Supreme Court clarifies compensation for delayed possession despite sale deed: Lanco Hills vs. Kulkarni (2019)

Introduction

Date of the Judgment: 17 December 2019

Citation: Civil Appeal No 155 of 2015

Judges: Dr Dhananjaya Y Chandrachud, J and Hrishikesh Roy, J

Can a builder avoid paying compensation for delayed possession of an apartment by simply stating in the sale deed that possession has been handed over, even if the physical possession is not given? The Supreme Court of India recently addressed this question in a consumer dispute, clarifying that the actual date of handing over physical possession is crucial for determining liability for delay. The court held that a mere statement in the sale deed is not sufficient if the possession is not actually given. The judgment was delivered by a two-judge bench consisting of Justice Dr. Dhananjaya Y Chandrachud and Justice Hrishikesh Roy.

Case Background

On March 21, 2011, M/s Lanco Hills Technology Park Pvt Ltd (the appellant), and Manisha Balkrishna Kulkarni & Anr (the respondents) entered into an agreement for the purchase of an apartment in Hyderabad. The total consideration for the apartment was Rs 1,55,50,826, with an additional Rs 6,00,000 for a parking space. According to the agreement, possession was to be handed over by March 28, 2011, with a three-month grace period. However, due to a restraining order issued by the State Waqf Tribunal on March 28, 2011, the handover was delayed. The order was upheld by the High Court on April 3, 2012, but was later vacated by the Supreme Court on May 8, 2012. The appellant informed the respondents that the apartment would be ready for occupation on November 3, 2012, and followed up with communications on November 5, 2012, December 20, 2012, and February 7, 2013. A sale deed was finally executed on February 11, 2013, and the sale transaction was registered. The respondents had paid 85% of the total consideration before the sale deed, and the balance was paid upon execution of the sale deed.

Timeline

Course of Proceedings

The respondents filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking physical possession of the apartment, along with interest and damages for delayed delivery. During the pendency of the proceedings, the appellant handed over possession of the apartment on August 28, 2014. The NCDRC directed the appellant to pay compensation at the rate of Rs 5 per sq ft for the delay of six months, as per the agreement, and 18% per annum for the delay beyond six months, which was not specified in the agreement. The appellant then appealed to the Supreme Court against the order of the NCDRC.

Legal Framework

The agreement to sell contained a clause (5.1(iii)) stipulating that the appellant would hand over possession of the apartment by March 28, 2011, with a grace period of three months. The agreement also included a force majeure clause (Clause 8), which stated that the period of possession would be extended during the operation of a force majeure event. The relevant part of Clause 8 is:

“(iv)any notice, order, rules, notification of the Government and/or other public or competent authority, including any prohibitory order of any court against development of property;”

Clause 5.1(iii) of the agreement also stated:

“In the event of any delay beyond the time stated above the Developer shall pay the Purchaser an amount of Rs.5 (Rupees Five Only) per square foot of the Super built up area of the Residential Unit for every month of delay up to a maximum of 6 months”.

The sale deed executed on February 11, 2013, contained a clause (Clause 3) stating:

“3.Possession
Simultaneously, upon the execution of this Sale Deed and the full receipt of the total consideration, the Vendor has and the Purchasers acknowledge that the Vendor has handed over the physical, vacant, lawful and peaceful possession of the Scheduled Property.”

Arguments

Appellant’s Arguments:

• The appellant argued that the sale deed, executed on February 11, 2013, explicitly stated that possession was handed over to the respondents upon its execution and full receipt of the consideration.
• They contended that, based on this clause in the sale deed, they were not liable to pay any further compensation to the respondents.

Respondents’ Arguments:

• The respondents argued that despite the clause in the sale deed, physical possession of the apartment was not handed over at the time of execution.
• They stated that there were still numerous deficiencies in the apartment at the time of the sale deed execution.
• They submitted that physical possession was only handed over on August 28, 2014, as evidenced by the “Keys Hand Over Form”.

The innovativeness of the argument by the respondents was that they looked at the actual date of possession rather than the date mentioned in the sale deed.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the appellant was liable to pay compensation to the respondents for the delay in handing over possession of the apartment, despite the clause in the sale deed stating that possession was handed over on February 11, 2013.

