India: The Unwieldy Discretion Of Consumer Courts

Last Updated: 20 March 2018
Article by Smarika Singh and Shreya Sircar

In recent times, Consumer Courts have been grappling with the issue that in the event of failure to offer possession within the contractually stipulated period prescribed in the Agreement for Sale, will the real estate developer/promoter ("Promoter") be liable to compensate the home buyers such rate of interest provided in the compensation clause of the Agreement for Sale, or in accordance with the provisions of the applicable statue?

The Real Estate (Regulation and Development) Act, 2016 ("RERA") inter alia provides that if a Promoter is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale, the promoter is liable on demand (in case the allottee wishes to withdraw from the project), to return the amount received by such Promoter with interest at such rate as may be prescribed in this behalf, including compensation in the manner as provided under RERA1. Each state notifies its own governing rules and regulations in this regard, which ordinarily awards interest on compensation in the range of 10%-12%2. Furthermore, the allottee are entitled to claim the refund of amount paid along with interest at such rate as may be prescribed and compensation in the manner as provided under RERA, from the promoter, if the promoter fails to comply or is unable to give possession of the apartment, plot or building, as the case may be, in accordance with the terms of agreement for sale3.

Apart from the rate of interest prescribed under RERA, it is also relevant to consider the rate of interest prescribed under the relevant law of the state. In this article we analyze the interplay of the interest rates as provided under the Maharashtra Ownership of Flats Act, 1963 ("MOFA")/ Karnataka Ownership of Flats Act, 1972 ("KOFA") and in the Agreement for Sale. Under MOFA and KOFA4, if a Promoter fails to timely offer possession of a duly completed apartment to its home buyers, the Promoter shall be liable on demand, to refund the amounts already received from the home buyer in respect of the apartment, along with simple interest at 9% per annum from the date of receipt till the date of refund5. Of course, recourse to this provision is sought if the delay in handing over possession is for reasons beyond the Promoter's control or in accordance with the terms of the agreement, etc. What is interesting to note is that the Agreement for Sale executed between Promoter and buyer typically provides that in the event of delay in offer of possession, Promoters are liable to refund such amounts to the home buyers as have been received by them, along with interest which is usually lower than that provided under MOFA/KOFA

In such an event, the main issue that arises is, would the signatory home buyers to such agreements, be deemed to have voluntarily waived their right to claim compensation at a higher rate of interest, as prescribed by law? This is particularly problematic given that, both MOFA & KOFA are legislations which were enacted and have remained in operation for nearly four decades.   

In this regard, it is relevant to consider the judicial applicability of such provisions by Courts in India. In a recent judgment of Ashok Patni and Ors. v. Turf Estate J V and Ors.6 ("Ashok Patni Case") wherein the National Consumer Disputes Redressal Commission ("NCDRC"), while upholding the applicability of the provisions of MOFA, held as under:

"10. The learned senior counsel for the opposite parties has pointed out that in terms of Section 8 of the Maharashtra Ownership Flats Act, 1963, interest in such an eventuality is to be paid @ 9% per annum. In terms of the statutory provisions contained in MoFA, the opposite Party No. 1 must refund the entire principal amount received from the complainants, along with interest at the statutory rate of 9% per annum from the date of each payment till the date of refund. The opposite party should also suitably compensate the complainants for the mental agony and harassment suffered by them in last more than eight years, besides paying the cost of litigation to them. The complaints are therefore disposed of with the following directions:

  1. Opposite party No. 1 namely Turf Estate JV shall refund the entire principal amount of Rs. 10,28,24,000/- to the complainants in each complaint, along with compensation in the form of simple interest @ 9% per annum from the date of each payment till the date on which the full refund along with compensation in the form of interest in terms of this order is made.
  2. The opposite party No. 1 shall pay Rs. 5,00,000/- as compensation in each complaint for the mental agony and harassment undergone by the complainants at its hand.
  3. The opposite party No. 1 shall pay Rs. 25,000/- as the cost of litigation in each complaint.
  4. The payment in terms of this order shall be made within three months from today."

[Emphasis Supplied]

While in the aforesaid case, the Court applied the provisions of MOFA, the 'Ashok Patni case' is distinguishable as in that case, merely allotment letters were issued to the allottees and the draft agreement for sale was soon to be provided to the allottees. Therefore, the NCDRC held that the allottees/complainants were fully justified in refusing to wait further for the flats allotted to them and in terminating the allotment letter, thereby seeking refund of the amount paid by them to the promoter along with compensation at the rate of 9% per annum.

