Continuing Deficiency in Service: Supreme Court rules on Limitation in Consumer Disputes: Samruddhi Co-operative Housing Society vs. Mumbai Mahalaxmi Construction (2022)

Date of the Judgment: 11 January 2022

Citation: 2022 INSC 33

Judges: Dr Dhananjaya Y Chandrachud, J and AS Bopanna, J

Can a builder’s failure to obtain an occupancy certificate be considered a continuous wrong, allowing a consumer to file a complaint even after the standard limitation period? The Supreme Court of India recently addressed this critical question in a case involving a housing society and a construction company. The core issue was whether the ongoing failure to obtain an occupancy certificate constitutes a ‘continuing wrong,’ thereby extending the limitation period for filing a consumer complaint and whether the housing society can claim compensation for the higher taxes and charges paid due to the lack of an occupancy certificate.

Case Background

The appellant, Samruddhi Co-operative Housing Society Ltd., is a cooperative housing society whose members purchased flats in Wings ‘A’ and ‘B’ constructed by the respondent, Mumbai Mahalaxmi Construction Pvt. Ltd. The members booked their flats in 1993 and received possession in 1997. However, the respondent failed to obtain the occupancy certificate from the municipal authorities. Due to the absence of this certificate, the flat owners faced difficulties in obtaining permanent water and electricity connections and were charged higher property taxes and water charges.

The housing society had to make arrangements for temporary water and electricity connections. This resulted in the members of the society paying 25% higher property tax and 50% higher water charges. The society sought relief from the State Consumer Disputes Redressal Commission (SCDRC) in 1998, which directed the builder to obtain the occupancy certificate in 2014. The builder also offered a one-time settlement, which the society rejected as it was lower than the amount owed. Subsequently, the society filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking reimbursement of the excess charges, which was dismissed on the grounds of limitation and maintainability.

Timeline:

Course of Proceedings

Initially, the appellant filed a consumer complaint before the State Consumer Disputes Redressal Commission (SCDRC) in 1998, seeking a direction to the respondent to obtain the occupancy certificate. The SCDRC ruled in favor of the appellant in 2014, directing the respondent to obtain the occupancy certificate within four months and also directed the respondent to pay Rs. 1,00,000 towards reimbursement of extra water charges. Subsequently, the appellant filed another complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking reimbursement of excess charges paid due to the lack of an occupancy certificate. The NCDRC dismissed the complaint, stating it was barred by limitation and not maintainable under the Consumer Protection Act, 1986. The NCDRC reasoned that the cause of action arose when the municipal authorities first demanded higher charges, and the complaint should have been filed within two years of that date.

Legal Framework

The case primarily revolves around the interpretation of the following legal provisions:

• Section 24A of the Consumer Protection Act 1986: This section specifies that a consumer complaint must be filed within two years from the date on which the cause of action arises.

• Section 22 of the Limitation Act 1963: This section deals with continuing breaches of contract or torts, stating that a fresh period of limitation begins at every moment during which the breach continues.

  The provision states: “In the case of a continuing breach of contract or in the case of a continuing tort, a fresh period of limitation begins to run at every moment of the time during which the breach or the tort, as the case may be, continues.”

• Section 3 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (MOFA): Imposes general obligations on a promoter, including making disclosures on the nature of title to the land, encumbrances on the land, fixtures, fittings and amenities to be provided, and not to grant possession of a flat until a completion certificate is given by the local authority.

• Section 6 of the MOFA: Makes the promoter responsible for payments of outgoings until the property is transferred.

  The provision states: “A promoter shall, while he is in possession and where he collects from persons who have taken over flats or are to take over flats sums for the payment of outgoings even thereafter, pay all outgoings (including ground rent, municipal or other local taxes, on income taxes, water charges, electricity charges, revenue assessment, interest on any mortgage or other encumbrances, if any), until he transfers the property to the persons taking over the flats, or to the organisation of any such persons, [where any promoter fails to pay all or any of the outgoings collected by him from the persons who have taken over flats or are to take over flats, before transferring the property to the persons taking over the flats or to the organisation of any such persons, the promoter shall continue to be liable, even after the transfer of the property, to pay such outgoings and penal charges (if any) to the authority or person to whom they are payable and to be responsible for any legal proceedings which may be taken therefor by such authority or persons .]”

• Section 12 of the MOFA: Provides that it is the liability of the flat purchasers to pay municipal taxes and water and electricity charges.

• Section 2(1)(d) of the Consumer Protection Act 1986: Defines a ‘consumer’ as a person that avails of any service for a consideration.

• Section 2(1)(g) of the Consumer Protection Act 1986: Defines ‘deficiency’ as the shortcoming or inadequacy in the quality of service that is required to be maintained by law.

