Unfair Bargain Agreement of Flat Can’t Restrict Jurisdiction of Consumer Forum :SC

On 24.08.2020 a Division Bench of Supreme Court Comprising of Justice Dr. D.Y. Chandrachud and Jsutice K.M. Joseph, delivered a significant Judgment in the case of Wg. Cdr. Arifur Rahman Khan and Aleya Sultana and Ors. vs DLF Southern House Homes Private Ltd. ( Civil Appeal No. 6239 of 2019). This Appeal arose out of the decision of National Consumer Dispute Redressal Commission (NCDRC), whereby NCDRC dismissed a consumer complaint filed by 339 flat buyers, accepting the defence of DLF Southern Homes Pvt. Ltd. and Annabel Builders and Developers Pvt. Ltd. that there was no deficiency of service on their part in complying with their contractual obligations and, that despite a delay in handing over the possession of the residential flats, the purchasers were not entitled to compensation in excess of what was stipulated in the Apartment Buyers Agreement (ABA).

The complaint before the NCDRC was initially instituted by nine flat buyers. These nine complainants had booked residential flats in a project called Westend Heights at New Town, DLF, BTM Extension at Begu, Bengaluru. The project was being developed in an area admeasuring 27.5 acres and was to consist of 1980 units, spread across nineteen towers each consisting of a stilt and eighteen floors.

The primary grounds on which compensation have been sought before the NCDRC were:

  1. Delay in handing over possession of the flats;
  2. Reimbursement of taxes and interest charged to the flat purchasers under clause 1.10 of the ABA;
  3. Deficiency in providing amenities;
  4. Levy of electricity charges by the developer; and
  5. Failure to construct the club house.

The NCDRC, in the course of its judgment, observed that delay in the handing over of flats to the flat purchasers was admitted. While recording a finding of fact that there was an admitted delay on the part of the developer, the NCDRC held that the agreements provided compensation at the rate of Rs 5 per square foot of the super area for every month of delay. The NCDRC held that the flat purchasers who agreed to this stipulation in the agreements were not entitled to seek any amount in addition.

On the merits of the other grievances, the NCDRC has held that

  1. The charges recovered towards tax and interest are in terms of clause 1.10 of the ABA;
  2. Charges recovered for electricity are in terms of the ABA;
  3. The levy of parking charges is valid; andThe club house has been constructed.

Mr Prashant Bhushan, Counsel appearing for the consumers challenged the decision of NCDRC on following grounds:

  1. There is a gross delay ranging between two and four years in handing over possession and the flat buyers ought not to be constrained by the terms of the agreement which are one-sided and unreasonable;
  2. The execution of conveyances or settlement deeds would not operate to preclude the flat buyers from claiming compensation. The emails of the developer clearly indicate that the flat buyers were not permitted to execute conveyances or to receive possession under protest;
  3. The amenities which have been contracted for have not been provided by the developers; and
  4. The flat buyers are not liable to indemnify the developer for the demand of interest and penalty raised by the tax authorities as a result of the failure to deposit the tax on time. During the oral arguments, it was clarified that only interest has been recovered from the flat buyers.

Opposing the Appeal, Mr Pinaki Misra, urged that:

