Important Judgments under the Real Estate Law in India

November 19, 2017

One of the sectors that has witnessed phenomenal growth in the last two decades is none other than the Real Estate Sector in India. It is one of the sectors that has drawn huge investments and people with the hope of unlocking their dream homes have spent their hard earned money towards its realization. Typically, when anyone purchases a flat/home he enters into a Development Agreement with the builder. The development agreement is in the form of a Standard form contract, comprising of non-negotiable clauses and most of such agreements comprise of terms and conditions which are biased and are dressed up with terms which under all circumstances favour the position of the Builder and leave no scope of discussion or variation in terms of the Agreement.

Hence, one of the foremost glitch encountered while making an investment in the Real estate is one-sided development agreements.

Also read All you need to Know about Real Estate Act in India

One-Sided AgreementsOne-sided development agreements has been one of the core concern of home buyers. The terms of the Agreement are non-negotiable and a buyer even if he does not agree to a term, there is no option of modifying it or even deliberating it with the Builder. This aspect has often been unfairly exploited by the Builder, whereby the Buyer imposes unfair and discriminatory terms and conditions.

Belaire Owners’ Association v. DLF Limited, HUDA & Ors.[1]In this case, the CCI (Competition Commission of India) extensively dealt with the issue of abuse of dominant position and one-sided development agreements. In the case, the CCI made some noteworthy observations pertaining to one sided development agreements:

  • That DLF had resorted to malpractice in the agreement.
  • That unfair conditions were imposed on the buyer through the Provisional Booking agreement, which is signed by the buyer after having paid substantial costs, thereby, leaving no option to the buyer to object to loop-sided provisions of the agreement.
  • DLF’s right to change the layout plan without consent of allottees, DLF’s unilateral power to make changes in the agreement and the power to supersede without any right to the allottees.
  • That there were evidences of unequal bargaining power between the parties and stated that the impunity with which these clauses have been imposed, the brutal disregard to consumer right that has been displayed in its action of cancelling allotments and forfeiting deposits and the deliberate strategy of obfuscating the terms and keeping buyers in the dark about the eventual shape, size, location etc. of the apartment cannot be termed as fair.

Eventually, DLF was held liable for abuse of dominant position under the Competition Act, 2002 and was slapped with a penalty of Rs. 630 crores. The CCI in the case also directed DLF to suitably modify conditions imposed on its buyers. However, in appeal COMPAT (Competition Appellate Tribunal) stayed CCI’s order regarding modification of the terms of agreement but barred DLF from implementation of the impugned agreement.

Mr. Pankaj Agrawal v. DLF Gurgaon Home Developers Private Limited[2]This is also an essential judgment of CCI which aids in streamlining the defences available to a buyer aggrieved with one-sided development agreements and change in layout plans by the builder.

  • In this case, the CCI took particular note of the development agreement mentioning about change in its construction plans without giving any option to the apartment buyers and termed it as abusive. CCI opined that just because there was increase in some towers and decrease in other towers does not balance the effect which the apartment buyer has to go through. CCi stated that for buyers who have booked apartment in the towers where the number of floors have increased, the conduct of the Opposite Party was unfair.
  • That when consumers/buyers invest in a particular project, they ought to know with some certainty, the final structure of the apartment. It is, therefore, quite clear that the conduct of the Opposite Party in making additions to the number of floors beyond the number intimated to the apartment allottee amounts to abuse of dominant position.
  • That demanding additional payments on account of External Development Charges/Infrastructure Development Charges etc. on the increased super area of 2630 sq. ft. also amounted to abuse of dominant position as the buyers were taken by surprise and they had no option but to succumb to the pressures of the Opposite Party.

Eventually, COMPAT order also held such unilateral increase to be abusive as the only option left with the apartment buyers in such cases is to exit which is a costly option.

Delay in delivery of possession of Flats Today majority of home buyers are aggrieved by the delay confronted in timely delivery of projects. This inexplicable delay in delivery of housing projects cripples the sole purpose of investing in real estate and converts an asset into liability. However, the good news is that this oppression of delay in delivery of possession by the builders have often been objurgated by the Judiciary.

