SUPREME COURT HOLDS THAT INCORPORATING ONE SIDED AND UNREASONABLE CLAUSES IN A BUILDER BUYER’S AGREEMENT CONSTITUTES AN UNFAIR TRADE PRACTICE

The Three Judge Bench of the Hon’ble #SupremeCourt of India comprising of Justices Dr. Dhananjaya Y Chandrachud, Indu Malhotra and Indira Banerjee passed a Judgment dated 11-01-2021 in the case of Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna & Others Civil Appeal No. 5785 of 2019 and held that incorporation of one-sided and unreasonable clauses in a #Builder Buyer’s #Agreement constitutes an unfair trade practice under the #ConsumerProtection Act, 1986 (Act).

In the present case, an apartment buyer (Respondent No.1) was allotted a 2BHK apartment in Tower C of “The Corridors” developed in Sector 67-A, Gurgaon, Haryana (Project). On 25-03-2014 the Developer (Appellant) handed over a copy of the Apartment Buyer’s Agreement with a construction linked payment plan to the flat buyers. On 12-05-2014, the Developer executed the Apartment Buyer’s Agreement in favour of Respondent No.1 for a total sale consideration of Rs.1,45,22,006/-.

On 27-12-2017 a consumer complaint was filed by Respondent No.1 in National Consumer Disputes Redressal Commission (NCDRC) wherein it was prayed that the Developer be ordered to refund the amount of Rs.1,44,72,364/- paid by the buyer along with interest @ 20% p.a. compounded quarterly till realization, and compensation for damages on account of harassment, mental agony and litigation charges. The main contention raised by the homebuyer was that the Appellant is guilty of misrepresentation of facts that all necessary approvals/pre-clearances with respect to the construction of the apartments had already been obtained from the office of the Director, Town and Country Planning, Haryana, and other civil authorities. Furthermore, the “Commitment Period” for handing over the possession of the apartments was 42 months, the same had expired on 22.01.2017 and the Grace Period had lapsed on 22.07.2017. However, the Appellant caused a delay in handing over the possession of the apartment till the date of filing of the complaint. The NCDRC after taking into consideration the arguments advanced by the Parties held that since the Appellant failed to deliver the timely possession of the apartments to the homebuyers, there was a deficiency in service on part of the Appellant and therefore complainants were entitled to refund of the amount along with appropriate compensation.

Aggrieved the Appellant filed an Appeal under Section 23 of the Act in the Hon’ble Supreme Court of India impugning the judgment passed by the NCDRC wherein the latter had ordered the Appellant to refund the amounts deposited by the buyers in the projectas the Appellant inordinately delayed in constructing and obtaining the Occupation Certificate of the apartments.

The Apex Court while deciding the matter formulated the following issues:

1. “Determination of 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;
2. Whether the terms of the Apartment Buyer’s Agreement were one sided, and the Apartment Buyers would not be bound by the same;
3. Whether the provisions of the Real Estate (Regulation and Development) Act, 2016 must be given primacy over the Consumer Protection Act, 1986;
4. 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.”

Taking into consideration the contentions of the Parties to the dispute, the Hon’ble Supreme Court of India held the following:

1- On issue No. (1) the Bench observed that as per the Haryana Fire Safety Act, 2009, it is mandatory for a Builder/Developer to obtain the Fire NOC before commencing the construction activity. The Court held that as per Clause 13.3 of the Apartment Buyer’s Agreement the period of 42 months has to be calculated from the date on which Fire NOC was issued and not from the date when the Building Plans were sanctioned.

2- On issue No. (2) the Court opined that the clauses mentioned in the Builder Buyer Agreement are completely one sided and favoured the Builder/Developer at every step and are thus prejudicial to the interests of the homebuyers. For the said issue, the Apex Court held that “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.”  

3- On issue No. (3) the Bench while relying upon the case of M/s Imperia Structures Ltd. v. Anil Patni and Anr (2020) 10 SCC 783  opined that “remedies under the Consumer Protection Act were in addition to the remedies available under special statutes. The absence of a bar under Section 79 of the RERA Act to the initiation of proceedings before a fora which is not a civil court, read with Section 88 of the RERA Act makes the position clear. Section 18 of the RERA Act specifies that the remedies are ―without prejudice to any other remedy available.”

4- The Court while deciding issue No. (4) divided the home buyers into two categories:

a) Flat Buyers whose allotments fall in Phase 1 of the project, where the Appellant-Developer has been granted the Occupation Certificate and offer of possession has been given to the Apartment Buyers. For Apartment Buyers falling under Category 1 it was held that allottees shall be given the possession of the flats. However, the Appellant is under an obligation to pay the Delay Compensation for the period of delay.

b) Flat Buyers whose allotments fall in Phase 2 of the project, where the Occupation Certificate has not been granted. For Apartment Buyers falling under Category 2 it was held that Appellant is under an obligation to refund the entire amount deposited by allottees, along with compensation and interest.

The Apex Court while rejecting the arguments advanced by the Appellant and dismissing the Appeal, directed that Respondent No. 1 shall be entitled to a refund of the entire amount along with Interest @ 9% S.I. p.a. within a period of 4 weeks from the date of the Judgment. Further, the Court ordered that in case the Appellant fails to comply with this direction, it shall be liable for payment of default interest @ 12% S.I. p.a. till the payment is made.

Suchitra Upadhyay

Associate

The Indian Lawyer & Allied Services