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This article is written by Saswata Tewari from the University of Petroleum and Energy Studies Dehradun. This article does a case analysis of Wg. Cdr. Arifur Rahman Khan And Others vs Dlf Southern Homes Pvt. Ltd. and talks about the failure of flat developers to comply with contractual obligations.

Introduction

On 25th August 2020, the Supreme Court of India in the case of Wg. Cdr. Arifur Rahman Khan And Others vs Dlf Southern Homes Pvt. Ltd. held that in a case where the developer fails to adhere to the contractual obligations to provide the possession of a flat to a homebuyer within the time specified in the agreement, amounts to deficiency, and this type of failure on the part of the developer to fulfill their promises will hold them accountable to reimburse the flat buyers.

Flat purchasers suffer from distress and harassment because of such failures by the flat developers. Legitimate assessments are made by the flat purchasers considering the future track of their lives positioned on the flat that has been purchased. They dream of happily occupying the flat and live the rest of their life happily. But these expectations are belied when the flat developer fails to abide by the contractual obligation to provide the possession of the flat within the specified time. This case shows what happens when a developer is guilty of not complying with contractual obligations.

Facts of the case

Nine individuals had booked residential flats in a building project named ‘Western Heights’ situated in New Town. DLF, BTM Extension at Begu, Bengaluru. The building project had nineteen towers in its plans. The nine individuals entered into an agreement that stated that the developer of the buildings would deliver the flats within thirty-six months. But the obligation of the developer to deliver the building on the said time was not fulfilled. The nine individuals filed a complaint under the relevant sections of the consumer protection act before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC allowed the nine complainants to file the complaint on behalf of all the flat buyers who were seeking relief.

The NCDRC dismissed the consumer complaint filed by the 339 flat buyers on being convinced by the reasons presented by the DLF Southern Homes Pvt. Ltd. and Annabel Builders and Developers Pvt. Ltd. They alleged that there was no insufficiency on their part for giving the services complying with the contractual obligations and also despite being late in delivering the possession of the residential flats, the flat buyers were not in a position to qualify for getting entitlement to compensation over what was specified in the Apartment Buyers Agreements(ABA).

Important clauses of Apartment Buyers Agreement

Clause 11(a) of ABA stated the fact that the developer would endeavor to complete the construction within thirty-six months from the date of execution of the ABA unless there exists any delay because of force majeure conditions.

Clause 14 of ABA said that the developer will compensate the flat purchasers at the rate of five rupees per square feet of the flat every month for the period of delay if the developers are unable to hand over the possession of the flat within the agreed period of 36 months or such extended time as allowed under the agreement.

Clause 1.3 of ABA states that the flat purchaser will make all the payments of the total price as per the payment plan laid out in the annexure of ABA. All the other charges, securities payments, taxes and increase as such any thereof as per Section 1.10 as specified in this agreement shall be paid by the flat purchaser as and when demanded by the developers.

Clause 1.10(a) of ABA states that the tax liability which shall be imposed on the flat allottees and the tax liability shall be in proportion to the ratio of the super area of the flat to the total super area of all the apartments and other shops and clubs in the complex.

Clause 1.21 of ABA states that the flat purchasers acknowledge and confirm the fact that they are not entitled to the lands outside the complex irrespective of the fact whether the same lands are within the same project as theirs. The same project shall include many other complexes similar or different to the complex of the flat purchaser and the flat purchaser will not be entitled to any right, title, or interest in any other land, areas, facilities, and amenities which are situated outside the complex of the flat purchaser.

Clause 23(b) of ABA states that if the company of the developers decides to apply for and gets the approval from BESCOM or from any other institution constituted by the government of Karnataka, for receiving and distributing bulk supply of electricity in the complex then the flat purchaser undertakes to pay proportionately as per the amount of all payments made by the company towards BESCOM.

Relevant Provisions

Section 12(1)(c) of the Consumer Protection Act, 1986 states that in a case where more than one consumer is having the same interest, a common consumer complaint can be filed on behalf of all the consumers with the district forum.

