SUPREME COURT RULES THAT THE DOMINANT PURPOSE OF PURCHASING A FLAT CAN ONLY BE DETERMINED AFTER EXAMINING THE PURPOSE OF PURCHASE

A two-Judge Bench of the Supreme Court comprising of Justice Pamidighantam Sri Narasimha and Justice Pankaj Mithal passed a Judgment dated 23.08.2024 in the matter of Omkar Realtors And Developers Pvt. Ltd. vs. Kushalraj Land Developers Pvt. Ltd. & Anr. etc., Civil Appeal No.858 of 2023 and observed that the fact that the Respondent company operates in real estate does not automatically imply that the flat was purchased for commercial purposes or for resale to generate profit. The primary intention or purpose of the transaction must be examined to determine if it has any connection to profit-making as part of commercial activities.

FACTS:

1. That the statutory Appeal mentioned above, was filed under Section 67 of the Consumer Protection Act, 2019 (the Act) before the Apex Court by, Omkar Realtors and Developers Pvt. Ltd. (Appellant) against one Kushalraj Land Developers Pvt. Ltd (Respondent No.1) & Vishal Kothari (Respondent No. 2), who challenged the validity of the Order and Judgment dated 23.12.2022, passed by the National Consumer Disputes Redressal Commission (NCDRC) in Consumer Complaint No.141 of 2020 whereby the NCDRC partially upheld the Respondent’s Complaint and directed the Appellant to refund an amount of Rs. 7,16,41,493/- (Rupees Seven Crore Sixteen Lakh Forty-One Thousand Four Hundred and Ninety-Three only) within two months. This refund is to be accompanied by delay compensation at the rate of 6% per annum from the respective dates of deposit until payment is made. If the payment is not made within the specified time, the interest rate will increase to 9% per annum.

2. The Appellant sold a flat in the “Omkar 1973 Worli” project to the Respondent, a real estate development company. The Respondent booked the flat on 22.09.2015, by paying Rs. 51,00,000 as a booking amount. Over time, the Respondent paid a total of Rs. 6,79,97,071 towards the flat. On 29.06.2016, the Appellant issued an Allotment Letter, setting the Possession date as 31.12.2018. However, on 08.03.2017, the Appellant advanced the Possession date to the first quarter of 2017 and demanded the remaining Rs. 28,87,80,526 within 30 days.

3. The Respondent attempted to secure financing but discovered that the flat had already been reserved for another person, Mr. Nakul Arya. Faced with this issue, coupled with the absence of a full occupancy certificate and difficulties in arranging funds, the Respondent refused to take possession and pay the balance amount. As a result, the Appellant cancelled the booking on 31.08.2017 and forfeited the amount paid by the Respondent.

4. Consequently, Respondent filed a Complaint with the NCDRC, alleging deficiency in service and unfair trade practices by the Appellant. The NCDRC ruled in favour of the Respondent, directing the Appellant to refund Rs. 7,16,41,493 with delay compensation at 6% per annum, increasing to 9% if not paid within two months. The NCDRC determined that the Respondent qualified as a “Consumer” under the Consumer Protection Act, 2019 and that the Appellant’s actions amounted to unfair trade practices due to the confusion caused by the double allotment of the flat. Further, the Appellant challenged this decision in the Supreme Court.

NCDRC:

The NCDRC, in its observation, affirmed that the Respondent qualified as a ‘Consumer’ under Section 2(7) of the Consumer Protection Act, 2019[i] relying on precedents established in Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers (2020) 2 SCC 265 and Crompton Greaves Limited vs. Daimler Chrysler India Private Limited 2016 SCC OnLine NCDRC 2121.

The NCDRC found that the Appellant’s actions constituted a deficiency in service and unfair trade practices, specifically due to the double allotment of the flat. Initially allotted to Nakul Arya on 10.04.2013, and subsequently re-allotted to the Respondent on 29/30.06.2016, this issue was only rectified by a deed on 17.03.2018.

The NCDRC held that the Appellant’s decision to cancel the Respondent’s booking and forfeit the deposited amount before addressing the double allotment issue was unjustifiable. The Appellant’s failure to resolve the allotment dispute before such actions constituted a clear deficiency in service, necessitating redress in favour of the Respondent.

SUPREME COURT:

Aggrieved by the NCDRC Order dated 23-12-2022, the Appellants filed Civil Appeal No.858 of 2023 before the Supreme Court. The Apex Court vide Order dated 23.08.2024 held as follows:

ISSUE:

First, whether the Complaint filed by the Respondent was maintainable, given the allegation that the Respondent did not qualify as a ‘Consumer’ under Section 2(7) of the Act.

Secondly, whether the Appellant demonstrated any deficiency in service or if the Appellant was justified in cancelling the Respondent’s allotment and forfeiting the deposits.

OBSERVATION:

The Court noted that this issue was settled by existing case law, including the decisions in Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Crompton Greaves Limited vs. Daimler Chrysler India Private Limited. In these cases, entities that purchased property for personal use, rather than for resale or commercial purposes, were recognized as consumers.

The Apex Court reiterated that the definition of “Consumer” excludes those purchasing goods for commercial purposes. It emphasized that the dominant intention of the purchase, whether for personal use or commercial activity, is crucial in determining consumer status. In this case, the flat was purchased for the personal use of the Respondent’s director and his family, not for resale or commercial gain. Therefore, the Complaint was deemed maintainable.

Regarding the second issue, the Court found that the Appellant’s actions constituted a deficiency in service and unfair trade practices. The confusion arising from the double allotment of the flat, which persisted until the rectification deed on 17.03.2018, justified the Respondent’s complaint. The Appellant’s decision to cancel the allotment and forfeit the deposited amount prior to resolving the double allotment issue was deemed unjustifiable. The NCDRC’s findings were upheld, and the Appellant was directed to refund the forfeited amount along with compensation.

CONCLUSION:

Based on the aforementioned facts, the Supreme Court upheld the NCDRC’s findings that the Respondent’s Complaint was maintainable, affirming the Respondent’s status as a ‘Consumer’ under Section 2(7) of the Act. The Court agreed that the flat was purchased for personal use, not for commercial purposes. The Appellant’s actions, including the cancellation of the allotment and forfeiture of deposits before resolving the double allotment issue, were found to be deficient and unfair. The Court supported the NCDRC’s decision to refund the forfeited amount along with compensation for delays. The appeal was dismissed as meritless, and no costs were awarded.

 

Sakshi Raghuvanshi

Senior Associate

The Indian Lawyer

[i]Section 2 (7) “consumer” means any person who–

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such service for any commercial purpose.

Explanation. –For the purposes of this clause, —

(a) the expression “commercial purpose ” does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment;

(b) the expressions “buys any goods ” and “hires or avails any services ” includes offline or online transactions through electronic means or by teleshopping or direct selling or multi-level marketing;