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Remedies In Case Of Builder's Failure To Deliver Possession On Time In India: Legal Analysis And Landmark Judgments

LCI Thought Leader Rajesh Tandon
26 August 2023  
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INTRODUCTION

The real estate sector in India has been witnessing rapid growth and development, with numerous housing projects and commercial complexes being launched by builders and developers across the country. However, a common concern faced by buyers and investors in these projects is the delay in the delivery of possession by the builder. This delay not only causes financial hardships to the buyers but also raises legal questions regarding the remedies available to them. In this article, we will delve into the legal remedies that buyers can seek in case of a builder's failure to deliver possession on time in India. We will also examine some landmark judgments that have shaped the jurisprudence in this area.

LEGAL REMEDIES FOR DELAYED POSSESSION

According to Section 18 of the RERA Act, if a developer fails to complete an apartment by the specified agreement date or is unable to provide possession, they are required to reimburse the amount received for that apartment upon the allottee's request to withdraw from the project. This right granted to the allottee is comprehensive and unrestricted, and it comes "without affecting any other available remedy."

The allottee can opt to reclaim their deposited funds, which will be refunded with interest at a prescribed rate upon availing this right. The proviso in Section 18(1) addresses a scenario where the allottee chooses not to withdraw from the project. In this case, the allottee is entitled to interest for each month of delay until possession is granted.

The allottee can choose between Section 18(1) or the proviso to Section 18(1) based on their preference.

The situation in the case of Himanshu Giri vs Imperia Structure Ltd. falls within the latter category where the allottee is entitled to interest for each month of delay until possession is granted. Thus, the RERA Act unequivocally furnishes a remedy to allottees who desire to exit the project or seek the return of their investment.

Section 18 of the RERA Act, 2016, outlines a provision for granting relief to allottees in cases where a developer falls short of completing construction or providing possession as agreed upon in the sales agreement.

The remedies offered by Section 18 are provided "without affecting any other available remedy." The findings of the three-Judge bench were influenced by the Imperia judgment, which elucidated that Section 18 of the RERA Act imposes an obligation on the developer to refund the allottee's payment alongside interest in the event of their failure to deliver possession according to the terms specified in the agreement.

Including an unbalanced provisions in a contract qualifies as an unfair trade practice under Section 2(r) of the Consumer Protection Act, 1986 (Presently under Section 2(47) of the Consumer Protection Act, 2019), as it employs unjust means or tactics to facilitate the sale of apartments by the builder. Where the amount of the commodities, services, or products paid as consideration to the seller does not exceed Rs. One crore Rupees the District Commissions shall have the authority to hear complaints. ( Sec 34(1) of the Consumer Protection Act, 2019)

Where the value of the commodities, services, or products paid as consideration to the seller exceeds One Crore rupees but does not exceed ten crore rupees, state commissions shall have the authority to hear complaints. ( Sec 47(1) of the Consumer Protection Act, 2019[1] )

Buyers who have entered into agreements with builders or developers for the purchase of a property are entitled to certain legal remedies in case the possession is not delivered within the stipulated time frame. Some of the key remedies available to the buyers include:

REFUND OF AMOUNT PAID

One of the primary remedies available to buyers is the refund of the amount already paid to the builder along with interest.  Buyers can approach  forum of RERA for refund of their  amount with interest and compensation.  In addition Buyers can also reach out to consumer Forum for seeking compensation. The interest rate on the refund amount may vary, and courts often consider factors such as the prevailing market rate and the nature of the default.

COMPENSATION FOR MENTAL AGONY AND HARASSMENT

In addition to seeking a refund, buyers can claim compensation for the mental agony, harassment, and inconvenience caused due to the builder's delay in delivering possession. Courts often take into account the emotional distress and financial hardships suffered by the buyers and may award compensation accordingly.

In the case of Ghaziabad Development Authority v. Balbir Singh, the court determined that neither a request for a full refund nor a promise to surrender the party's apartment in possession could be justified. The applicant was instructed to apply for a different flat at a greater price instead. According to the court, the award of interest at a rate of 18% is appropriate in light of these facts. The court also concluded that in addition to interest on the money invested, there must also be recompense for the allottee's mental agony and harassment.

TERMINATION OF AGREEMENT

If the delay is substantial and the buyer is no longer interested in acquiring the property, they can seek the termination of the agreement. In such cases, the builder is required to refund the entire amount paid by the buyer, along with any interest or compensation as determined by the court.

The definition of "unfair trade practice", under  Section 2(47) of the Consumer Protection Act, 2019 is pretty exhaustive. The primary aim is to introduce honesty and truthfulness into the interaction between manufacturers and consumers.

When assessing whether a particular action can be categorized as an unfair trade practice, the pivotal factor to consider is whether it involves a misleading false statement and, moreover, the impact such a statement by the manufacturer has on the average individual. Does it lead a reasonable person in the position of a buyer to a mistaken conclusion? The question cannot be resolved merely by scrutinizing whether the representation is accurate or inaccurate in a literal sense.

A representation that seems accurate from a technical standpoint might deceive the buyer through crafty language. Conversely, a statement that may be technically incorrect can convey the truth, and at times, even more effectively than a strictly correct statement. It is therefore imperative to assess whether the representation in question holds the element of deceiving the buyer. Does a rational individual reading the advertisement form a belief that deviates from the actual truth? This perspective must be adopted objectively, in an impersonal manner.

CONSUMER PROTECTION ACT

In NBCC (India) Ltd. v. Shri Ram Trivedi (2021) 5 SCC 273, the court emphasized[2]  that the validity of a contract can be challenged if it is demonstrated that flat buyers are left with no alternative but to accept the terms dictated by the builders.

