Flat Buyers Entitled To Just & Reasonable Compensation For Gross Delay By Builders In Handing Over Possession

In Wg. Cdr. Arifur Rahman Khan vs DLF Southern Homes Pvt Ltd., appeal was filed against the order of dismissal by the National Consumer Disputes Redressal Commission on 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.

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

(i) Delay in handing over possession of the flats;

(ii) Reimbursement of taxes and interest charged to the flat purchasers under clause 1.10 of the ABA;

(iii) Deficiency in providing amenities;

(iv) Levy of electricity charges by the developer; and

(v) Failure to construct the club house

The NCDRC divided the group of 339 flat buyers into six groups based on whether or not they had taken possession, executed deeds of conveyance, settled the dispute or sold the flats before or during the pendency of the complaint or their applications for impleadment.

The NCDRC, in the course of its judgment, observed that delay in the handing over of flats to the flat purchasers was admitted and that the agreements provided compensation at the rate of Rs 5 per square foot of the super area for every month of delay.  Referring to the decision of the Supreme Court in DLF Homes Panchkula Pvt. Ltd. v. D S Dhanda and Ghaziabad Development Authority v. Balbir Singh, the NCDRC observed that the developer had while computing the final demand made an adjustment on account of delayed compensation at the rate stipulated in the ABA. The flat purchasers having been provided credit at the rate agreed by the developers, it was held that no further entitlement existed under the law. In the view of the NCDRC, the flat purchasers had failed to prove that the stipulation contained in the agreement for the payment of compensation at Rs 5 per square foot was unreasonable.

Against this order, the appeal was filed.

Disagreeing with this approach, the Apex Court bench observed that, in the instant case, there has been a gross delay on the part of the developer in completing construction ranging between two and four years. 

The Supreme Court held that in assessing the legal position, it is necessary to record that the ABA is clearly one-sided. Where a flat purchaser pays the instalments that are due in terms of the agreement with a delay, clause 39(a) stipulates that the developer would “at its sole option and discretion” waive a breach by the allottee of failing to make payments in accordance with the schedule, subject to the condition that the allottee would be charged interest at the rate of 15 per cent per month for the first ninety days and thereafter at an additional penal interest of 3 per cent per annum. In other words, a delay on the part of the flat buyer attracts interest at the rate of 18 per cent per annum beyond ninety days. On the other hand, where a developer delays in handing over possession the flat buyer is restricted to receiving interest at Rs 5 per square foot per month.  Evidently, the terms of the agreement have been drafted by the developer. They do not maintain a level platform as between the developer and purchaser. The stringency of the terms which bind the purchaser are not mirrored by the obligations for meeting times lines by the developer. The agreement does not reflect an even bargain. 

The Court also observed that the decision in DLF Homes Panchkula Pvt. Ltd. v. D S Dhanda, does not prescribe an absolute embargo on the award of compensation beyond the rate stipulated in the flat buyers agreement where handing over of the possession of a flat has been delayed. The decision, does not lay down that there is an absence of jurisdiction in the adjudicatory fora constituted under the CP Act 1986 to award remedial compensation to a flat buyer for the delay of the developer in handing over possession on the agreed date, the bench observed.

In other words, a delay on the part of the flat buyer attracts interest at the rate of 18 per cent per annum beyond ninety days. On the other hand, where a developer delays in handing over possession the flat buyer is restricted to receiving interest at Rs 5 per square foot per month under clause 14 (which in the submission of Mr Prashant Bhushan works out to 1-1.5 per cent interest per annum). Would the condition which has been prescribed in clause 14 continue to bind the flat purchaser indefinitely irrespective of the length of the delay? The agreement stipulates thirty-six months as the date for the handing over of possession.

Execution of the Deed of Conveyance by a flat purchaser does not preclude a consumer claim being raised for delayed possession

The court also noted that the flat buyers were given an option by the developers to either retaining their right to pursue their claims (in which event they would not get possession or title in the meantime) or to forsake the claims in order to perfect their title to the flats for which they had paid valuable consideration. The court held that it is manifestly unreasonable to expect that in order to pursue a claim for compensation for delayed handing over of possession, the purchaser must indefinitely defer obtaining a conveyance of the premises purchased or, if they seek to obtain a Deed of Conveyance to forsake the right to claim compensation. This basically is a position which the NCDRC has espoused. We cannot countenance that view. The flat purchasers invested hard earned money. It is only reasonable to presume that the next logical step is for the purchaser to perfect the title to the premises which have been allotted under the terms of the ABA. But the submission of the developer is that the purchaser forsakes the remedy before the consumer forum by seeking a Deed of Conveyance. To accept such a construction would lead to an absurd consequence of requiring the purchaser either to abandon a just claim as a condition for obtaining the conveyance or to indefinitely delay the execution of the Deed of Conveyance pending protracted consumer litigation.

Thus the court disapproved the view of NCDRC that flat purchasers who obtained possession or executed Deeds of Conveyance have lost their right to make a claim for compensation for the delayed handing over of the flats. The court rejected the contention that the execution of the Deed of Conveyance by a flat purchaser precludes a consumer claim being raised for delayed possession.

Developer Liable To Provide Amenities As Well

As for the failure of the developer in developing and providing amenities promised in the brochure but falling outside the areas directly occupied by the flat owners or the common areas, like school, health centre etc. assured/promised by the developer in the sale brochure, the court held that developer must be held accountable to its representation. Refusing to acceed to the developers arguments that some of the amenities are there in the surrounding areas and that building the said amenities directly inside the complex being built by the developer would not be viable, the court held that a flat purchaser who invests in a flat does so on an assessment of its potential. The amenities which the builder has committed to provide impinge on the quality of life for the families of purchasers and the potential for appreciation in the value of the flat. The representation held out by the developer cannot be dismissed as chaff. True, in a situation such as the present it may be difficult for the court to quantify the exact nature of the compensation that should be provided to the flat buyers. The general appreciation in land values results in an increase in the value of the investment made by the buyers. Difficulties in determining the measure of compensation cannot however dilute the liability to pay. A developer who has breached a clear representation which has been made to the buyers of the amenities which will be provided to them should be held accountable to the process of law. To allow the developer to escape their obligation would put a premium on false assurances and representations made to the flat purchasers. Hence, in factoring in the compensation which should be provided to the flat buyers who are concerned in the present batch of appeals, we would necessarily have to bear this issue in mind.