Arguments

The appellant, represented by Mr. Sunil Fernandes, argued that:

• There is a continuing cause of action because the respondent failed to provide the occupancy certificate.
• Due to the lack of an occupancy certificate, the members of the appellant had to pay 25% higher property tax and 50% higher water charges.
• Under Section 6 of the MOFA, the builder is obligated to provide the occupancy certificate.
• The respondent had offered a one-time settlement of Rs. 1 crore towards the extra charges incurred by the appellant.
• The offer of settlement was not related to the complaint before the SCDRC.
• The increased charges are levied annually and continue due to the respondent’s failure.
• The respondent has not obtained the occupancy certificate even after twenty-four years.
• The respondent has failed to comply with the order of the SCDRC dated 20 August 2014.
• Due to the deficiency in service, the appellant is a consumer under the Consumer Protection Act 1986.

The respondent, represented by Mr. Atul Babasaheb Dakh, contended that:

• The respondent applied for an occupancy certificate in 1997 but did not offer possession to the flat purchasers.
• The members of the appellant society took possession of the flats to refurbish the interiors, and they made arrangements for water and electricity by paying additional charges.
• The members of the appellant made unauthorized constructions, which delayed the occupancy certificate.
• The one-time settlement proposal did not pertain to the additional property tax and water charges.
• The appellant had raised the issue of excessive water charges in the 1998 complaint, and the SCDRC had directed payment of Rs. 1,00,000 to them.
• The complaint is barred by limitation as the cause of action arose in 1997, and the complaint was filed 18 years later.
• The appellant’s failure to incorporate their present grievances in the prior complaint before the SCDRC indicates relinquishment of their grievances.
• Under Section 6 of the MOFA, the builder is entitled to pay all outgoing charges until the grant of possession.
• Section 12 of the MOFA provides that it is the liability of the flat purchasers to pay municipal taxes and water and electricity charges.
• The respondent is not a service provider of water supply and has not received any payment for water and property tax.
• There is no privity of contract between the parties for payment of extra charges in the absence of an occupancy certificate.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the complaint filed by the appellant was barred by limitation.
2. Whether the appellant is a ‘consumer’ under the Consumer Protection Act 1986.

Treatment of the Issue by the Court:

Authorities

The Court considered the following authorities:

On the issue of continuing wrong:

• Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, AIR 1959 SC 798, Supreme Court of India: The Court distinguished between a continuing right and a continuing wrong, emphasizing that a continuing wrong involves an act that creates a continuous source of injury.
• CWT v. Suresh Seth, (1981) 2 SCC 790, Supreme Court of India: The Court discussed that a continuing wrong makes the wrongdoer continuously liable for penalty and that a completed wrong whose effect continues is not a continuing wrong.
• M. Siddiq v. Suresh Das, (2020) 1 SCC 1, Supreme Court of India: The Court elaborated on the principle of continuing wrong, emphasizing that it arises from a breach of a continuing obligation.

On the issue of deficiency in service:

• Wing Commander Arifur Rahman Khan & Others v. DLF Southern Homes Private Limited & Others, (2020) 16 SCC 512, Supreme Court of India: The Court held that the failure to obtain an occupancy certificate amounts to a deficiency in service.
• Pioneer Urban Land Infrastructure Limited v. Govindan Raghavan, (2019) 5 SCC 725, Supreme Court of India: The Court held that the failure to abide by contractual obligations amounts to a deficiency in service.
• Treaty Construction v. Ruby Tower Cooperative Housing Society Ltd., (2019) 8 SCC 157, Supreme Court of India: The Court considered the question of awarding compensation for not obtaining the certificate and declined to award damages in that case due to lack of a cogent basis for holding the appellant liable for compensation.

Legal Provisions:

• Section 24A of the Consumer Protection Act 1986: Period of limitation for lodging a complaint.
• Section 22 of the Limitation Act 1963: Computation of limitation in case of a continuing breach of contract or tort.
• Section 3 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (MOFA): General obligations on a promoter.
• Section 6 of the MOFA: Promoter’s responsibility for payments of outgoings.
• Section 12 of the MOFA: Liability of flat purchasers to pay municipal taxes.
• Section 2(1)(d) of the Consumer Protection Act 1986: Definition of ‘consumer’.
• Section 2(1)(g) of the Consumer Protection Act 1986: Definition of ‘deficiency’.

Judgment

How each authority was viewed by the Court?

• Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan [AIR 1959 SC 798]*: The Court used this case to distinguish between a continuing right and a continuing wrong, emphasizing that a continuing wrong involves a continuous source of injury.
• CWT v. Suresh Seth [(1981) 2 SCC 790]*: The Court relied on this case to explain that a continuing wrong makes the wrongdoer continuously liable for penalty, distinguishing it from a completed wrong with continuing effects.
• M. Siddiq v. Suresh Das [(2020) 1 SCC 1]*: The Court used this case to elaborate on the principle of a continuing wrong, emphasizing that it arises from a breach of a continuing obligation.
• Wing Commander Arifur Rahman Khan & Others v. DLF Southern Homes Private Limited & Others [(2020) 16 SCC 512]*: The Court followed this precedent to hold that the failure to obtain an occupancy certificate amounts to a deficiency in service.
• Pioneer Urban Land Infrastructure Limited v. Govindan Raghavan [(2019) 5 SCC 725]*: The Court relied on this case to state that the failure to abide by contractual obligations amounts to a deficiency in service.
• Treaty Construction v. Ruby Tower Cooperative Housing Society Ltd. [(2019) 8 SCC 157]*: The Court considered this case regarding compensation for not obtaining the certificate but distinguished it, noting that in the present case, there is a clear deficiency in service.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Continuing Nature of Wrong: The court emphasized that the failure to obtain an occupancy certificate is not a one-time event but a continuous breach of obligation. This continuous breach leads to ongoing financial harm for the members of the housing society.
• Obligation of the Builder: The court highlighted the legal obligation of the builder under MOFA to obtain the occupancy certificate and ensure that all outgoings are paid until the property is transferred.
• Impact on Consumers: The court recognized the hardship faced by the members of the housing society due to increased taxes and charges, directly resulting from the builder’s failure.
• Deficiency in Service: The court reiterated that the failure to obtain the occupancy certificate constitutes a deficiency in service, making the housing society a ‘consumer’ under the Consumer Protection Act.
• Welfare Objective of Consumer Protection Act: The court emphasized the need to interpret the Consumer Protection Act in a way that protects consumers from exploitation and ensures that they are compensated for the harm caused by service providers.

The court’s reasoning was a blend of factual considerations and legal principles. The factual aspects included the continuous failure of the builder to obtain the occupancy certificate and the resulting financial burden on the flat owners. The legal considerations involved the interpretation of the Consumer Protection Act, the Limitation Act, and the Maharashtra Ownership Flats Act. The court’s analysis was also influenced by the precedents on continuing wrongs and deficiencies in service.

The Court considered the argument that the cause of action arose when the municipal authorities first demanded higher charges but rejected it, stating that the continuing wrong is the failure to obtain the occupancy certificate. The court also rejected the argument that the complaint was not maintainable because the appellant was seeking recovery of higher charges, emphasizing that the appellant was seeking compensation for the deficiency in service.

The Supreme Court’s decision was unanimous, with both judges concurring on the judgment.

The court quoted the following from the judgment:

• “It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of theact. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue.”
• “A continuing wrong is thus distinguished from a single or completed wrong which causes damage, the effects of which continue. It is the very nature of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury.”
• “The failure of the respondent to obtain the occupancy certificate is a continuing wrong and the cause of action continues to subsist. The cause of action in such a case would continue until the wrong is remedied.”

Conclusion

The Supreme Court’s judgment in Samruddhi Co-operative Housing Society Ltd. vs. Mumbai Mahalaxmi Construction Pvt. Ltd. is a significant ruling that clarifies the concept of a continuing wrong in consumer disputes. The Court held that a builder’s failure to obtain an occupancy certificate is a continuing wrong, extending the limitation period for filing a consumer complaint. This decision protects consumers from ongoing financial harm due to a builder’s negligence.

Key Takeaways:

• Continuing Wrong: The failure to obtain an occupancy certificate is a continuing wrong, not a single event.
• Extended Limitation: The limitation period for filing a consumer complaint is extended due to the continuing nature of the wrong.
• Consumer Status: Flat purchasers are consumers when availing of services from builders, and the failure to obtain an occupancy certificate is a deficiency in service.
• Builder’s Obligation: Builders are obligated to obtain occupancy certificates and ensure that all outgoings are paid until the property is transferred.

Implications:

• Consumer Protection: The judgment strengthens consumer protection by allowing them to seek redressal for ongoing deficiencies in service.
• Builder Accountability: Builders are now more accountable for obtaining necessary certificates and fulfilling their obligations.
• Clarity on Limitation: The ruling provides clarity on the application of limitation periods in cases of continuing wrongs, particularly in the context of consumer disputes.
• Precedent Setting: This judgment sets a precedent for similar cases, ensuring that consumers are not deprived of their right to seek redressal due to technicalities of limitation.

This judgment underscores the importance of builders fulfilling their obligations and ensures that consumers have a legal recourse for ongoing deficiencies in service. It emphasizes that the law must protect consumers from exploitation and ensure that they receive the services they are entitled to, and that the Consumer Protection Act must be interpreted in a way that promotes these objectives.