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SC to real estate developers: Cannot compel homebuyers to be bound by one-sided agreements

Supreme Court also holds that incorporation of unreasonable clauses in the agreement constitutes an unfair trade practice under the Consumer Protection Act; clarifies that buyers have the right to choose one remedy in case “two concurrent remedies” are available

Supreme Court

Supreme Court

The Supreme Court on January 12 observed that a real estate developer cannot compel homebuyers to be bound by one-sided contractual terms contained in the Apartment Buyer's Agreement. The apex court held that incorporation of such unreasonable clauses in the agreement constitutes an unfair trade practice under the Consumer Protection Act.

“The terms of the Apartment Buyer‘s Agreement are oppressive and wholly one-sided, and would constitute an unfair trade practice under the Consumer Protection Act, 1986,” the Supreme Court has said, adding, “In view of the above, we hold that the developer cannot compel the apartment buyers to be bound by the one-sided contractual terms contained in the Apartment Buyer‘s Agreement.”

On the issue of whether provisions of RERA be given primacy over Consumer Protection Act, 1986, the court was of the view that in case there are two concurrent remedies available, and the aggrieved party chooses to exercise one, then “he loses the right to simultaneously exercise the other for the same cause of action.”

The bench comprising Justices DY Chandrachud, Indu Malhotra and Indira Banerjee  held this while disposing of an appeal filed by a real estate developer Ireo Grace Realtech against an order passed by National Consumer Disputes Redressal Commission. The NCDRC order had directed Ireo Grace to refund the amount paid by homebuyers on account of the inordinate delay in completing the construction and obtaining the occupation certificate.

The court directed that the amounts deposited by the apartment buyers be refunded with 9 percent simple interest per annum from November 27, 2018, till the date of payment of the entire amount. The refund will be paid within a period of three months from the date of this judgment. If there is any further delay, the developer will be liable to pay default interest at 12 percent simple interest per annum.

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The court also directed the developer not to deduct the earnest money of 20 percent from the principal amount, or any other amount on account of the various defaults committed by the developer, including the delay of over seven months in obtaining the Fire NOC (No Objection Certificate).

There were four issues that were raised in the appeal before the court. These were to do with determining the date from which the 42 months period for handing over possession is to be calculated under Clause 13.3, whether it would be from the date of issuance of the Fire NOC as contended by the developer; or, from the date of sanction of the building plans, as contended by the apartment buyers.

Whether the terms of the apartment buyers’ agreement were one-sided, and the Apartment Buyers would not be bound by the same.

Whether the provisions of the Real Estate (Regulation and Development) Act, 2016 must be given primacy over the Consumer Protection Act, 1986

Whether on account of the inordinate delay in handing over possession, the apartment buyers were entitled to terminate the agreement, and claim refund of the amounts deposited with interest.

In this case, real estate developer Ireo had filed an appeal before the Supreme Court to challenge the judgment passed by the National Consumer Disputes Redressal Commission  directing refund of the amounts deposited by the apartment buyers in its project called The Corridors being developed in Sector 67-A, Gurgaon, Haryana, on account of the inordinate delay in completing the construction and obtaining the occupation certificate.

Homebuyers had filed a case in the National Commission, wherein they appealed for the developer to be directed to refund the amount of Rs.14,472,364 paid by the Apartment Buyer along with interest at 20 percent per annum compounded quarterly till realisation, and compensation towards damages on account of harassment, mental agony and litigation charges.

The court concluded that the 42 months' period in Clause 13.3 of the Agreement for handing over possession of the apartments would be required to be computed from the date on which Fire NOC was issued, and not from the date of the Building Plans being sanctioned. In this particular matter, there was a delay of approximately seven months in obtaining the Fire NOC by the developer.

Terms of the Apartment Buyers' Agreement one-sided, and buyers would not be bound by the same

The court also observed that there were several clauses in the agreement that “reflect the wholly one-sided terms of the Apartment Buyer‘s Agreement, which are entirely loaded in favour of the Developer, and against the allottee at every step. The terms of the Apartment Buyer‘s Agreement are oppressive and wholly one-sided, and would constitute an unfair trade practice under the Consumer Protection Act, 1986,” it said.

The court said the analysis of the Agreement revealed that under the construction-linked plan, Clause 6 provided that the apartment buyers would be required to deposit 20 percent of the sale consideration within 45 days of booking of the apartment. Clause 7.4 of the Agreement provides that if there is a delay in payment of an instalment, the apartment buyer would be required to pay Interest on every delayed payment of such instalment at 20 percent simple interest per annum.

Should provisions of RERA be given primacy over Consumer Protection Act, 1986?

The Consumer Protection Act, 1986 was enacted to protect the interests of consumers, and provide a remedy for better protection of the interests of consumers, including the right to seek redressal against unfair trade practices or unscrupulous exploitation, the court said.

“An allottee may elect or opt for one out of the remedies provided by law for redressal of its injury or grievance. An election of remedies arises when two concurrent remedies are available, and the aggrieved party chooses to exercise one, in which event he loses the right to simultaneously exercise the other for the same cause of action,” the court said.

The Supreme Court also looked into the aspect of whether on account of the inordinate delay in handing over possession, the apartment buyers were entitled to terminate the agreement, and claim a refund of the amounts deposited with interest.

Stating that it is cognizant of the prevailing market conditions as a result of Covid–19 pandemic, which have greatly impacted the construction industry.

“In these circumstances, it is necessary to balance the competing interest of both parties,” the court said.

Legal experts have welcomed the order.

“In this order, the Supreme Court has rightly dismissed the plea of the builder that after enactment of RERA a homebuyer cannot approach the consumer forum for redressal of his grievance. The Supreme Court has clarified that aggrieved buyers have the right to choose either of the remedies available to them – consumer court or RERA. While they may have to choose one remedy, the fact remains that they do have the option to which one to go with,” explains advocate Aditya Parolia of PSP Legal, who represented homebuyers in this case.

The SC has also clarified that it is only a simultaneous invocation that will be barred which implies that one may withdraw from one remedy and choose another at any given point of time, he said.

“The Supreme Court has upheld the National Commission’s earlier position that one-sided clauses in builder buyer agreements are unfair, and where it is established that there has been a deficiency in service by a builder, a refund is inevitable. Once again, the Supreme Court has focused on the welfare of the homebuyers in the event of inordinate delays by the developer. It is worth mentioning that not only has refund been provided to buyers, but even the earnest money has to be returned in its entirety without any deductions,” said Yudhist Singh, senior partner, YNS & Associates.
Vandana Ramnani
first published: Jan 12, 2021 06:44 pm

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