Since India has a burgeoning middle class, real estate demand and disputes are going to be a frequent issue. One ought to be aware of the protections offered by law in case of default by the promoter.
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BUYING one’s own house or a piece of land is a lifelong dream; it is intricately linked to the course of one’s life itself. Yet, we often see allottees who have booked such properties experiencing inordinate delays in getting possession, and sometimes they are even duped outrightly. This jeopardizes the finances of the allottees, and they suffer mental agony and physical hardships.
But now there are robust legal mechanism in place. The allottees can approach either the Real Estate Regulatory Authority under the Real Estate (Regulation and Development) Act, 2016 (‘RERA Act’) or the Consumer Disputes Redressal Commissions under the Consumer Protection Act, 2019 (‘CPA’) for restitutionary as well as compensatory relief.
Rights under Real Estate (Regulation and Development) Act
Section 18 of the RERA Act provides that in case the promoter fails to complete, or is unable to give possession of an apartment, plot or building, in accordance with the terms of the agreement for sale or by the date specified therein, or due to discontinuance of their business as a developer on account of suspension or revocation of the registration under this Act, or for any other reason, they shall be liable to pay to the allottees on demand, in case the allottee wishes to withdraw from the project:
(i) the amount received by them as payment in respect of that apartment, plot, building, as the case may be,
(ii) interest on the above amount at such rate as may be prescribed in this behalf,
(iii) compensation in the manner as provided under this Act.
If the allottee does not intend to withdraw from the project, they shall be paid interest on the amount deposited with the promoter for every month of delay, till the handing over of the possession, at such rate as may be prescribed under the law.
Besides, the promoter shall compensate the allottees for any defect in the title or for failure to discharge any other obligations imposed on them under the RERA Act, or the rules or regulations made thereunder.
Also read: The primacy of homebuyers over financial institutions: the RERA and SARFAESI conundrum
Elaborating on the nature of remedy available under the RERA Act, the Supreme Court, in M/s Imperia Structures Ltd. versus Anil Patni & Anr. (2020) elucidated the nature of remedy as follows:
“In terms of Section 18 of the RERA Act, if a promoter fails to complete or is unable to give possession of an apartment duly completed by the date specified in the agreement, the Promoter would be liable, on demand, to return the amount received by him in respect of that apartment if the allottee wishes to withdraw from the Project. Such right of an allottee is specifically made “without prejudice to any other remedy available to him”. The right so given to the allottee is unqualified and if availed, the money deposited by the allottee has to be refunded with interest at such rate as may be prescribed. The proviso to Section 18(1) contemplates a situation where the allottee does not intend to withdraw from the Project. In that case he is entitled to and must be paid interest for every month of delay till the handing over of the possession. It is upto the allottee to proceed either under Section 18(1) or under proviso to Section 18(1).”
Rights under Consumer Protection Act
The RERA Act states, as also seen in the foregoing judgement, that the aforementioned relief shall be without prejudice to any other remedy available. Thus, significantly, a buyer can also approach Consumer Disputes Redressal Commissions under the CPA for compensating any deficiency in service, that is, any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance, which is required to be maintained by or under any law in force or under the mutual contract in relation to the service. Thus, the consumer forum is also empowered to provide both restitutionary and compensatory relief.
Also read: Consumer Protection Act Fills gaping need but the test will be implementation
Elaborating on the nature of relief that may be provided by the consumer commissions, the Supreme Court observed in its judgment in Wg. Cdr. Arifur Rahman Khan & Aleya Sultana & Ors. versus DLF Southern Homes Pvt. Ltd. (2020):
“…Under Section 14(1)(e) [of the now-repealed Consumer Protection Act, 1986], the jurisdiction of the consumer forum extends to directing the opposite party inter alia to remove the deficiency in the service in question. Intrinsic to the jurisdiction which has been conferred to direct the removal of a deficiency in service is the provision of compensation as a measure of restitution to a flat buyer for the delay which has been occasioned by the developer beyond the period within which possession was to be handed over to the purchaser. Flat purchasers suffer agony and harassment, as a result of the default of the developer. Flat purchasers make legitimate assessments in regard to the future course of their lives based on the flat which has been purchased being available for use and occupation. These legitimate expectations are belied when the developer as in the present case is guilty of a delay of years in the fulfilment of a contractual obligation. To uphold the contention of the developer that the flat buyer is constrained by the terms of the agreed rate irrespective of the nature or extent of delay would result in a miscarriage of justice…”
Allottees can approach either the Real Estate Regulatory Authority under the Real Estate (Regulation and Development) Act, 2016 or the Consumer Disputes Redressal Commissions under the Consumer Protection Act, 2019 for restitutionary as well as compensatory relief.
