects the jurisdiction of the Court from the transfers," the order added.

The NCDRC overturned the KRERA order and directed the developer to return the amount paid by the homebuyer with 9 percent annual interest. The order also directed the developer to repay the buyer’s loan due at the bank within 10 weeks.

"These are contractual obligations between the homebuyer and the developer, and KRERA cannot unilaterally step in to overturn the contracts," said Aditya Parolia from PSP Legal, the advocate representing the homebuyer.

As the real estate sector continues to see consolidations where the larger market players continue to take over smaller, delayed projects, advocates say the order will give protection to homebuyers’ rights. And especially today, when several developers have shell companies or wholly owned subsidiaries of the parent company, they say such transfers are becoming more prevalent.

"A homebuyer has direct privity of contract only with the developer. So NCDRC has correctly put the entire liability on Nitesh Estates as the deficiency in service has been committed by them," said Chandrachur Bhattacharyya, another advocate.

Privity of contract states that a contract cannot provide rights to anybody who is not a party to it or bind them to responsibilities.

A list of questions has been sent to the developer and Moneycontrol will update the story after receiving a response.