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Homebuyers entitled to ‘just and reasonable’ compensation for delay in possession: SC

The apex court noted that it cannot be oblivious to the one-sided nature of the Apartment Buyers Agreements which are drafted by and to protect the interest of the developers.


Observing that the failure of the developer to comply with the contractual obligation to provide a flat to a homebuyer within the period stipulated in the contract amounts to a ‘deficiency’, the Supreme Court has held that homebuyers are entitled to compensation for “delayed handing over of possession” and for the failure of the developer to fulfil their promises with regard to amenities.

The court also noted that it cannot be oblivious to the one-sided nature of the Apartment Buyers Agreements which are drafted by and to protect the interest of the developers.

Homebuyers in this case had booked apartments with with DLF Southern Homes Pvt Ltd or Begur OMR Homes Pvt. Ltd, in a project called Westend Heights at New Town, DLF, at Begu, Bengaluru. The project was spread across 27.5 acres and was to include 1980 units. It was expected to have 19 towers.

“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,” the apex court said.

“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,” the Supreme Court order said.

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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, the bench noted.

The bench comprising Justices DY Chandrachud and KM Joseph also noted that ‘service’ 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.

The top court set aside the verdict of the National Consumer Disputes Redressal Commission (NCDRC) which, on July 2, 2019, had dismissed the complaints of 339 flat buyers. It had held that they were not entitled to the compensation in excess of what was stipulated in their Builder Buyer agreement for delayed possession and the lack of assured amenities.

“We have come to the conclusion that the dismissal of the complaint by the NCDRC was erroneous. 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.

“The reasoning of the NCDRC on these facets suffers from a clear perversity and patent errors of law which have been noticed in the earlier part of this judgment. Allowing the appeals in part, we set aside the impugned judgment and order of the NCDRC dated July 2, 2019 dismissing the consumer complaint,” the bench said in its 53-page judgement.

The top court also said that in case there is a gross delay in handing over of possession beyond the contractually stipulated period, the jurisdiction of the consumer forum to ward just and reasonable compensation is not constrained by the terms of a rate in the builders’ agreement.

It noted that it cannot be oblivious to the one-sided nature of the Apartment Buyers’ Agreement.

It also considered the issue of whether flat buyers in these circumstances are constrained by the stipulation contained in clause 14 of ABA providing compensation for delay at the rate of Rs 5 per square feet per month.

“In assessing the legal position, it is necessary to record that the ABA is clearly one-sided,” it noted.

It observed that a delay on the part of the flat buyer attracts interest at the rate of 18 per cent per annum beyond ninety days. 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.

Also Read: Gujarat RERA puts builder's private property under the hammer to repay homebuyer

“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,” the bench said in its order.

The bench said the flat owners are entitled to the compensation in excess of the amount stipulated in their agreements with the developers.

“Save and 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 (agreement), the first and second respondents (developers) 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,” it said.

The compensation amount shall be computed on the total money paid towards the purchase of the respective flats with effect from the date of expiry of 36 months from the execution of the respective flat purchase agreements until the date of the offer of possession after the receipt of the occupation certificate, it said.

The compensation amount shall be in addition to the money which has 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, it said.

The top court asked developers to pay the compensation within a period of one month from the date of this judgment and cautioned that failure in making payment, shall carry interest at the rate of nine per cent per annum until payment.

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Vandana Ramnani
first published: Aug 25, 2020 08:20 am
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