Rights of Subsequent Purchasers: Supreme Court clarifies on interest for delayed possession in housing projects (22 July 2021)

Date of the Judgment: 22 July 2021
Citation: M/S LAUREATE BUILDWELL PVT. LTD. vs CHARANJEET SINGH, CIVIL APPEAL NO. 7042 of 2019
Judges: Uday Umesh Lalit, J., Hemant Gupta, J., S. Ravindra Bhat, J. (authored the judgment).

Can a subsequent purchaser of a flat in a delayed housing project claim the same rights as the original allottee, especially regarding interest on refunds? The Supreme Court of India recently addressed this crucial question, clarifying the entitlements of subsequent purchasers when builders fail to deliver possession on time. This judgment impacts numerous homebuyers who acquire properties from original allottees in ongoing projects.

Case Background

On 29 August 2012, Ms. Madhabi Venkatraman (the original allottee) applied for a flat in a project by Laureate Buildwell Pvt. Ltd. (the builder). She was allotted Flat No. 7013 in Nectarine Tower “PARX LAUREATE” at Sector – 108, Expressway, Noida. The builder was to hand over possession by 15 October 2015, as per the allotment letter issued on 16 October 2012. The original allottee paid ₹1,55,89,329 towards the first seven installments. Due to the slow construction pace, she decided to sell the flat on 16 February 2015.

Charanjeet Singh (the purchaser) agreed to buy the flat and paid ₹1,00,000 as advance. He was assured that possession would be delivered on time. The purchaser and the original allottee agreed that the balance amount would be paid on or before 15 October 2015 and that the purchaser would pay the outstanding installments directly after the transfer of the flat. The original allottee also paid ₹21,68,694 towards the 8th and 9th installments.

Possession was not delivered in October 2015. The purchaser, after waiting, entered into an agreement to sell with the original allottee on 17 February 2016 and paid ₹1,85,00,000. The original allottee requested the builder to transfer the flat to the purchaser on 2 April 2016. The purchaser submitted an undertaking to the builder on 1 April 2016. On 9 May 2016, the builder confirmed the payment of ₹1,93,70,883 towards the flat. The purchaser was later denied entry to the construction site and was informed that possession would be delayed until the end of 2017.

The purchaser sought a refund of the amount paid with 24% interest. The builder denied the claim, citing delays due to an order by the National Green Tribunal (NGT) and a notification issued by the Ministry of Environment, Forests and Climate Change. The builder also claimed that the original allottee and the purchaser were aware of these delays, and their right to claim compensation was waived.

Timeline:

Course of Proceedings

The purchaser approached the National Consumer Disputes Redressal Commission (NCDRC) seeking a refund of ₹1,93,70,883 with 24% interest, compensation, and litigation costs. The NCDRC allowed the complaint, directing the builder to refund the amount with 10% interest from the respective dates of deposit, along with ₹25,000 as costs. The NCDRC relied on the Supreme Court’s judgment in Kolkata West International City Pvt. Ltd. Vs. Devasis Rudra, which stated that a flat purchaser cannot be made to wait indefinitely for possession.

Legal Framework

The judgment primarily revolves around the interpretation of the Consumer Protection Act, 1986, specifically concerning the rights of a “consumer.” The court also considered previous judgments on the rights of subsequent purchasers in real estate projects. The court also considered the Real Estate Regulatory Authority Act, 2019.

Arguments

Arguments by the Builder:

• The builder argued that the project was delayed due to the NGT’s interim order, which was known to both the original allottee and the purchaser.
• The builder contended that the purchaser, being a subsequent purchaser, could not claim the same equities as the original allottee, especially regarding interest on refunds.
• The builder cited previous Supreme Court rulings in HUDA v. Raje Ram and Wing Commander Arifur Rahman Khan and Anr. v. DLF Southern Homes Pvt. Ltd., which held that subsequent purchasers cannot claim interest on refunds to the same extent as original allottees.
• The builder argued that the purchaser was an investor and not genuinely interested in residing in the flat.
• The builder stated that the original allottee had defaulted on payments and was charged penal interest.