  1. No evidence has been led by the complainants to discharge the onus placed upon them to establish coercion or duress while executing conveyances or settlements;
  2. Possession of the complex, which is situated on land admeasuring about 27 acres and comprising of 813 apartments in nineteen towers has been handed over between four to six years ago and the developer has transferred his right, title and interest to the Residents’ Welfare Association (“RWA”);
  3. The allottees have benefited by the appreciation in the value of their flats;
  4. Out of 171 applicants, 145 have received compensation at the agreed rate while handing over possession. The allotments were escalation free and the burden of increased costs has been borne by the developer;
  5. Under clause 14 of the ABA, the flat buyers have been compensated at the rate of Rs 5 per square foot per month which would work out to about Rs 7500 per month for a flat admeasuring 1500 square feet. No proof or measure of actual loss suffered has been adduced.
  6. As regards the construction of facilities and amenities, a club house containing a swimming pool, gymnasium, tennis court, indoor badminton court and squash courts has been constructed and an occupation certificate has been received on 13 May 2019. The RWA is conscious of the fact that difficulties in the allotment arose as a result of the action of the Bangalore Development Authority’ which led to the filing of writ proceedings before the High Court of Karnataka both by the developer and the RWA. Even after the receipt of the occupation certificate, the developers have been corresponding with BDA for permission to hand over possession to the RWA. Other amenities including a school and health care facilities were going to be developed in the entire township comprising of 80 acres of which the complex of 27 acres was a part. The flat buyers were aware of the fact that under the terms of the ABA, the allottees have no right, title or interest in the amenities outside their residential complex and forming a part of the wider complex of 80 acres. Moreover, this issue is rendered academic since the area around DLF township has become urbanized where adequate facilities are available;
  7. Clauses 1.3, 1.10, 2 and 3 require the allottees to bear tax liabilities including towards works contract tax. When the project commenced in 2009, there was an absence of clarity in regard to the liability on account of works contract tax which was settled eventually by the judgment of this Court in Larsen and Toubro Limited v. State of Karnataka8. It was as a result of this judgment that the issue was settled following which, the developer while computing the amount payable in the final statements of accounts passed on the liability on account of the interest (but not towards penalty) on a proportionate basis in terms of clause 1.10 of the ABA;
  8. Clause 23(b) entitles the developer to raise a demand on a proportionate basis from the flat buyers for electricity charges. Initially, BESCOM provided a connection for electricity but subsequently as a substantial load was required, the developer was permitted to build its own electricity sub-station. This was built at a cost of Rs. 18.01 crores for which the pro rata cost could be allocated to flat buyers in terms of clause 23(b); and
  9. The price of the apartment, as agreed in the ABA, included in the breakup, parking charges for exclusive use of earmarked parking spaces. Parking charges were also revealed upfront in the brochure. The appellants had erroneously relied on the decision of this Court in Nahalchand Laloochand Private Limited v. Panchali Cooperative Housing Society Limited9, which turned on the construction of the provisions of the Maharashtra Apartment Ownership Act 1971 and Development Control Regulations for Greater Bombay 1991. This has subsequently been explained in the decision in DLF Limited v. Manmohan Lowe19. There is no prohibition in the Karnataka Apartment Ownership Act upon the developer providing earmarked parking charges in the breakup of the total price of the apartment.

The Court held:

We are clearly of the view that the jurisdiction of the consumer forum to award just and reasonable compensation as an incident of its power to direct the removal of a deficiency in service is not constrained by the terms of a rate which is prescribed in an unfair bargain.

The Court Further observed

In the present case, there exist, clear and valid reasons for not holding down the flat buying consumers merely to the entitlement to receive compensation at the rate of 5 per square foot per month in terms of clause 14 of the ABA:

  1. There has been a breach on the part of the developer in complying with the contractual obligation to hand over possession of the flats within a period of thirty-six months of the date of the agreement as stipulated in clause 11(a)
  2. The failure of the developer to hand over possession within the contractually stipulated period amounts to a deficiency of service within the meaning of Section 2 (1) (g), warranting the invocation of the jurisdiction vested in the NCDRC to issue a direction for the removal of the deficiency in service;
  3. The triggering of an obligation to pay compensation on the existence of delay in handing over possession is admitted by the developer for, even according to it, it has adjusted compensation at the agreed rate of Rs 5 per square foot per month to 145 out of the 171 appellants;
  4. The agreement is manifestly one-sided: the rights provided to the developer for a default on the part of the home buyer are not placed on an equal platform with the contractual right provided to the home buyer in the case of a default by the developer;
  5. There has been a gross delay on the part of the developer in completing construction ranging between two and four years. Despite successive extensions of time to deliver possession sought by the developer, possession was not delivered on time;
  6. The nature and quantum of the delay on the part of the developer are of such a nature that the measure of compensation which is provided in clause 14 of the ABA would not provide sufficient recompense to the purchasers; and
  7. Judicial notice ought to be taken of the fact that a flat purchaser who is left in the lurch as a result of the failure of the developer to provide possession within the contractually stipulated date suffers consequences in terms of agony and hardship, not the least of which is financial in nature. Having paid a substantial amount of the purchase price to the developer and being required to service the debt towards loan installments the purchaser is unable to obtain timely possession of the flat which is the subject matter of the ABA.

For the above reasons 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 2 July 2019 dismissing the consumer complaint. While doing so, we issue the following directions:

  1. 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, the first and second respondents 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. The amount shall be computed on the total amounts paid towards the purchase of the respective flats with effect from the date of expiry of thirty-six months from the execution of the respective ABAs until the date of the offer of possession after the receipt of the occupation certificate;
  2. The above amount shall be in addition to the amounts which have 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; and
  3. The amounts due and payable in terms of directions (i) and (ii) above shall be paid over within a period of one month from the date of this judgment failing which they shall carry interest at the rate of 9 per cent per annum until payment.

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