Rental amount ‘paltry’, cannot be sole criteria for granting compensation to homebuyers: NCDRC

In a significant ruling, the National Consumer Disputes Redressal Commission has said that a property’s rental value cannot be a parameter for granting delayed compensation to the homebuyer as it constitutes just about 3-4 percent return on the price of the house and the 'paltry amount' would not compel the developer to complete construction within the agreed timeframe.

“Rentals, in my opinion, should not be made the sole basis for grant of such compensation. It has to be kept in mind that the rentals in our country being very low do not constitute even 3-4 percent return on the price of the house.

"If compensation in such cases is computed solely on the basis of the prevailing rentals, the builder would have no incentive to complete the construction within the agreed timeframe, since he would know that even if he diverts the funds collected from the flat buyers to another project or for other purposes and that leads to delay in completion of the construction he would be able to get away paying a paltry compensation which would cost him not more than 3-4% of the capital employed,” the NCDRC bench has ruled.

The court was hearing the matter between the company Springdale Core Consultants Pvt Ltd and Pioneer Urban Land and Infrastructure Ltd.

It also ruled that a real estate company cannot levy holding charges on a homebuyer as it does not suffer any loss on account of a buyer taking possession at a later date due to an ongoing court case.

Related stories

Vandana Ramnani

Associate Editor, Real Estate|Moneycontrol News

• 
  Amitabh Bachchan gifts Juhu home, Prateeksha, to daughter
• 
  All about China’s real estate crisis and India’s property market boom
• 
  Prestige Group targeting sales of Rs 20,000 cr this fiscal: Irfan Razack, MD

“As far as holding charges are concerned, the developer having received the sale consideration has nothing to lose by holding possession of the allotted flat except that it would be required to maintain the apartment. Therefore, the holding charges will not be payable to the developer. Even in a case where the possession has been delayed on account of the allottee having not paid the entire sale consideration, the developer shall not be entitled to any holding charges though it would be entitled to interest for the period the payment is delayed,” it ruled.

It also said that even companies that have purchased properties in their own name for their directors and family can approach the consumer court for redressal but firms are not entitled to mental agony as is the case with individual buyers.

The court directed the builder Pioneer Urban Land and Infrastructure Ltd to deliver position of the flat “complete in all respects” to the company within eight weeks and compensation in the form of simple interest at the rate of 6 percent per annum to the complainant on the amount of Rs 4,81,51,038 with effect from March 5, 2016 till the date on which the possession was offered through a letter dated April 3, 2019.

It ruled that any balance amount to be paid by the buyer to the builder shall be adjusted out of the compensation payable to the buyer. The buyer would also be entitled to Rs 50,000 as cost of litigation.

“…the compensation for the delay in the delivery of the possession, where the complainant is a company should not be at par with the compensation granted to an individual since a company would not be entitled to compensation for the mental agony and harassment to which an individual would be entitled,” it ruled.

The compensation in the form of interest, which NCDRC awards, is an all-inclusive compensation and includes the compensation for the mental agony and harassment undergone by a buyer on account of the delay in delivery of the possession.

“Since a company would not be entitled to compensation for a mental agony and harassment, the compensation granted to a company in a case where possession of the flat is also directed should be somewhat less than the compensation granted to an individual. Moreover, the present day economic environment on account of a pandemic in the country also justifies some reduction in the compensation,” the court said.

The builder had argued that there would be no justification for awarding compensation higher than the prevailing rentals in the project.

The matter concerned a company that had booked a residential apartment with the builder for the residence of its director in a project named Araya in Gurgaon. The sale price of the apartment was agreed at around Rs 5.1 crore.

An allotment letter dated November 29, 2011 was issued to the buyer followed by the execution of the agreement on March 13, 2012. The developer was to apply for the occupancy certificate within 39 months from the excavation, though it was also entitled to a grace period of six months for applying and obtaining the requisite occupancy. As per the agreement, the occupancy certificate would have been applied on September 4, 2015 and obtained by March 4, 2016.

The failure of the developer to obtain the occupancy certificate led the buyer to file the consumer complaint wherein he sought possession of the allotted flat with compensation or refund of the amount paid, in case the possession cannot be delivered within eight months of the completion.

"Despite having paid a huge sum of over Rs 4.5 crore the buyer had been kept waiting and was not extended a reasonable delay penalty. On the contrary, high holding charges were imposed on the buyer based on a one-sided contract. The court, in its judgment, has balanced the relation and compensated the buyer," said Aditya Parolia of PSP Legal who represented the buyer in the matter.

The builder has resisted the complaint filed by the buyer saying that the complainant is not a consumer.

On March 16, 2020, the NCDRC had ruled that “It is the purpose for which the residential plot / house is booked / purchased, which is material for determining whether the purchaser is a consumer within the meaning of Section 2(1)(d) of the Consumer Protection Act. The legal status of the purchaser, be it an individual, a partnership, an Association of Persons, a Trust, a Society or a Company is immaterial for such determination.”

It had clarified that if a house or a residential plot is booked or purchased by a company for the residential use of its directors or employees, the company will be a consumer within the meaning of Section 2(1)(d) of the Consumer Protection Act, as far as such a booking or purchase is concerned.

Only if a house or a residential plot is bought or booked by a company as a part of its business activities and such purchase or booking has a close and direct nexus with the regular profit generating activities of the company, it will not be a consumer within the meaning of Section 2(1)(d) of the Consumer Protection Act, an earlier order by the consumer court had said.