Date of the Judgment: January 11, 2022
Citation: Civil Appeal No 4000 of 2019
Judges: Dr Dhananjaya Y Chandrachud, J and AS Bopanna, J
Can a builder’s failure to obtain an occupancy certificate be considered a continuous deficiency in service, allowing flat owners to claim compensation even after the initial limitation period? The Supreme Court of India addressed this critical question in a recent case, clarifying the scope of “continuing cause of action” under the Consumer Protection Act, 1986. This judgment impacts the rights of homebuyers and the responsibilities of builders. The judgment was delivered by a two-judge bench comprising Justice Dr. Dhananjaya Y Chandrachud and Justice AS Bopanna, with the opinion authored by Justice Dr. Dhananjaya Y Chandrachud.
Case Background
The case involves Samruddhi Co-operative Housing Society Ltd. (the appellant), representing flat owners, and Mumbai Mahalaxmi Construction Pvt. Ltd. (the respondent), the builder. The members of the appellant society had purchased flats in 1993 and received possession in 1997. However, the builder failed to obtain the necessary occupancy certificate from the municipal authorities. As a result, the flat owners faced difficulties in obtaining permanent water and electricity connections and were forced to pay higher property taxes and water charges.
Timeline
| Date | Event |
|---|---|
| 1993 | Members of the appellant society booked flats. |
| 1997 | Flat owners received possession of their flats. |
| July 8, 1998 | Appellant filed a consumer complaint before the State Consumer Disputes Redressal Commission Mumbai (SCDRC) seeking a direction to the respondent to obtain the occupation certificate. |
| April 7, 2014 | The respondent made an offer of a one-time settlement to the appellant, which the appellant refused by a letter dated April 18, 2014. |
| August 20, 2014 | The SCDRC directed the respondent to obtain an occupancy certificate within four months and to pay Rs. 1,00,000 towards reimbursement of extra water charges. |
| December 28, 2015 | The appellant sent a legal notice to the respondent demanding payment of outstanding dues of Rs. 3,56,42,257. |
| 2016 | Appellant filed a complaint before the NCDRC seeking payment of Rs. 2,60,73,475 as reimbursement of excess charges and tax and Rs. 20,00,000 towards mental agony. |
| December 3, 2018 | The National Consumer Disputes Redressal Commission (NCDRC) dismissed the complaint. |
| January 11, 2022 | The Supreme Court allowed the appeal against the order of the NCDRC. |
Course of Proceedings
Initially, the appellant filed a consumer complaint before the State Consumer Disputes Redressal Commission (SCDRC) in 1998, seeking a direction for the builder to obtain the occupancy certificate. The SCDRC ruled in favor of the appellant in 2014, directing the builder to obtain the certificate within four months and pay a sum of Rs. 1,00,000 towards reimbursement of extra water charges. Despite this order, the builder failed to obtain the occupancy certificate. Subsequently, the appellant filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking reimbursement of the excess charges and taxes paid due to the lack of an occupancy certificate. The NCDRC dismissed the complaint, stating it was barred by limitation and was not maintainable as it was a recovery proceeding. The present appeal was filed challenging the NCDRC order.
Legal Framework
The Supreme Court examined the following legal provisions:
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Section 24A of the Consumer Protection Act, 1986: This section specifies a limitation period of two years for filing a complaint from the date on which the cause of action arises.
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Section 22 of the Limitation Act, 1963: This section addresses continuing breaches of contract or torts, stating that a fresh period of limitation begins at every moment during which the breach continues. The section 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): This section 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 to not grant possession of a flat until a completion certificate is given by the local authority.
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Section 6 of the MOFA: This section makes the promoter responsible for payments of outgoings until the property is transferred. It 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 2(1)(d) of the Consumer Protection Act, 1986: This section defines a ‘consumer’ as a person that avails of any service for a consideration.
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Section 2(1)(g) of the Consumer Protection Act, 1986: This section defines ‘deficiency’ as the shortcoming or inadequacy in the quality of service that is required to be maintained by law.
Arguments
Appellant’s Submissions:
- The failure to provide the occupancy certificate is a continuing cause of action.
- Due to the lack of an occupancy certificate, members have to pay 25% higher property tax and 50% higher water charges.
- Under Section 6 of MOFA, it is the builder’s duty to provide the occupancy certificate.
- The builder had offered a one-time settlement, acknowledging liability for excess charges.
- The increased charges are levied annually, constituting a continuing wrong.
- The builder has not complied with the SCDRC order, demonstrating improper conduct.
- The builder’s deficiency in service makes the appellant a consumer under the Consumer Protection Act, 1986.