It is interesting to note that in the case of M/s. Sunit Enterprises v. Shri Mohanlal N. Jogi7, while it was contended by the Promoter's counsel that it was willing to refund money with 9% p.a. interest as provided under MOFA, the NCDRC upheld the State Commission's order of refund of money along with simple interest @ 18% p.a., as most reasonable, in keeping with the nature and circumstances of the case.

Earlier in Pakhar Singh Sahota v. Lloyds Realty Ltd. and Ors.8 the Maharashtra State Consumer Disputes Redressal Commission directed refund along with simple interest @ 15% p.a. from the respective dates of payment till realisation. In this case, the State Commission took into consideration the interest which MOFA provides i.e. 9% p.a. and still awarded interest at a higher rate i.e., 15% p.a., which would take care of the element of compensation as envisaged under Section 14(1)(d) of Consumer Protection Act, 1986.

Similarly, in Vinod R. Tiwari and Ors. v. Dayashankar Shivbalak Mishra and Ors.9, the Maharashtra State Consumer Disputes Redressal Commission directed refund of monies along with simple interest @ 18% p.a. from the date of payment till realisation. The reasoning of the Commission was that the basic concept while awarding compensation, is to recompense for the loss or injury suffered. The Commission also held that the Promoters were deficient in their services and therefore, awarded simple interest @18% p.a. as fair and reasonable in the facts/situation and circumstances of that case.

Apart from the Ashok Patni case, in all of the above cases, the Courts have awarded interest at a rate which is higher than what is prescribed under MOFA/KOFA. The man reason in doing so is to compensate the home buyers for his loss. 

However, contrary to the above cases, in a revision petition before the NCDRC in the case of Rainbow Realtors v. Solomon Esau David through Lrs.10, while upholding Section 8 of the MOFA, the rate of interest was modified and thereby reduced from 21% to 9% p.a. Similarly, in M/s Nitin Mehta v. Mr. Prashantkumar Vijaykumar11, the Promoter was directed to hand over possession along with delay compensation @ 9% p.a. or alternatively, refund along with interest @ 18% p.a.

What follows from the above is that Courts in India have adopted varied approach in granting compensation, i.e. in some cases, Courts have applied the statutory rate while imposing interest on refund amounts, while in others, the interest imposed is higher than that prescribed under the statute. However, the judgment which appears to be acting as the guiding light for Courts is the Hon'ble Supreme Court's observations in Ghaziabad Development Authority v. Balbir Singh12. In this case, the Hon'ble Supreme Court was of the view that compensation at a uniform rate of interest cannot be blindly awarded in every case. The case of Ghaziabad Development Authority was also relied upon by the NCDRC in the case of Puneet Malhotra and Ors. Vs. Parsvnath Developers Ltd.13 while awarding compensation to the homebuyer.

Resultantly, the Consumer Courts have been delegated the duty to apply its mind to the determining facts and circumstances surrounding each case. The Consumer Courts must determine that there has been deficiency in service and/or misfeance in public office which has resulted in loss or injury, thereby holding that uniform compensation cannot be the norm.

What also appears to be of significance is that in numerous other matters, Courts have often read down the language of the compensation clauses of the agreements for sale, as amounting to unfair trade practice by Promoters.14 The Courts have viewed such clauses as onerous, exploitative and non-reciprocal in nature15. In this regard, reference is made to the case of Parsvnath Exotica Ghaziabad Resident's Association v Parsvnatah Buildwell Pvt. Ltd and Anr.16 wherein it was observed:

"Though, the Agreement between the developer and the flat buyers provides for payment of compensation in case of delay@ Rs. 5/- per square feet of the super area per month, such clauses have been found to be unfair trade practice and have been consistently rejected by this Commission in several decision....

....Therefore, the aforesaid clauses cannot be taken into consideration, while determining the compensation payable to the members of the complainant association for the aforesaid delay in completion of construction."

While we have discussed the interest awarded as delay compensation under MOFA/KOFA, it is also relevant to consider the judicial trend on the percentage of interest ordinarily awarded by the Courts for delayed offer of possession by the Promoter, pursuant to the applicability of RERA. The NCDRC in the case of of Naresh Kumar Khatreja and Ors. vs. Unitech Ltd. and Ors.17, directed delay compensation in the form of simple interest @ 12% per annum from the date of each payment till the date on which the said entire principal amount.