Treatment of the Issue by the Court

Authorities

The Court considered the following legal provisions:

• Clause 5.1(iii) of the agreement to sell, which stipulated the date of possession and compensation for delay.
• Clause 8 of the agreement to sell, which defined force majeure events.
• Clause 3 of the sale deed, which stated that possession was handed over upon execution of the sale deed.

Judgment

How each authority was viewed by the Court?

The Court considered Clause 5.1(iii) of the agreement to sell, which provided for compensation at the rate of Rs 5 per sq ft for delay up to six months. The Court also considered Clause 8 of the agreement, which extended the period of possession during a force majeure event. The Court also considered Clause 3 of the sale deed, which stated that possession was handed over upon execution of the sale deed. The Court held that the actual physical possession was handed over on August 28, 2014, and not on February 11, 2013, as stated in the sale deed.

What weighed in the mind of the Court?

The Supreme Court emphasized the importance of actual physical possession over the statement in the sale deed. The court’s reasoning focused on the fact that the respondents had paid the full consideration but were not given possession of the apartment until August 28, 2014. The court was also influenced by the fact that the respondents had to pursue legal recourse to obtain possession.

Logical Reasoning:

The court rejected the argument that the statement in the sale deed was sufficient to prove the handing over of possession. The court reasoned that the actual physical handing over of the apartment was crucial and the respondents had to pursue legal recourse to get the possession. The court also considered the fact that the respondents had paid the full consideration for the apartment.

The Supreme Court stated:

“Though the sale deed records that possession was handed over, it is clear from the contemporaneous record that it was only on 28 August 2014 that all the sets of keys of the apartment were handed over to the respondents.”

“Having paid the consideration, it was evidently not in their interest to delay the receipt of possession.”

“Consequently, the appellant would be liable to pay reasonable compensation to the respondents for the period between 9 February 2013 and 28 August 2014, in addition to the contractual payment due for the period between 8 August 2012 and 8 February 2013.”

The court also noted that the direction to pay interest at the rate of 18% per annum was excessive and scaled it down to a lump sum compensation of Rs 10 lakhs.

Key Takeaways

✓ A statement in the sale deed about handing over possession is not conclusive proof of actual possession.

✓ Builders are liable to pay compensation for delayed possession, even if the sale deed states otherwise.

✓ The date of actual physical possession is crucial for determining liability for delay.

✓ Courts may scale down excessive interest rates awarded by consumer forums to a reasonable lump sum compensation.

This judgment clarifies that builders cannot avoid liability for delayed possession by simply including a clause in the sale deed stating that possession has been handed over. It reinforces the importance of actual physical possession and protects the rights of consumers. This ruling could lead to builders being more cautious and transparent about the actual date of handing over possession.

Directions

The Supreme Court directed the appellant to pay:

(i) Compensation at the rate of Rs 5 per sq ft for the period between August 8, 2012, and February 8, 2013, as per the agreement to sell.

(ii) A lump sum compensation of Rupees Ten Lakhs for the period between February 9, 2013, and August 28, 2014.

The court ordered that the aforesaid amount should be paid within a period of one month from the receipt of a certified copy of the order.

Specific Amendments Analysis

There was no specific amendment discussed in this judgment.

Development of Law

The ratio decidendi of this case is that the actual date of physical possession is crucial in determining liability for delayed possession, and a mere statement in the sale deed is not sufficient. This judgment reinforces the importance of actual physical possession and protects the rights of consumers. There was no change in the previous position of law, but this judgement clarified that the actual physical possession is what matters and not the statement in the sale deed.

Conclusion

In conclusion, the Supreme Court’s judgment in M/s Lanco Hills Technology Park Pvt Ltd vs. Manisha Balkrishna Kulkarni & Anr clarifies that a builder cannot evade liability for delayed possession by simply stating in the sale deed that possession has been handed over. The court emphasized that the actual date of physical possession is crucial for determining compensation for delay. This ruling protects the rights of consumers and ensures that builders are held accountable for delays in handing over possession of properties.