Arguments by the Purchaser:

• The purchaser argued that the builder had acknowledged the transfer and accepted payments, including penal interest, from the purchaser.
• The purchaser contended that the builder had made demands for penal interest, indicating that the builder was aware of the agreement to sell.
• The purchaser highlighted that despite the builder’s claims of force majeure, the builder continued to demand and receive payments.
• The purchaser argued that the delay in construction was unreasonable, and he was entitled to a refund with interest.
• The purchaser asserted that once the builder endorsed the transaction, he became entitled to seek delivery of the flat.
• The purchaser argued that he should not be discriminated against simply because he was a subsequent purchaser.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether a subsequent purchaser of a flat in a delayed housing project is entitled to the same relief as the original allottee, particularly regarding interest on refunds.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

Cases Relied Upon by the Court:

• Kolkata West International City Pvt. Ltd. Vs. Devasis Rudra, II (2019) CPJ 29 (SC) – Supreme Court of India: The Court relied on this case to emphasize that a flat purchaser cannot be made to wait indefinitely for possession.
• HUDA v. Raje Ram, 2008 (17) SCC 407 – Supreme Court of India: This case was cited by the builder to argue that subsequent purchasers are not entitled to interest on refunds. The Supreme Court in the present case, however, overruled the per se bar on interest on refund in this case.
• Wing Commander Arifur Rahman Khan and Anr. v. DLF Southern Homes Pvt. Ltd., 2020 SCC Online 667 (SC) – Supreme Court of India: This case was also cited by the builder to support the argument that subsequent purchasers cannot claim the same equities as original allottees. The Supreme Court in the present case, however, overruled the per se bar on interest on refund in this case.
• Economic Transport Organization v. Charan Spinning Mills (P) Ltd, (2010) 4 SCC 114 – Supreme Court of India: This case was used to support the idea that a consumer complaint can be maintained by an insurer against a service provider even if the consumer has been indemnified.
• Canara Bank v. United India Insurance Co. Ltd., (2020) 3 SCC 455 – Supreme Court of India: This case was used to highlight that privity of contract is not necessary for a consumer complaint and that beneficiaries of a service can also be considered consumers.
• Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243 – Supreme Court of India: This case was cited to emphasize the importance of the Consumer Protection Act in protecting the economic interests of consumers.
• State of Karnataka v. Vishwabharathi House Building Coop. Society, (2003) 2 SCC 412 – Supreme Court of India: This case was used to support the broad interpretation of the Consumer Protection Act.
• Imperia Structures Ltd. v. Anil Patni, (2020) 10 SCC 783 – Supreme Court of India: This case was cited to show that proceedings initiated by complainants and resultant actions including of the NCDRC are fully saved by provisions of the Real Estate Regulatory Authority Act, 2019.

Legal Provisions Considered by the Court:

• Consumer Protection Act, 1986: The court considered the broad objectives of the Act to protect the interests of consumers.
• Real Estate Regulatory Authority Act, 2019: The court noted that the proceedings under the Consumer Protection Act are saved by this Act.

Judgment

How each authority was viewed by the Court?

• The Supreme Court relied on Kolkata West International City Pvt. Ltd. Vs. Devasis Rudra [II (2019) CPJ 29 (SC)] to emphasize that a flat purchaser cannot be made to wait indefinitely for possession.
• The Supreme Court overruled the per se bar on interest on refund in HUDA v. Raje Ram [2008 (17) SCC 407] and Wing Commander Arifur Rahman Khan and Anr. v. DLF Southern Homes Pvt. Ltd. [2020 SCC Online 667 (SC)] stating that a subsequent purchaser cannot be denied relief solely based on their status as a subsequent purchaser.
• The Supreme Court followed Economic Transport Organization v. Charan Spinning Mills (P) Ltd [(2010) 4 SCC 114] to support the idea that a consumer complaint can be maintained by an insurer against a service provider even if the consumer has been indemnified.
• The Supreme Court followed Canara Bank v. United India Insurance Co. Ltd. [(2020) 3 SCC 455] to highlight that privity of contract is not necessary for a consumer complaint and that beneficiaries of a service can also be considered consumers.
• The Supreme Court followed Lucknow Development Authority v. M.K. Gupta [(1994) 1 SCC 243] to emphasize the importance of the Consumer Protection Act in protecting the economic interests of consumers.
• The Supreme Court followed State of Karnataka v. Vishwabharathi House Building Coop. Society [(2003) 2 SCC 412] to support the broad interpretation of the Consumer Protection Act.
• The Supreme Court followed Imperia Structures Ltd. v. Anil Patni [(2020) 10 SCC 783] to show that proceedings initiated by complainants and resultant actions including of the NCDRC are fully saved by provisions of the Real Estate Regulatory Authority Act, 2019.

