The Supreme Court in the case of Wg. Cdr. Arifur Rahman Khan and Aleya Sultana and ors v. DLF Southern Homes Limited, Civil Appeal No. 6239 of 2019, delivered on August 24, 2020 has, inter-alia, held that flat buyers are entitled to compensation for delayed handing over of possession and for the failure of the developer to fulfil the representations made to flat buyers in regard to the provision of amenities.

Facts:

The complaint before the NCDRC was instituted by flat buyers who had booked residential flats in a project called Westend Heights at New Town, DLF, BTM Extension at Begu, Bengaluru.

The flat buyers, pursuant to the brochure issued by the developer, entered into Apartment Buyers Agreement (“ABA”) with the developer. Clause 11(a) of the ABA indicated that the developer would endeavour to complete construction within a period of thirty-six months from the date of the execution of the agreement save and except for force majeure conditions. Clause 11(a) provided:

“11. (a) Schedule for Possession of the Said Apartment

The Company/LOC based on the present plans and estimates and subject to all just exceptions, endeavors to complete construction of the Said Building /Said Apartment within a period of thirty six (36) months from the date of execution of this Agreement unless there shall be delay or failure due to Force Majeure conditions including but not limited to reasons mentioned in Clauses 11(b) and 11(c) or due to failure of Allottee to pay in time the Total Price and other charges taxes, securities etc. and dues/payments or any failure on the part of the Allottee to abide by all or any of the terms and conditions of this Agreement.”

Force majeure stipulations were illustrated in sub-clauses (b) and (c) of clause 11, which included delay due to the reasons beyond the control of the developer and failure to deliver possession due to government rules, orders or notifications, respectively. Construction was behind schedule. The flat purchasers were informed on January 12, 2011 that possession of the apartments was expected to be completed by the middle of 2012. This assurance was not fulfilled.

The timelines were further extended and the obligation to handover possession within a period of thirty-six months was not fulfilled. The flat buyers filed a complaint before the National Consumer Disputes Redressal Commission (“NCDRC”).

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.

NCDRC in its order dated July 02, 2019 observed that delay in the handing over of flats to the flat purchasers was admitted. While recording a finding of fact that there was an admitted delay on the part of the developer, the NCDRC held that the agreements provided compensation at the rate of Rs 5 per square foot of the super area for every month of delay. The NCDRC held that the flat purchasers who agreed to this stipulation in the agreements were not entitled to seek any amount in addition. 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.

The complaints were dismissed and appeals were filed before the Supreme Court of India. The court observed that the fulcrum of the case of the developer rests on clause 14 of the ABA which is in the following terms:

“14. The Allottee agrees and understands that if the company is unable to give possession within the period as mentioned above or such extended period as permitted under this Agreement, due to reasons other than those mentioned in this Agreement, then the Company agrees to pay only to the Allottee and not to anyone else, subject to the Allottee, not being in default under any terms of this Agreement compensation @ Rs. 5/- per sq. feet of the Super Area of the said apartment per month for the period of such Delay. The adjustment of such compensation shall be done only at the time of execution of the Conveyance Deed of the Said Apartment to the Allottee first named under this Agreement and not, earlier.”

The only issue which then falls for determination is whether the flat buyers in these circumstances are constrained by the stipulation contained in clause 14 of ABA providing compensation for delay at the rate of Rs 5 per square feet per month. 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 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. 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 held that, the flat buyers are entitled to compensation for delayed handing over of possession and for the failure of the developer to fulfil the representations made to flat buyers in regard to the provision of amenities. The reasoning of the NCDRC on these facets suffers from a clear perversity and patent errors of law.

Decision of the Supreme Court:

The court passed the following directions:

1. Save and except for eleven appellants who entered into specific settlements with the developer and three appellants who have sold their right, title and interest under the ABA, the first and second respondents shall, as a measure of compensation, pay an amount calculated at the rate of 6 per cent simple interest per annum to each of the appellants. The amount shall be computed on the total amounts paid towards the purchase of the respective flats with effect from the date of expiry of thirty-six months from the execution of the respective ABAs until the date of the offer of possession after the receipt of the occupation certificate;
2. The above amount shall be in addition to the amounts which have been paid over or credited by the developer at the rate of Rs 5 per square foot per month at the time of the drawing of final accounts; and
3. The amounts due and payable in terms of directions (i) and (ii) above shall be paid over within a period of one month from the date of this judgment failing which they shall carry interest at the rate of 9 per cent per annum until payment.

Please find a copy of the judgment here.

This update has been contributed R. Sudhinder (Senior Partner) and Prerana Amitabh (Managing Associate).