As opposed to the above, in Rajesh Jain and Ors. vs. Unitech Limited and Ors18. the NCDRC ordered compensation in the form of simple interest @ 8% per annum from the committed date of possession till the date on which the possession is delivered. The NCDRC took into account that possession was being offered by the promoter.19

The judicial drift that appears to emerge is that the rate of interest incorporated in the agreement for sale may not strictly be applied by Courts in India. Courts also do not shy away from striking down onerous clauses in contract as unfair trade practices being adopted by Promoters. Besides, it is evident that the Courts have awarded different rates of interest in different cases and mostly, the interest awarded is higher than that specified in the Agreement for Sale/Builder-Buyer Agreement. In fact, the Courts have also awarded interest rates which are either in accordance with KOFA/MOFA statute or even higher. What is of significance is that the courts have usually refused to strictly uphold the delay compensation clauses provided in the Agreement for Sale as being onerous and one sided. To sum up, what seemingly appears is that compensation at a uniform rate of interest is not awarded in every case and the burden is on the Courts to first determine that there has indeed been deficiency in service which has resulted in loss or injury and the remedy of which lies in compensation at a rate of interest specific to the facts and circumstances surrounding that case. This interest rate of course may not necessarily be what has been contractually agreed between the Promoter and the Home Buyer. In fact, it may not only be higher, but may also be the different from that prescribed under the KOFA/MOFA.  

Footnotes

1 Section 18 of RERA

2 For instance, Rule 15 of the Haryana Real Estate (Regulation and Development) Rules, 2017 permits refund of amount paid by the home buyer along with interest which is the State Bank of India's highest marginal cost of lending rate plus 2%.

3 Section 19 (4) of RERA.

4 Both statutes are verbatim reproduction of each other

5 "Section 8 of KOFA/MOFA:

Refund of amount paid with interest for failure to give possession within specified time or further time allowed:

If,-

(a) the promoter fails to give possession in accordance with the terms of his agreement of a flat duly completed by the date specified, or any further date or dates agreed to by the parties; or

(b) the promoter for reasons beyond his control and of his agents, is unable to give possession of the flat by the date specified, or the further agreed date and a period of three months thereafter, or a further period of three months if those reasons still exist,

then, in any such case, the promoter shall be liable on demand (but without prejudice to any other remedies to which he may be liable) to refund the amounts already received by him in respect of the flat (with simple interest at nine per cent per annum from the date he received the sums till the date the amounts and interest thereon is refunded), and the amounts and the interest shall be a charge on the land and the construction, if any, thereon in which the flat is or was to be constructed to the extent of the amount due, but subject to any prior encumbrances. [Emphasis supplied]

6 (10.01.2018 - NCDRC) : MANU/CF/0034/2018

7 MANU/CF/0517/2012

8 MANU/QT/0014/2003. See also N.Y. Kachawalla v. The Orbit Corporation Limited, MANU/CF/0488/2014

9 MANU/QT/0068/2004

10 MANU/CF/0436/2010

11 MANU/MH/3210/2017. See also M/s Gokul Construction v. Promil Anand & Ors., First Appeal No. 216 of 2011 decided on 06 April 2015 before the NCDRC

12 (2004) 5 SCC 65

13 MANU/CF/0076/2015

14 Ankur Gupta v Omaxe Chandigarh Extension Developers Pvt. Ltd. and Another, Consumer Case No. 309 of 2016, decided by on 22 November 2016, Satish Kumar Pandey and Ors. v Unitech Ltd., Consumer Complaint No. 427 of 2014, decided by NCDRC on 8 June 2015

15 Belaire Owner's Association v DLF Limited & Ors. [2011 Comp LR 239 (CCI)]

16 Consumer Complaint No. 45/2015 decided by the NCDRC on 6 May 2016

17 (22.07.2016 - NCDRC)/MANU/CF/0290/2016

18 (06.09.2017 - NCDRC) : MANU/CF/0578/2017]

19 Sanjeev Miglani and Ors. vs. Unitech Limited  & Jalaj Anand Vs. Unitech Limited, (MANU/CF/0570/2017,  date of decision is 11.09.2017), the NCDRC awarded interest at the rate of 10% p.a. 

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