The Supreme Court has ruled that while a developer is obligated to refund the amount paid by a homebuyer along with reasonable interest in cases of delayed possession, it cannot be held liable for repaying the interest incurred by the buyer on loans taken to fund the purchase.
The judgment was delivered by a bench comprising Justice Sanjay Karol and Justice Prasanna B. Varale in Greater Mohali Area Development Authority (GMADA) vs Anupam Garg & Others [Civil Appeal arising out of SLP(C) Nos. 27847-27848 of 2019].
Background
GMADA had launched a residential housing scheme titled ‘Purab Premium Apartments’ in Mohali in 2011. Respondent Anupam Garg applied for a 2-BHK + servant room flat by depositing ₹5.5 lakhs as earnest money. The allotment was done through a draw of lots on March 19, 2012, followed by a Letter of Intent (LOI) dated May 21, 2012, which stipulated that possession would be handed over within 36 months.
When possession was not delivered by the scheduled date (May 21, 2015), the respondent visited the site and found that development was incomplete. He opted to withdraw from the scheme and sought a refund.
Subsequently, GMADA issued a possession letter in June 2016, but the respondent found material deviations in the apartment and facilities. He filed a consumer complaint before the State Consumer Disputes Redressal Commission, Punjab.
Arguments and Commission’s Orders
The State Commission held that:
- GMADA failed to complete the project within the stipulated time.
- The allottee was entitled to refund of the deposited amount with 8% interest, compounded annually, as per Clause 3(II) of the LOI.
- Compensation of ₹60,000 was awarded for mental agony, ₹30,000 for litigation costs, and GMADA was further directed to reimburse the interest paid by the complainant on the loan taken from the bank.
These findings were upheld by the National Consumer Disputes Redressal Commission (NCDRC), which also imposed costs of ₹20,000.
Supreme Court’s Analysis
The Supreme Court restricted the scope of its consideration to the component of interest awarded on the bank loan.
Referring to Bangalore Development Authority v. Syndicate Bank (2007) 6 SCC 711, the Court reiterated that where possession is not delivered within a reasonable time, the allottee is entitled to a refund with reasonable interest and possibly additional compensation.
However, the Court clarified:
“Whether the buyers of the flat do so by utilizing their savings, taking a loan for such purpose or securing the required finances by any other permissible means, is not a consideration that the developer of the project is required to keep in mind. For, so far as they are concerned, such a consideration is irrelevant.”
Citing DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda (2020) 16 SCC 318, the Court observed that interest or compensation cannot be awarded by applying a blanket rule and must be confined to actual contractual terms unless there are exceptional circumstances. It held that awarding interest on the buyer’s loan constituted an impermissible expansion of the developer’s liability.
The bench concluded:
“The 8% interest awarded in this case on top of the entire amount that is being invested, is the compensation for being deprived of the investment of that money. Apart from this no amount of interest on the loan taken by the respondents could have been awarded.”
Decision
Allowing the appeal in part, the Court set aside the direction requiring GMADA to pay interest on the loan taken by the respondent. The award of 8% interest on the deposited amount, along with mental agony and litigation costs, was upheld. The Court clarified that no further deposit was required by GMADA and the existing amount could be disbursed to the respondents.