What weighed in the mind of the Court?

The Supreme Court emphasized several points in its reasoning:

• The court recognized the economic hardships faced by homebuyers when projects are delayed, especially those who are paying EMIs and rent simultaneously.
• The court highlighted that a subsequent purchaser, who steps into the shoes of the original allottee, should not be discriminated against.
• The court noted that the builder’s actions of accepting payments and acknowledging the transfer indicated an acceptance of the purchaser as a consumer.
• The court emphasized that the Consumer Protection Act is meant to protect the interests of consumers, and technicalities should not prevent them from receiving relief.
• The court clarified that while a subsequent purchaser is assumed to have knowledge of existing delays, this does not mean they should be expected to wait indefinitely.

Logical Reasoning

The court considered the builder’s argument that the purchaser was not entitled to the same relief as the original allottee. However, the court rejected this argument, emphasizing that the builder had acknowledged the transfer and accepted payments from the purchaser, making him a consumer under the Consumer Protection Act. The court also considered the economic hardships faced by homebuyers and the need for a balanced approach. The court rejected the argument that the purchaser should have known that the delay would continue indefinitely.

The Supreme Court stated that the per se bar on interest on refund for subsequent purchasers was not good law. The court noted that the extent of relief would be fact-dependent.

The court quoted from the judgment:

“The nature and extent of relief, to which a subsequent purchaser can be entitled to, would be fact dependent. However, it cannot be said that a subsequent purchaser who steps into the shoes of an original allottee of a housing project in which the builder has not honoured its commitment to deliver the flat within a stipulated time, cannot expect any – even reasonable time, for the performance of the builder’s obligation.”

“It would no doubt be fair to assume that the purchaser had knowledge of the delay. However, to attribute knowledge that such delay would continue indefinitely, based on an a priori assumption, would not be justified.”

“The equities, in the opinion of this court, can properly be moulded by directing refund of the principal amounts, with interest @ 9% per annum from the date the builder acquired knowledge of the transfer, or acknowledged it.”

There were no dissenting opinions in this case.

Key Takeaways

• Subsequent purchasers of flats in delayed housing projects have rights similar to original allottees under the Consumer Protection Act.
• A per se bar on interest for subsequent purchasers is not valid.
• The extent of relief for subsequent purchasers depends on the specific facts of each case.
• Builders cannot deny relief to subsequent purchasers solely based on their status.
• Interest on refunds for subsequent purchasers should be calculated from the date the builder acknowledged the transfer.

Directions

The Supreme Court modified the NCDRC order, directing the builder to refund the amount with 9% interest from the date the builder acknowledged the transfer (April 2016), instead of from the dates of the original deposits.

Development of Law

The Supreme Court clarified that a per se bar on interest for subsequent purchasers, as previously held in HUDA v. Raje Ram and Wing Commander Arifur Rahman Khan and Anr. v. DLF Southern Homes Pvt. Ltd., is not good law. The court held that the nature and extent of relief depends on the facts of each case. This judgment changes the previous position of the law by ensuring that subsequent purchasers are not automatically denied interest on refunds.

Conclusion

The Supreme Court’s judgment in this case is a significant victory for subsequent purchasers of flats in delayed housing projects. It clarifies that they are entitled to similar protections as original allottees under the Consumer Protection Act and cannot be denied interest on refunds solely based on their status. The court’s decision ensures a more balanced approach, considering the economic hardships faced by homebuyers and the need for builders to honor their commitments.