The court further affirmed that Consumer Forums possess the authority to grant fair and rational compensation as part of their mandate to rectify service deficiencies, without being bound by the contractual rate. This applies even when possession has been transferred. This principle was reiterated in a subsequent case, DLF Home Developers Ltd. v. Capital Greens Flat Buyers.

IREO GRACE REALTECH (P) LTD. V. ABHISHEK KHANNA

In IREO Grace Realtech (P) Ltd. v. Abhishek Khanna, a three-judge bench of the Court recognized that if delay compensation clauses are unfairly skewed in favor of the developer and against the allottee, Consumer Courts are not limited in declaring such terms as unjust and one-sided, in line with their power to curb unfair or restrictive trade practices.

The court ruled that the inclusion of such imbalanced and unreasonable clauses in an apartment buyer's agreement amounts to an unfair trade practice under Section 2(1)(r) of the Consumer Protection Act.

IMPERIA STRUCTURES LTD. V. ANIL PATNI

In the case of Imperia Structures Ltd. v. Anil Patni, Justice Uday Umesh Lalit, , analyzed the jurisdiction of Consumer Forums in relation to the distinct remedies established under the RERA Act. The Court concluded that the remedies provided by the Consumer Protection Act (CP Act) serve as supplementary options beyond any existing remedies, including those granted under specific legislations. Furthermore, the presence of an alternative recourse does not hinder the consideration of a complaint under the CP Act.

OTHER LANDMARK CASES

Several landmark judgments have played a significant role in shaping the legal framework surrounding remedies for delayed possession in India. Some of these judgments include:

In the case of Ireo Grace Realtech Private Ltd., the decision of the National Commission, which ordered the repayment of the sum paid by buyers alongside suitable compensation, received endorsement from the higher court. The specific agreement of the involved apartment purchaser was carefully analyzed in that context, leading to the determination that consumer forums possess the authority to grant fair and appropriate compensation as a natural extension of their ability to instruct the rectification of service shortcomings.

In the Bangalore Development Authority vs. Syndicate Bank case, the Supreme Court examined whether time is considered essential in a construction contract that was under dispute. The Bangalore Development Authority argued that time was not crucial to the contract. The Court ruled that in construction contracts, time is not automatically deemed essential unless explicitly stated. The Court pointed to the respondent's letters, which did not emphasize timely performance or set a reasonable timeframe. Additionally, the Court observed that the respondent did not terminate the contract despite a significant increase in property value. Only much later did the respondent request property delivery. Given the circumstances, the Court concluded that the respondent did not establish time as a crucial aspect of the contract in a legally recognized manner. The Court also noted that the property's value had surged over tenfold since the Agreement's date, benefiting the respondent.

In the case of Rajasthan Housing Board v. Parvati Devi (2000) 6 SCC 104, the matter of delay in delivering possession of a building and its potential classification as an unfair trade practice was addressed in the following manner:

"To determine this matter, the Commission is tasked with ascertaining whether a specific action can be condemned as an unfair trade practice. This involves evaluating whether a representation contained false or misleading statements and what impact such a representation had on the general public. It is not sufficient to merely establish that a representation was made regarding the delivery of possession within a specified timeframe and that this was not adhered to, or that a smaller constructed area was provided after building completion.

The Commission must investigate whether the representation in question possesses elements that mislead the buyer, and whether buyers were indeed misled or adequately informed beforehand about the possibility of possession delay and potential cost increases. To achieve this, the terms and conditions of the agreement require thorough examination by the Commission. Furthermore, the Commission is obligated to determine whether the Board utilized unfair or deceptive practices to promote the sale, use, or supply of goods or services. Without a conclusive finding on this matter, the appellant Board cannot be subjected to penalties for unfair trade practices."

In the case of Fortune Infrastructure v. Trevor D'Lima, it was established by this Court that an individual cannot be subjected to an indefinite waiting period for the possession of an assigned apartment. Such an individual retains the right to request reimbursement of the sum he has paid, accompanied by appropriate compensation.

Haryana Urban Development Authority v. Suman Devi (2010): In this case, the Supreme Court held that buyers are entitled to seek a refund of the entire amount paid, along with interest and compensation, if the possession is not delivered within the stipulated time. The Court emphasized that the builder has a contractual obligation to deliver possession on time and that any delay constitutes a deficiency in service.

Lucknow Development Authority v. M.K. Gupta (1994): The Supreme Court held that buyers have the right to claim not only the refund of the amount paid but also the interest and compensation for mental agony due to the delay. The Court held that such compensation is warranted when the builder fails to fulfill its obligations under the agreement.

Noida Authority v. Bachpan Bachao Andolan (2016): The Supreme Court, in this case, reiterated that the builder-developer is obligated to deliver possession within the agreed-upon time frame. If there is a delay, the buyer is entitled to seek compensation and relief under consumer protection laws.

Himadri Choudhury v. State of NCT of Delhi (2019): The Delhi High Court ruled that buyers are entitled to compensation for the period of delay even if the agreement does not explicitly mention the compensation clause. The Court held that compensation for delay is a fundamental right of the buyer and cannot be denied.

Conclusion

The failure of a builder to deliver possession on time can lead to significant hardships for buyers. The Indian legal framework provides various remedies to address this issue and protect the rights of buyers. Buyers can seek a refund of the amount paid, specific performance of the agreement, compensation for mental agony, and termination of the agreement, depending on their individual circumstances. Landmark judgments by Indian courts have affirmed the rights of buyers and established a strong legal precedent for seeking remedies in cases of delayed possession. It is essential for buyers to be aware of these remedies and to assert their rights in order to ensure a fair and just resolution in such situations.

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