Some cases which highlight the injustice meted out to homebuyers and consequent observations by the Judicial and Quasi-judicial authorities have been enumerated below:

Brig. (Retd.) Kamal Sood vs M/S. DLF Universal Ltd. (causing delay due to delay in governmental permissions, such as, approval of zoning plan, layout plan and schematic building plan)- This case raised some interesting issues before the National Consumer Dispute Redressal Commission (NCDRC), for instance:

  1. Can a builder give alluring advertisement promising delivery of possession of the constructed flat to the consumer within the stipulated time, and, subsequently, on his failure, turnaround and contend that as governmental permissions, such as, approval of zoning plan, layout plan and schematic building plan, were not given, the delay in construction should not be the ground for grant of compensation to the consumer?
  2. Secondly, whether the consumer should suffer by paying escalation cost due to such delay?

The NCDRC observed that the aforesaid practices were unfair trade practice on the part of the builder to collect money from the prospective buyers without obtaining the required permissions such as zoning plan, layout plan and schematic building plan.

NCDRC stated that it was the duty of the builder to obtain the requisite permissions or sanctions such as sanction for construction, etc., in the first instance, and, thereafter, recover the consideration money from the purchaser of the flat/buildings.

Secondly, in such a case, if there is any express promise that the premises would be delivered within the stipulated time, and, if not done so, escalation cost is required to be borne by the builder.

A similar view was taken by the Commission in 2015 in the case of Shri Yogesh Sharma & Anr., vs M/S Unitech Limited[3].The NCDRC in the case observed that the builder ought not to have accepted money and entered into agreement with the buyers without approval of the building plans by GNIDA (Greater Noida Development Authority). If the opposite party chose to accept money from the flat buyers and enter into agreements, undertaking to give possession within a particular time frame, without having possession of the land and without approval of the building plans, it is only itself to blame for a situation in which the construction got delayed on account of the delay in approval of building plans and physical delivery of the land to it on the spot. 

Delay in delivery of possession of flat caused due to force majeure clause

Typically, all development agreements comprise of force majeure clause and state that in the of any force majeure circumstance the builder won’t be liable for the delay cause in delivery of possession of flat.

What does force majeure mean?

Force majeure refers to any event or combination of events which materially and adversely affect the performance of obligations of either party to a contract and is not within the reasonable control of the affected party.

The Supreme Court in the case of Smt Chand Rani v. Smt Kalam Rani, elucidated on the concept of “force majeure”. The expression “force majeure” is not a mere French version. It is undoubtedly a term of wider import. Difficulties have arisen in the past as to what could legitimately be included in “force majeure”. Judges have agreed that strikes, breakdown of machinery, which, though normally not included in “vis major” are included in “force majeure”. An analysis of rulings on the subject into which it is not necessary in this case to go, shows that where reference is made to “force majeure”, the intention is to save the performing party from the consequences of anything over which he has no control. This is the widest meaning that can be given to “force majeure”, and even if this be the meaning, it is obvious that the condition about “force majeure” in the agreement was not vague. The use of the word “usual” makes all the difference, and the meaning of the condition may be made certain by evidence about a force majeure clause, which was in contemplation of parties.

Vishal Arya v. Unitech Limited[5]– In this case, the Complainant was aggrieved by the inordinate delay caused in completion and possession of his flat booked with Unitech. The Complainant in the case had deposited the entire amount of flat with Unitech and according to the Agreement the possession of flat was assured by March, 2009. However, the construction of flat had not yet even started. Aggrieved by this, the Complainant prayed either for immediate delivery of flat or refund of the entire amount alongwith interest and litigation charges. In reply, Unitech contended that the delay was caused by force majeure circumstances which was beyond its control.

In the case, Commission was of the view that there was a sheer deficiency in the services of Unitech and they were only enjoying the fruits of deposited amount and on account of mental agony suffered by the buyers, the Commission directed Unitech to refund the entire amount alongwith interest @10% p.a. and also to pay Rs. 2.50 lac as compensation to the Complainant for mental agony.

Suman Nandi & Anr. Vs. Unitech Limited & Anr.[6]– In this case, the builder took the defence of shortage of labour etc. due to common wealth games in 2010 for delay in delivery of project. The NCDRC while rejecting the builder’s response observed that the plea was not acceptable for the reason that Buyer’s Agreement were of the year 2006 to 2010 and if the opposite parties intended to comply with the terms of agreement, they would have raised substantial construction before common wealth games. NCRDC further remarked that till date, the possession of the apartments had not been handed over to the complainants which clearly indicated the deliberate delay and negligence on the part of the builder and the builder could not be permitted to hide behind a bogus plea of force majeure or exceptions provided in clause 9.b of the Buyer’s Agreement.