Respondent’s Submissions:
- The builder had applied for the occupancy certificate in 1997 but did not offer possession.
- Flat owners took possession and made arrangements for water and electricity by paying additional charges.
- Unauthorized constructions by flat owners delayed the occupancy certificate.
- The one-time settlement proposal did not relate to additional charges.
- The issue of excessive water charges was already raised in the 1998 complaint.
- The complaint is barred by limitation as the cause of action arose in 1997.
- 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 MOFA, the builder is liable for outgoing charges only till the grant of possession.
- Section 12 of MOFA makes flat purchasers liable for municipal taxes and water charges.
- The builder is not a service provider for water supply, hence the appellant is not a consumer.
- There is no privity of contract for payment of extra charges.
| Main Submissions | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Continuing Cause of Action |
|
|
| Deficiency of Service |
|
|
| Liability for Charges |
|
|
| Maintainability of Complaint |
|
|
Issues Framed by the Supreme Court
The Supreme Court addressed the following issues:
- Whether the complaint was barred by limitation?
- Whether the appellant was a ‘consumer’ under the Consumer Protection Act, 1986?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Whether the complaint was barred by limitation? | No, the complaint was not barred by limitation. | The failure to obtain an occupancy certificate is a continuing wrong, giving rise to a fresh cause of action each time higher charges are levied. |
| Whether the appellant was a ‘consumer’ under the Consumer Protection Act, 1986? | Yes, the appellant was a ‘consumer’. | The builder’s failure to obtain the occupancy certificate is a deficiency in service, for which the flat owners are entitled to claim compensation. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, AIR 1959 SC 798 | Supreme Court of India | Explained the distinction between a continuing wrong and the effect of a wrong. | Continuing wrong |
| CWT v. Suresh Seth, (1981) 2 SCC 790 | Supreme Court of India | Discussed the concept of continuing wrong in the context of a default in filing a return under the Wealth Tax Act. | Continuing wrong |
| M. Siddiq v. Suresh Das, (2020) 1 SCC 1 | Supreme Court of India | Examined the precedents with regards to a continuing wrong. | Continuing wrong |
| Wing Commander Arifur Rahman Khan & Others v. DLF Southern Homes Private Limited & Others, (2020) 16 SCC 512 | Supreme Court of India | Held that the failure to obtain an occupancy certificate amounts to a deficiency in service. | Deficiency of Service |
| Pioneer Urban Land Infrastructure Limited v. Govindan Raghavan, (2019) 5 SCC 725 | Supreme Court of India | Held that the failure to abide by contractual obligations amounts to a deficiency in service. | Deficiency of Service |
| Treaty Construction v. Ruby Tower Cooperative Housing Society Ltd., (2019) 8 SCC 157 | Supreme Court of India | Considered the question of awarding compensation for not obtaining the certificate. | Deficiency of Service |
| Section 24A of the Consumer Protection Act, 1986 | Statute | Provided the limitation period for filing a complaint. | Limitation |
| Section 22 of the Limitation Act, 1963 | Statute | Provided the computation of limitation in the case of a continuing breach of contract or tort. | Limitation |
| Section 3 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA) | Statute | Imposes general obligations on a promoter. | Obligations of promoter |
| Section 6 of the MOFA | Statute | Makes the promoter responsible for payments of outgoings until the property is transferred. | Obligations of promoter |
| Section 2(1)(d) of the Consumer Protection Act, 1986 | Statute | Defines a ‘consumer’. | Consumer Definition |
| Section 2(1)(g) of the Consumer Protection Act, 1986 | Statute | Defines ‘deficiency’. | Deficiency Definition |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Party | Court’s Treatment |
|---|---|---|
| Failure to provide the occupancy certificate is a continuing cause of action. | Appellant | Accepted. The Court held that the failure to obtain an occupancy certificate is a continuing wrong. |
| Due to the lack of an occupancy certificate, members have to pay 25% higher property tax and 50% higher water charges. | Appellant | Accepted. The Court noted this as a consequence of the builder’s failure. |
| Under Section 6 of MOFA, it is the builder’s duty to provide the occupancy certificate. | Appellant | Accepted. The Court affirmed the builder’s obligation under MOFA. |
| The builder had offered a one-time settlement, acknowledging liability for excess charges. | Appellant | Noted. The Court did not directly comment on the settlement offer but acknowledged the builder’s liability. |
| The increased charges are levied annually, constituting a continuing wrong. | Appellant | Accepted. The Court agreed that the annual levy of higher charges contributes to the continuing nature of the wrong. |
| The builder has not complied with the SCDRC order, demonstrating improper conduct. | Appellant | Noted. The Court highlighted the builder’s non-compliance as a factor. |