Thus, once the prospective buyer or the allottee has booked a flat or a plot and made timely payments of sale price and other charges according to the payment plan, and the developer fails to offer possession on time, the allottee is entitled to receive:
(i) The amount paid by the allottee to the promoter.
(ii) Interest on the abovementioned amount from the date of deposit, and not from the due date of possession.
In its judgment earlier this year in Experion Developers Pvt. Ltd. versus Sushma Ashok Shiroor, the Supreme Court held:
“We are of the opinion that for the interest payable on the amount deposited to be restitutionary and also compensatory, interest has to be paid from the date of the deposit of the amounts. The Commission in the order impugned has granted interest from the date of last deposit. We find that this does not amount to restitution. Following the decision in DLF Homes Panchkula Pvt. Ltd v. DS Dhanda and in modification of the direction issued by the Commission, we direct that the interest on the refund shall be payable from the dates of deposit. Therefore, the appeal filed by purchaser deserves to be partly allowed. The interests shall be payable from the dates of such deposits.” (emphasis supplied)
(iii) The rate of interest shall be the rate prescribed under the RERA Act or at a reasonable rate. The commonly prescribed rate is the State Bank of India’s highest Marginal Cost of Lending Rate plus 2 per cent, which aggregates to 9.7 per cent currently.
(iv) A reasonable compensation. The scope of compensation has been elaborated in a catena of judgements of the Supreme Court. In Ghaziabad Development Authority versus Balbir Singh (2004), the Supreme Court noted:
“The word compensation is of a very wide connotation. It may constitute actual loss or expected loss and may extend to compensation for physical, mental or even emotional suffering, insult or injury or loss. The provisions of the Consumer Protection Act enable a consumer to claim and empower the Commission to redress any injustice done. The Commission or the Forum is entitled to award not only value of goods or services but also to compensate a consumer for injustice suffered by him.”
The court further observed:
“No hard and fast rule can be laid down, however, a few examples would be where an allotment is made, price is received/paid but possession is not given within the period set out in the brochure. The Commission/Forum would then need to determine the loss. Loss could be determined on basis of loss of rent which could have been earned if possession was given and the premises let out or if the consumer has had to stay in rented premises then on basis of rent actually paid by him. Along with recompensing the loss the Commission/Forum may also compensate for harassment/injury, both mental and physical. Similarly, compensation can be given if after allotment is made there has been cancellation of scheme without any justifiable cause.”
The allottee is not bound by the stipulation in the Plot/Flat Buyer’s Agreement with regard to compensation if the same is not reasonable. The compensation amount is frequently adjusted in the form of a higher rate of interest, and as such, interest at the rate of 18 per cent and 24 per cent have been awarded on the amount paid to the promoter.
Hence, the allottee is not bound by the stipulation in the Plot/Flat Buyer’s Agreement with regard to compensation if the same is not reasonable. In Wg. Cdr. Arifur Rahman Kan and Aleya Sultana, responding to the argument that flat buyers are constrained by the stipulation contained in the Apartment Buyers Agreement providing compensation for delay at the rate of Rs. 5 per square feet per, the Supreme Court had held:
“The court must take a robust and common-sense based approach by taking judicial notice of the fact that flat purchasers obtain loans and are required to pay EMIs to financial institutions for servicing their debt. Delays on the part of the developer in handing over possession postpone the date on which purchasers will obtain a home. Besides servicing their loans, purchasers have to finance the expenses of living elsewhere. To postulate that a clause in the agreement confining the right of the purchaser to receive compensation at the rate of Rs 5 per square foot per month (Rs 7,500 per month for a flat of 1500 square feet) precludes any other claim would be a manifestly unreasonable construction of the rights and obligations of the parties. Where there is a delay of the nature that has taken place in the present case ranging between periods of two years and four years, the jurisdiction of the consumer forum to award reasonable compensation cannot be foreclosed by a term of the agreement.”
The compensation amount is frequently adjusted in the form of a higher rate of interest, and as such, interest at the rate of 18 per cent and 24 per cent have been awarded on the amount paid to the promoter. In Balbir Singh, the Supreme Court had observed:
“… [T]here is absolutely no justifiable reason why the party has not been delivered possession of the flat at a higher rate of 18% is justified. It is not just interest on the amount invested but is also compensation for the harassment and agony caused to the allottee.”
The allottee also has the liberty to proceed against the promoter in a criminal case of cheating and fraud under the relevant sections of Indian Penal Code, such as Sections 406 (criminal breach of trust), 420 (cheating and dishonestly inducing delivery of property) and 120B (criminal conspiracy), as well as the provisions of any other relevant law.
Since India has a burgeoning middle class, real estate demand and disputes are going to be a frequent issue. Hence, one ought to be aware of the protections offered by law in case of default by the promoter.