Section 2(1)(o) of the Consumer Protection Act, 1986 defines the term ‘service’ as something which is made available to potential consumers including the provision of facilities concerning the housing construction among other things.

Section 14(1)(e) of the Consumer Protection Act, 1986 states to remove the defects or deficiencies in the services in the notice.

Main objections of the complaints

The flat buyers had initially raised the following complaints for which they were seeking compensation from the developers of the Western Heights. These complaints are:

  • The developers had delayed in handing over the possession of the residential properties to the purchasers.
  • The flat buyers should be reimbursed for all the taxes and interests that were charged from them under ABA.
  • The developers were insufficient in proving the amenities to the flat purchasers.
  • Reimbursement for levying of electric charges from the flat purchasers by the developers
  • The developers were unable to construct the clubhouse.

Arguments

The counsel Mr. Prashant Bhusan, appearing on behalf of the appellants formulated the grievances of the flat purchasers and presented the following submissions before the court:

  • The fact that there was a complete delay ranging between the period of 2 and 4 years in handing over the possession of the residential properties and the flat buyers should not be restricted by the terms of ABA which are one-sided and uncooperative.
  • The execution of the deeds of conveyances or settlements will not perform to prevent the flat purchasers from asserting compensation from the developers. The emails sent by the developers understandably clarify the fact that the flat purchasers were allowed to execute conveyance deeds to receive the possession under protest.
  • The amenities for which the flat purchasers have bought the residential properties have not been delivered by the developers.
  • The flat purchasers are not liable to pay the developers for the demand for interest and penalty raised by the tax authorities because of the failure to pay the tax on time.

Opposing the submissions made by the appellate counsel, Mr. Pinaki Mishra learned Senior Counsel urged that :

  • No evidence has been led by the complainants to discharge the responsibility placed on them to prove any type of compulsion or pressure while executing deeds of conveyances or settlements.
  • The developers had handed over the possession of the complex which included 813 apartments in nineteen towers between 4 to 6 years ago and also, the developer has signed over his right, title, and interest to the Residents’ Welfare Association(RWA).
  • All the flat purchasers have profited from the appreciation in the value of their flats. 
  • Out of most of the applicants, a majority have received compensation at the rate which was agreed before, while handing over the possession of the residential properties. These allotments were escalation free and the charge of costs has been endured by the developers.
  • According to clause 14 of ABA, all the flat purchasers have been reimbursed at the rate of rupees 5 per square foot every month which works out to be rupees seven thousand five hundred per month for a residential flat measuring 1500 square feet.
  • Regarding the subject of amenities, a clubhouse equipped with a swimming pool, gymnasium, tennis court, indoor badminton courts, and squash courts have been constructed and the occupation certificate was duly received. The RWA is conscious of the fact that problems arose while allotting because of the action brought by the Bangalore Development Authority, for which writ petitions were also filed in the High Court of Karnataka by both the developer and the RWA. Amenities including a school and health care facilities were going to be built in the whole township comprising of 80 acres of which the complex of 27 acres was also a part and the flat purchases were acknowledge with the fact that according to ABA, amenities which were outside the residential complex of the flat purchasers or were a part of the wider complex of 80 acres, will not entitle the flat purchasers with the right, title or interest in those amenities.
  • Clauses 1.3, 1.10, 2, and 3 require the flat purchasers to undertake the charges of tax liabilities which include work contracts tax. When the project had just begun in 2009, there was not a lot of clarity on the topic of works contract tax but the case law of Larsen and Toubro Limited v.State of Karnataka settled this ambiguity.
  • According to Clause 23(b), the developers are entitled to raise a demand proportionately from the flat purchasers for the electricity charges.
  • The price of the residential properties included in itself the parking charges for the exclusive use of earmarked parking spaces and the parking charges were clearly shown upfront in the brochure.