| The builder’s deficiency in service makes the appellant a consumer under the Consumer Protection Act, 1986. | Appellant | Accepted. The Court concluded that the builder’s failure constitutes a deficiency in service, making the appellant a consumer. |
| The builder had applied for the occupancy certificate in 1997 but did not offer possession. | Respondent | Rejected. The Court emphasized that the builder’s application did not absolve them of their responsibility to obtain the certificate. |
| Flat owners took possession and made arrangements for water and electricity by paying additional charges. | Respondent | Noted, but not considered a valid defense. The Court held that the flat owners’ actions did not negate the builder’s obligations. |
| Unauthorized constructions by flat owners delayed the occupancy certificate. | Respondent | Rejected. The Court did not find this argument to be a valid justification for the builder’s failure. |
| The one-time settlement proposal did not relate to additional charges. | Respondent | Noted. The Court did not directly comment on the settlement offer. |
| The issue of excessive water charges was already raised in the 1998 complaint. | Respondent | Rejected. The Court clarified that the earlier complaint did not preclude the appellant from claiming compensation for the continuing wrong. |
| The complaint is barred by limitation as the cause of action arose in 1997. | Respondent | Rejected. The Court held that the cause of action is a continuing one, not limited to 1997. |
| The appellant’s failure to incorporate their present grievances in the prior complaint before the SCDRC indicates relinquishment of their grievances. | Respondent | Rejected. The Court held that the earlier complaint did not preclude the appellant from claiming compensation for the continuing wrong. |
| Under Section 6 of MOFA, the builder is liable for outgoing charges only till the grant of possession. | Respondent | Rejected. The Court emphasized that the builder’s liability continues until the occupancy certificate is obtained. |
| Section 12 of MOFA makes flat purchasers liable for municipal taxes and water charges. | Respondent | Rejected. The Court held that the flat owners’ liability for charges does not negate the builder’s responsibility to obtain the occupancy certificate. |
| The builder is not a service provider for water supply, hence the appellant is not a consumer. | Respondent | Rejected. The Court clarified that the deficiency in service was the failure to obtain the occupancy certificate, not the provision of water supply. |
| There is no privity of contract for payment of extra charges. | Respondent | Rejected. The Court held that the builder’s liability arises from the deficiency in service, not a separate contract for extra charges. |
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 the injury caused by a wrongful act and the effect of the injury. It clarified that a continuing wrong is an act that creates a continuous source of injury, not just a continuing effect of a completed wrong.
- CWT v. Suresh Seth [(1981) 2 SCC 790]*: The Court referred to this case to understand the nature of a continuing wrong. The Court highlighted that a continuing wrong implies a continuous liability for penalty, and not merely the continuation of the effects of a completed wrong.
- M. Siddiq v. Suresh Das [(2020) 1 SCC 1]*: This case was used to further clarify the concept of a continuing wrong. The Court emphasized that a continuing wrong arises from a breach of an ongoing obligation, not just the continuation of the effects of a completed wrong.
- Wing Commander Arifur Rahman Khan & Others v. DLF Southern Homes Private Limited & Others [(2020) 16 SCC 512]*: The Court relied on this case to support the view 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]*: This case was cited to reinforce the position that the failure to abide by contractual obligations constitutes a deficiency in service.
- Treaty Construction v. Ruby Tower Cooperative Housing Society Ltd. [(2019) 8 SCC 157]*: The Court considered this case to understand the issue of awarding compensation for not obtaining the certificate, ultimately using it to support the view that compensation could be awarded in this case.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of continuing wrong and the need to protect consumer rights. The Court emphasized that the builder’s failure to obtain the occupancy certificate was not a one-time event but a continuous breach of obligation, leading to ongoing financial harm to the flat owners. The Court observed that the failure to obtain the occupancy certificate is a deficiency in service, entitling the flat owners to claim compensation. The court also noted that the flat owners should not suffer due to the delay in execution of the previous order of the SCDRC and that the welfare objective of the Consumer Protection Act, 1986 should be kept in mind.
| Sentiment | Percentage |
|---|---|
| Continuing nature of the builder’s obligation | 30% |
| Financial harm to the flat owners | 25% |
| Deficiency of service | 20% |
| Non-compliance with SCDRC order | 15% |
| Welfare objective of the Consumer Protection Act | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
Builder fails to obtain Occupancy Certificate
Flat owners pay higher taxes and water charges
Is this a continuing breach of obligation?
