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28 Jun 2019

From Caveat Emptor to Caveat Venditor: A Paradigm Shift

The erratic development in the Real Estate Sector, both in the literal as well as the legal sense, has been a continuous cause of concern for all stakeholders involved. While developers are reeling under the pressures of declining demand, homebuyers are apprehensive about investing their hard-earned income in a shady deal. The snail speed exhibited in the progression of construction projects, misappropriation of funds by developers and delay in handing over of possession to naïve purchasers have been particularly troubling.

In such circumstances, the latest judgement by the National Consumer Dispute Redressal Commission (“NCDRC”) comes as a sigh of relief for homebuyers. In Shalabh Nigam v Orris Infrastructure and Three C Shelters Private Limited[i], the NCDRC has clarified that homebuyers can avail a full refund from developers with 10% interest if the possession of their flats is delayed beyond one year. It is a huge step towards protecting the interests of vulnerable purchasers who enter into unilateral contracts that gravely limits the scope of restitution. This envisages a much-desired shift in these type of transactions from “Let the buyer beware” to “Let the seller beware”.

Facts in Brief

The purchaser of a flat in a luxury society filed a complaint with the NCDRC against the landowner and the developer of the society for refund of the payments made by him with interest or delivery of possession of the flat that had been delayed by over two years. The complainant had made all payments as per the terms of the allotment letter. Later, he learned about a huge sewage drainage canal flowing through the middle of the land where the project was being developed. The canal was placed near his apartment and could not be covered.  Further, the layout of the project had also been changed and the clubhouse, which was meant to be near to the complainant’s apartment was moved to the other side of the sewage canal. Therefore, the complainant had made a request for refund which was refused by the developers without giving any reason.

Further, as per the apartment buyer agreement, the possession was to be handed over within 36 months with a grace period of six months from the date of allotment which had expired two years before the complaint was filed. Moreover, the Developer had promised that the possession would be handed over and all common amenities of the project along with the facilities would be completed two years in advance. In addition, clause 15(a) of the apartment buyer agreement was in the nature of a penalty attracting the applicability of Section 74 of the India Contract Act. However, despite repeated requests, possession was not granted. After paying more than 90% of the total consideration and not receiving the possession of the property, the complainant stopped making further payments and filed a complaint with NCDRC.

Observation

The issue for consideration was whether the developer was only liable to pay compensation for the delay as stipulated in the apartment buyer’s agreement or for the loss suffered on account of the deficiency in rendering services?

The NCDRC found that the project had been delayed by more than 2 years and as per established law, the complainant had the right to seek a refund in the circumstances when even the internal and external development charges had not been paid to the competent authority by the developers. In addition, the Development Agreement was not as per the provisions of law. Consequently, the commission ordered the developers to:

  • Complete the construction work and handover possession of the flat by a date prescribed. Failing which, the Complainant shall be at liberty to take refund of the total deposited amount along with interest at 10% p.a., as per the Interest Act, 1978.
  • Pay 6% interest on the amount deposited prior to the due date of possession. For amount paid after that, the interest shall be payable from the date of completion of one year from the date of deposit till the date of physical possession.

While the Hon’ble Supreme Court and various consumer courts had in the past held that the end buyers could not be made to wait endlessly to take the ownership of their flats, no clarity on the timeline for refund had been prescribed. Therefore, clearing clouds of uncertainty in this regard is a welcome step in the right direction. This remedy passed by the Hon’ble NCDRC shall be considered in addition to the remedies available under provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA) and it would have been the highest relief granted to the home buyers, if the same were passed before the enactment of RERA.

[i][i] National Consumer Disputes Redressal Commission New Delhi In Consumer Case No. 1702 Of 2016- Final Judgment Passed on May 6, 2019.

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