Pay 6% Interest on Flat’s Cost for Delay: Supreme Court to Builders

Making an example of a big fish among developers, the Supreme Court on Monday said builders must pay home buyers annual interest on cost of the flat for the period of delay in its delivery, in addition to the meagre monthly per square foot penalty mentioned in the apartment buyers agreement (ABA).

A bench of Justices D Y Chandrachud and K M Joseph asked DLF Southern Homes Pvt Ltd (now known as BEGUR OMR Homes Pvt Ltd) and Annabel Builders & Developers Pvt Ltd, which were constructing 1980 dwelling units at Begu in Bengaluru, to pay 6% interest per annum on the cost of the flats to those buyers who were handed over possession after a delay of two to four years.

The bench said this would be in addition to the Rs 5 per square foot penalty per month the developer had agreed to pay for the delay in delivery (which works out to Rs 7,500 per month for a 1,500 sq ft flat) under the ABA.

“The first and second respondents shall, as a measure of compensation, pay an amount calculated at the rate of 6% simple interest per annum to each of the appellants (flat buyers). 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. 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,” the bench said.

Reversing an order of the National Consumer Disputes Redressal Commission (NCDRC) absolving the developer and the builder of any additional liability, other than what is provided for in the ABA), for delay in giving possession of flats as well as shortfall in the amenities promised, the bench said when the developers sell a dream to home buyers, they must be held accountable for realisation of that dream.

Wing Commander Arifur Rehman Khan and Aleya Sultana led 339 home buyers argued their case before the SC through counsel Prashant Bhushan, Col R Balasubramanian and Bishwajit Bhattacharya and pointed out how the one-sided apartment buyers agreement, leaning heavily towards the developer, left the home buyers remediless against builders.

Writing the judgment, Justice Chandrachud said, “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,” he said.

Giving power to the consumer foras to award compensation beyond the agreed rate of penalty under ABA, the bench said, “Where, as in the present case, there has been a gross delay in the handing over of possession beyond the contractually stipulated debt, we are clearly of the view that the jurisdiction of the consumer forum to award just and reasonable compensation as an incident of its power to direct the removal of a deficiency in service is not constrained by the terms of a rate which is prescribed in an unfair bargain.”

The SC also fastened it on the developers to make good whatever amenities promised and said that they cannot wriggle out by arguing that the promised facilities are available in the vicinity of the housing complex. “Developers sell dreams to home buyers. Implicit in their representations is that the facilities which will be developed by the developer will provide convenience of living and a certain lifestyle based on the existence of those amenities,” it said.

“Having sold the flats, the developer may find it economically unviable to provide the amenities. The flat purchasers cannot be left in the lurch or, as in the present case, be told that the absence of facilities which were to be provided by the developer is compensated by other amenities which are available in the area. The developer must be held accountable to its representation,” Justice Chandrachud said.

Source : TOI