Judgment

The following points were held by the bench comprising of Justice D.Y Chandrachud and Justice K.M Joseph :

  • The court must take a firm approach by taking a judicial notice towards the fact that the flat buyers obtain loans and are required to pay the loan installments to the financial institutions for servicing their loan. The flat buyer suffers agony and hardship because of the delay on the part of the developer to hand over the possession of the residential property and also, the date for getting possession of the flat postpones which is the subject matter of ABA. Besides getting finance for the loans, the flat purchaser has to also take care of the cost of expenses for living somewhere else. 
  • The fact that when there is a gross delay ranging between periods of 2 and 4 years, the jurisdiction of the consumer forum to grant reasonable compensation cannot be ruled out by a term of the agreement.
  • The failure of the developer to hand over the possession of the residential property to the flat buyer within the contractually stipulated time count as a deficiency. There exists a fault, shortcoming, or inadequacy in the nature and manner of the action which has been undertaken to be executed in the implementation of the contract with regards to the service. The term ‘services’ and ‘deficiency’ has been defined by Sections 2(1)(o) and Section 14(1)(e) of the Consumer Protection Act, 1986.
  • The nature and manner of the delay by the developer are of such nature that the measure of compensation or reimbursement which is provided in clause 14 of ABA would not be adequate to indemnify the flat purchasers. 
  • The terms of ABA have been drafted keeping in mind the interests of the developer and the rights which are granted to the developer for any default on part of the flat purchaser are not placed on a common and equal platform with the contractual right granted to the flat purchaser in the case the developer makes any default. The agreement between the developer and flat purchaser does not show an even bargain. 
  • It was also held that it is unreasonable to expect that the flat purchasers have to defer the right to compensation if they seek to obtain a deed of conveyance. This proposal which was supported by the NCDRC and the Supreme Court cannot support this irrational proposal.
  • The NCDRC had upheld the collection of charges towards the electricity usage relating to the terms of ABA. The Supreme Court held that this decision of NCDRC is not erroneous because it is based on the provisions under Clause 23(b) of the ABA. The charges to be recovered are not contradictory to the charges that were specified in the ABA.
  • It was held by the Supreme Court that the decision of NCDRC to dismiss the consumer complaint was erroneous. The flat purchasers are entitled to get compensation for the delayed handing over of the possession of the flats and the failure on the part of the developer to satisfy the representations made to the flat purchasers concerning the provision of amenities. It was held that the decision of NCDRC on these particular aspects are completely unacceptable and unreasonable and suffers from patent errors of law. The Supreme Court by allowing the appeals have put aside the impugned judgment and order given by the NCDRC which had dismissed the consumer complaint of the flat purchasers.
  • The Supreme Court ordered the respondents to compensate each of the flat purchasers by paying up an amount which is to be calculated at the rate of 6 per cent simple interest per annum. It was directed that the amount shall be calculated on the total amount that is paid towards the purchase of individual flats with execution from the date of expiry of thirty-six months from the implementation of the respective ABAs until the date of the offer of possession after getting the receipt of an occupation certificate. 
  • It was further held that the above amount that is to be paid to the flat purchasers, shall be in inclusion to the money which has been paid over or credited by the developer at the rate of rupees five per square foot monthly at the time of the drawing of the final accounts.
  • The amounts specified above shall be paid to the flat purchasers within a time of one month from the date of this judgment given by the Supreme Court and failing to pay the amount within the specified time shall invite interest at the rate of 9 per cent per annum until the payment is made.

Conclusion

This is not the first time when people having a dream to have a home for themselves have been led down by developers and their fake promises. They keep waiting to take possession of their flats and in the meantime, their loan installments pile up. Carelessness from the developer’s side affects the flat allottees both mentally and financially. This type of inefficiency should be kept in check by the necessary authorities and cases which are similar should be given a priority to get registered and start the proceedings immediately. The developers should feel that no one can get away with the miscarriage of justice. In this case, the Supreme Court established the fact that failure on the part of the developer to hand over the possession of residential properties and non-fulfillment of services and amenities being provided to the flat purchasers, that was represented by the developers, will result in the situation of compensating the flat allottees.

References


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