Compensation payable on account of delay in delivery of possessionIn Ghaziabad Development Authority v. Balbir Singh[7], the Supreme Court enunciated the aspect of paying compensation and quantum of compensation in the event of delay in delivery of possession of flat/apartment.

The Court stated that “However, the power to and duty to award compensation does not mean that irrespective of facts of the case compensation can be awarded in all matters at a uniform rate of 18% per annum. As seen above what is being awarded is compensation i.e. a recompense for the loss or injury. It therefore necessarily has to be based on a finding of loss or injury and has to correlate with the amount of loss or injury. Thus the Forum or the Commission must determine that there has been deficiency in service and/or misfeasance in public of ice which has resulted in loss or injury. No hard and fast rule can be laid down, however a few examples would be where an allotment is made, price is received/paid but possession is not given within the period set out in the brochure… …Along with recompensing the loss the Commission/Forum may also compensate for harassment/injury both mental and physical.

The aspect of awarding compensation was extensively dealt with by the NCDRC in the Yogesh Sharma case (supra), wherein the Commission observed that no sensible person will volunteer to accept compensation constituting about 2-3% of his investment in case of delay on the part of the contractor, when he is made to pay 18% compound interest if there is delay on his part in making payment.

Such a practice, constituted unfair trade practice within the meaning of Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practice for the purpose of selling the product of the builder.

In the case of Satish Kumar Pandey & Anr. v. Unitech Ltd., [8] condemned the practice of builder charging compound interest @ 18% per annum in the event of the delay on the part of the buyer in making payment to him but seeks to pay less than 3% per annum of the capital investment, in case he does not honour his part of the contract by defaulting in giving timely possession of the flat to the buyer. Such a practice, in my view, constitutes unfair trade practice within the meaning of Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practice for the purpose of selling the product of the builder.

Also read Property Dispute – Builder not giving me refund against cancellation

Disadvantages due to delay in delivery of possession of flat

Bhattacharjee vs Delhi Development Authority[9]In this case, the Delhi High Court shed light on the disadvantages of delay in delivery of possession- The Court stated that by delay in delivery of possession, the-interest on investment made in the flats, supervision charges, watch and ward expenses, administrative overheads go on mounting up. The land cost also keeps on increasing in view of the inflationary tendencies. If possession is not taken over by the allottees then the cost price escalates and at the same time the flats lying ready depreciate and deteriorate by natural factors. If they are occupied, then they are maintained by the’ occupants and otherwise inevitable wear and tear for want of maintenance is avoided.

Alterations in the project Alterations in the project post execution of agreement has also been an alarming concern among homebuyers. Many a times, builders under the discretionary clause make alterations in the approved project. For instance, in the case of Pankaj Agarwal & Anr. v. DLF Gurgaon Home Developers, the builder had raised floors without any intimation to the home buyers. On complaint of the alleged act, CCI was of the view that the builder held a position of dominance in the relevant market of services and made a stern advisory remark that it was the duty of DLF Developers to disclose that it proposed to increase the number of floors and apartments, so that the allottees could have taken valid objections to it.

In the last few years, there has been an enormous upsurge in the real estate sector and buildings are mushrooming in every nook and cranny of metropolitan cities in India. Owing to this extensive growth of the sector and consumers’ willingness to invest in real estate, the builders have occupied a position of dominance and the formation of standard form contracts or one-sided agreements has further worsened the situation. However, the formulation of Real Estate (Regulation and Development) Act, 2016 and the recent judicial scrutiny of the alleged unfair practices carried on by builders has been exemplary. Hence, the position of home buyers have strengthened and an aggrieved buyer can seek redressal of his complaints under the Real Estate Act as well as under the law as interpreted by the Judiciary.

Also read Sample Questions – Real Estate

 

 

[1] Case No. 19/2010

[2] Case No. 13 of 2010

[3] Consumer Case No. 267 OF 2014

[4] (1993) 1 SCC

[5] Complaint No. 9/322

[6] CC No.277/2013

[7] (2004) 5 SCC 65

[8] CC No.427 of 2014

[9] 63 (1996) DLT 467

About the Author

Shilpi Sharan

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Shilpi Sharan is the Editor at Vakilno1.com – an Advocate with extensive knowledge in myriad fields of Law. She has a flair of writing and has legal publications in national and international law magazines to her credit. She focuses on legal research and aims at raising public awareness of laws in India.