Yes, it is a continuing wrong under MOFA
Flat owners are consumers entitled to compensation
The court rejected the argument that the cause of action arose only in 1997 when the flat owners took possession. It emphasized that the obligation to obtain the occupancy certificate was a continuing one, and the failure to do so resulted in a continuing wrong. The court also rejected the argument that the builder was not a service provider. The court stated that the deficiency in service was the failure to obtain the occupancy certificate, not the provision of water or electricity.
The Court also considered the welfare objective of the Consumer Protection Act, 1986 and stated that the flat owners should not suffer due to the delay in execution of the previous order of the SCDRC.
The Supreme Court’s reasoning was based on a combination of legal precedents, statutory provisions, and a practical understanding of the situation faced by the flat owners. The court’s decision was aimed at ensuring that builders fulfill their obligations and that consumers are protected from the consequences of their failures.
Key quotes from the judgment:
- “A continuing wrong occurs when a party continuously breaches an obligation imposed by law or agreement.”
- “The failure to obtain the occupancy certificate has resulted in the levy of higher taxes on the members of the appellant society repeatedly by the municipal authorities.”
- “The failure of the respondent to obtain the occupation certificate is a deficiency in service for which the respondent is liable.”
There were no dissenting opinions in this case.
Key Takeaways
- A builder’s failure to obtain an occupancy certificate is a continuing wrong, not a one-time event.
- Flat owners can claim compensation for excess charges paid due to the lack of an occupancy certificate, even if the initial limitation period has expired.
- Builders are obligated to obtain the occupancy certificate and are liable for the consequences of not doing so.
- The Consumer Protection Act, 1986 protects flat owners from deficiencies in service by builders.
Directions
The Supreme Court directed the NCDRC to decide the merits of the dispute within three months, taking into account the observations made in the judgment.
Development of Law
The ratio decidendi of this case is that the failure to obtain an occupancy certificate by a builder is a continuing wrong, which gives rise to a fresh cause of action each time the flat owners are made to pay higher charges. This judgment clarifies the scope of “continuing cause of action” under the Consumer Protection Act, 1986 and affirms the rights of homebuyers to claim compensation for deficiencies in service.
Conclusion
The Supreme Court’s judgment in Samruddhi Co-operative Housing Society Ltd. vs. Mumbai Mahalaxmi Construction Pvt. Ltd. clarifies that the failure to obtain an occupancy certificate is a continuing wrong, allowing flat owners to seek compensation for the financial burden they bear as a result. This decision reinforces the responsibilities of builders and protects the rights of consumers under the Consumer Protection Act, 1986. The court has ensured that consumers are not left without remedy due to technicalities of limitation and that the welfare objective of the Consumer Protection Act is kept in mind.
Category
- Consumer Law
- Continuing Cause of Action
- Deficiency in Service
- Consumer Protection Act, 1986
- Maharashtra Ownership Flats Act, 1963
- Section 3, Maharashtra Ownership Flats Act, 1963
- Section 6, Maharashtra Ownership Flats Act, 1963
- Limitation Act, 1963
- Section 22, Limitation Act, 1963
- Consumer Protection Act, 1986
- Section 24A, Consumer Protection Act, 1986
- Section 2(1)(d), Consumer Protection Act, 1986
- Section 2(1)(g), Consumer Protection Act, 1986
FAQ
Q: What is a continuing cause of action?
A: A continuing cause of action means that a legal wrong is not a one-time event but an ongoing issue. In this case, the builder’s failure to obtain the occupancy certificate is a continuous breach of their obligation, leading to ongoing financial harm for flat owners.
Q: Why did the Supreme Court say the complaint was not time-barred?
A: The Supreme Court held that the builder’s failure to obtain the occupancy certificate is a continuing wrong. Each time the flat owners pay higher charges due to the lack of an occupancy certificate, a new cause of action arises. Therefore, the limitation period for filing a complaint starts afresh with each such instance.
Q: What is an occupancy certificate, and why is it important?
A: An occupancy certificate is a document issued by the local municipal authority, certifying that a building is fit for habitation. It is important because it allows residents to obtain permanent water and electricity connections and ensures that the building complies with safety regulations.
Q: What does this ruling mean for flat owners?
A: This ruling means that flat owners can claim compensation for the extra charges they have paid due to the builder’s failure to obtain an occupancy certificate, even if the initial limitation period has expired. It also means that builders are responsible for fulfilling their obligations and cannot avoid liability by delaying the process.
Q: What should I do if my builder has not obtained the occupancy certificate?
A: If your builder has not obtained the occupancy certificate, you should first approach the builder to get it done. If the builder fails to do so, you can file a complaint with the consumer forum, seeking a direction to obtain the occupancy certificate and claim compensation for the financial loss caused due to the lack of an occupancy certificate.