India: Maintainability Of Class Actions Under Consumer Protection Act, 1986

Introduction

In a recent Order dated 21 February 2017, the Supreme Court in M/s Amrapali Sapphire Developer Private Limited vs. M/s Amrapali Sapphire Flat Buyers Welfare Association1 has declined to entertain the realtor's appeal against the order dated 30 August 2016 passed by the National Consumer Disputes Redressal Commission ("NCDRC") in Amrapali Sapphire Flat Buyers Welfare Association vs. Amrapali Sapphire Developers Private Limited2. The NCDRC had held that flat owners / allottees, who have a registered association, can directly approach NCDRC against the realtors even in cases where the individual sale consideration paid by the said flat owners / allottees is than Rs One crore (i.e. the pecuniary jurisdiction of the NCDRC) and where there is no commonality in causes of action of the said flat owners / allottees.

From the perusal of the NCDRC order it appears that some pertinent questions of law were not considered either by the NCDRC or by the Supreme Court which summarily rejected the realtor's appeal without giving any reasons whatsoever.

Background

The litigation started at the behest of certain flat owners / allottees of 'Amrapali Sapphire', a residential project of Amrapali Group in Sector 44, Noida. The said flat owners / allottees formed an association (Amrapali Sapphire Flat Buyers Welfare Association ("Association")) and approached NCDRC by filing an original complaint under the Consumer Protection Act 1986 ("Act") alleging delay in handing over of possession of their individual flats.

The maintainability of the complaint was contested by the realtor inter alia on the grounds that, (i) the alleged association of members was not 'recognised' in the manner required in law, particularly Section 12(1) (b) of the Act; (ii) the individual sale consideration paid by the members of the Association was less than Rs One crore and therefore NCDRC did not have the requisite pecuniary jurisdiction; and (ii) there was no commonality in causes of action of the respective members.

NCDRC's View

The NCDRC rejected the realtor's contention and held as under:

  1. in view of the explanation appended to Section 12 of the Act, any association registered in law would be deemed to be a 'recognised' association which can maintain a complaint at the behest of the members; and
  2. the aggregate value of the services is to be taken into consideration for determining the pecuniary jurisdiction of the consumer forum before which the complaint is filed.

Supreme Court's View

The Supreme Court rejected the realtor's appeal observing that the grounds for intervention were not made out.

Takeaways from the NCDRC Order

  1. It puts to rest the controversy as to whether the aggregate value or the individual sale value has to be made the basis while determining the pecuniary jurisdiction of NCDRC.
  2. Allottees may now form associations and directly approach NCDRC on the basis of aggregate value of individual sale consideration, bypassing the usual hierarchy of forums.

Challenges to Realtors

  1. The right to appeal has been curtailed and the realtor can now only approach the Supreme Court against the judgment / order of NCDRC.
  2. The time within which the realtors otherwise had to deliver possession while the litigation was pending is substantially reduced.
  3. Allottees can misuse this direction by forming associations or persuading associations to take up their claims and approach NCDRC directly, even in cases where the pecuniary value of their individual claims is much below Rs One crore.
  4. Clubbing of cause of actions which may be different for individual allottees can be an issue. 

Counter View: Issues which ought to have been raised / answered

  1. Allottees who have booked the property not for personal use but for the purpose of resale (i.e. investment purpose) do not qualify as 'consumers' under Section 2(1) (d) of the Act which carves out an exception for commercial purpose. Since the consumer forums would have little room to verify the purpose of purchase of property, permitting such associations to file class actions for the entire pool of consumers, also including those who invested in the property for commercial purpose would defeat the exception under Section 2(1)(d) of the Act.
  2. In order to ascertain whether the allottees have booked the property for personal use or commercial purpose, consumer forums have generally directed allottees to disclose on affidavit other bookings made by the said allottees, which clearly revealed the intent of investment. The aforesaid exercise may not be feasible when complaint is filed by an association, thereby permitting even those parties to maintain an action which would otherwise fall within the exception of Section 2(1) (d) of the Act.
  3. The word "recognised" in "recognised consumer association" used in Section 12(1) (b) of the Act is to be understood in the context of recognition accorded by the Ministry of Consumer Affairs of the Government of India, upon fulfilment of necessary conditions as prescribed under BIS (Recognition of Consumers Associations) Rules 1991. The conditions have been statutorily prescribed to ensure that genuine associations are permitted to espouse the cause and formation of association is not abused at the behest of few disgruntled consumers, who may want to arm twist the realtor. The fundamental requirement therefore is the minimum number of members (50) compulsorily required to form an association. Simpliciter prescribing any group of consumers to form an association, particularly those who do not fulfil the statutorily prescribed mandate would amount to defeating / frustrating the BIS (Recognition of Consumers Associations) Rules 1991 and the mandate of Section 12 (1) (b) of the Act. The NCDRC admittedly did not go into the issue of the strength of the association in the present matter. 
  4. Practically, the term "recognised consumer association" used in Section 12(1) (b) of the Act is interpreted strictly and loosely constituted associations or trusts are not permitted to espouse cause on behalf of its members. The aforesaid view has been adopted by the Hon'ble Supreme Court in its Judgment dated 7 March 2017 in Pratibha Pratishthan vs. Manager Canara Bank3.
  5. Further, permitting associations to espouse the cause, without ascertaining as to whether the relief sought by the members is arising out of the same act would defeat the mandate of Order I Rule 1 of the Code of Civil Procedure 1908, which prescribes as to who all can join the lis as 'plaintiffs'. Depending upon facts, some allottees may have grievance pertaining to delay in possession while some may only be aggrieved on account of maintenance services. Clearly, the reliefs sought by the two groups would be different arising out of different set of facts / acts. However, NCDRC in its order has not dealt with the said distinction which bars the parties to join cause.
  6. Permitting the latter category (as mentioned in Point (v) above) of allottees to also approach the NCDRC directly, by joining the pool, would defeat the concept of hierarchy of forums and pecuniary jurisdiction contemplated under the Act. The basis to determine the concerned forum, therefore, should be the value of individual claims.
  7. It appeals to logic that complaints should be entertained at the behest of the Association under Section 12(1) (b) of the Act when the individual members otherwise are eligible / competent to maintain such complaint on standalone basis having regard to their individual claims and commonality of causes of action. However, it may amount to multiplicity of proceedings. In the present order, NCDRC has laid down a general rule permitting all to join cause.
  8. Further, permitting the associations to represent the entire pool of allottees, will in given cases also amount to protecting genuine defaulters as well. These defaulters being in breach of the Apartment Buyer / Space Buyer Agreement and/ or the payment schedule have no locus and cause of action against the realtor. The NCDRC order gives unnecessary shield to such defaulters to agitate their cause in the garb of association.

Conclusion

The order of the NCDRC has clearly not addressed the aforesaid issues which had a direct bearing on the matter. The general proposition of law laid down in the NCDRC order is susceptible to abuse. It is pertinent to state that the proceedings are still pending before NCDRC and are at the stage of completion of pleadings. We hope that the aforesaid issues are raised at the stage of final disposal and the above mentioned issues and contentions are presented before the NCDRC for consideration.

Footnotes

1. Civil Appeal No. 10882 of 2016/ Civil Appeal No. 10954 of 2016/ Civil Appeal No. 10979 of 2016 and Civil Appeal No. 11094 of 2016

2. Consumer Case No. 816 of 2016

3. Civil Appeal No. 3560 of 2008

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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