Supreme Court clarifies consumer status in property conversion cases: Estate Officer vs. Charanjit Kaur (2021)

Introduction

Date of the Judgment: 7 September 2021
Citation: 2021 INSC 593
Judges: Hemant Gupta, J. and A.S. Bopanna, J.
Can a person who applies to convert their leasehold property to freehold be considered a ‘consumer’ under the Consumer Protection Act, 1986? The Supreme Court of India recently addressed this question in a case involving the Estate Officer of Chandigarh and several property allottees. The core issue was whether the payment of conversion charges qualifies as availing a ‘service’ under the Act, thus entitling the allottees to approach consumer forums for grievances. The judgment was delivered by a two-judge bench comprising Justice Hemant Gupta and Justice A.S. Bopanna.

Case Background

The case involves three appeals clubbed together, all concerning the conversion of leasehold properties in Chandigarh to freehold. The primary case, Estate Officer v. Charanjit Kaur, originated from a dispute where the respondent, Charanjit Kaur, sought to convert her leasehold plot to freehold upon payment of the required fee. The District Consumer Disputes Redressal Forum (DCDRF) ruled in her favor, directing the Estate Officer to convert the plot, pay compensation for mental agony, and cover litigation costs. This order was upheld by the State Consumer Disputes Redressal Commission (SCDRC) and later by the National Consumer Disputes Redressal Commission (NCDRC). Similar orders were passed in the other two cases, Estate Officer v. Kamlesh and Estate Officer v. D.K. Khanna, where allottees sought conversion of their leasehold properties. The Estate Officer, dissatisfied with these decisions, appealed to the Supreme Court.

Timeline

Legal Framework

The case revolves around the interpretation of several key legal provisions and rules:

• Section 3 of the Capital of Punjab (Development and Regulation) Act, 1952: This section empowers the Central Government to transfer land and buildings in Chandigarh through sale, lease, or other means, with terms and conditions as it deems fit. It also states that the land remains the property of the Central Government until full payment is made. The section states:
  
  “3.Power of Central Government in respect of transfer of land and building in Chandigarh. – (1) [Subject to the provisions of this section, the Central Government may] sell, lease or otherwise transfer, whether by auction, allotment or otherwise, any land or building belonging to the Government in Chandigarh on such terms and conditions as it may subject to any rules that may be made under this Act, think fit to impose.
  (2)The consideration money for any transfer under sub-section (1) shall be paid to the [Central Government] in such manner and in such instalments and at such rate of interest as may be prescribed.
  (3) Notwithstanding anything contained in any other law for the time being in force, until the entire consideration money together with interest or any other amount, if any, due to the Central Government on account of the transfer of any site or building, or both, under sub-action (12) is paid, such site or building, or both, as the case may be, shall continue to belong to the Central Government.”
• Chandigarh (Sale of Sites and Buildings) Rules, 1960: These rules initially governed the sale of sites in Chandigarh through auction or allotment.
• Chandigarh Lease Hold of Sites and Building Rules, 1973: These rules authorized the Chandigarh Administration to lease sites and buildings for 99 years, with provisions for annual rent and transfer charges. Rule 13 specifies the annual rent as a percentage of the premium, and Rule 17(10) outlines the conditions for property transfer, including payment of unearned increase.
  
  “13.Rent and consequences of non-payment- In addition to the premium, whether in respect of site or building, the lessee shall pay rent as under:
  (i) Annual rent shall be 2-½ % of the premium for the 33 years which may be enhanced by the Chandigarh Administration to 3-3/4% of the premium for the next 33 years and to 5% of the premium for the remaining period of the lease.
  17.General Conditions of lease. – (1) Lease may be jointly taken by more than one person. The liability to pay the premium as well as the rent and any penalty imposed under these rules shall be joint and several:
  (10)The lessee will not be entitled to transfer the site or the building without the prior permission of the Estate Officer. Such permission shall not be given until the lessee has paid full premium and the rent due under the lease for the site, unless in the opinion of the Estate Officer exceptional circumstances exist for the grant of such permission. The lessee shall be liable to pay such transfer charges as are notified by the Chandigarh Administration from time to time.”
• Chandigarh Conversion of Residential Leasehold Land Tenure into Freehold Land Tenure Rules, 1996: These rules permitted the conversion of residential leasehold properties to freehold, specifying conversion charges and conditions. Rule 5 states that land rates will be as notified by the Chandigarh Administration from time to time.
  
  “5.Land rates will be the rates as notified by the
  Chandigarh Administration from time to time.
  6.Conversion charges to be paid shall be as provided in
  Annexure “A” annexed to these rules, from time to time.
  8.The conversion shall also be allowed in the cases
  where the lessees/sub-lessees/allottees have parted with the
  possession of the property, provided that-
  (a)The application for Conversion is made by a person
  holding registered and valid power of attorney and
  there is also an agreement to sell from the lessee to
  sub-lessee to alienate (sell/transfer) the property and
  proper linkage with the original allottee/lessee is
  established.
  9.In all cases of Conversion, the Conveyance-deeds shall
  be got registered on payment of requisite Stamp Duty and
  Registration Charges. The Consideration amount for this
  purpose shall be the “Conversion Fee” and the “Surcharge”
  wherever applicable. However, in cases where lease deed
  has not been executed, the Price/Premium of the site as
  reflected in the letter of allotment or last agreement for sale
  or the predetermined rate as prescribed by the Competent
  Authority on the date of allotment/transfer shall also be
  added for the purpose of calculation of Stamp Duty.”
• Consumer Protection Act, 1986: The definition of ‘consumer’ and ‘service’ under this Act is central to the dispute.
  • Section 2(1)(c): Defines “complaint” as an allegation in writing that the services hired or availed of suffer from deficiency.
  • Section 2(1)(d): Defines “consumer” as a person who hires or avails of services for a consideration.
  • Section 2(1)(g): Defines “deficiency” as any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance.
  • Section 2(1)(o): Defines “service” as service of any description made available to potential users, including housing construction, but not including services free of charge or under a contract of personal service.
  • Section 14(1)(e): Empowers the District Forum to direct the removal of deficiencies in services.

Arguments

Appellant’s Arguments (Estate Officer):

• The appellant argued that the title of leasehold property vests with the Central Government under Section 3 of the Capital of Punjab (Development and Regulation) Act, 1952, and the rules framed thereunder.
• The conversion fee is not for any service but for granting complete title to the allottees, essentially a part of the sale consideration.
• The reliance on Lucknow Development Authority v. M.K. Gupta [(1994) 1 SCC 243] was erroneous as that case pertained to the allotment of flats, which was considered a ‘service,’ whereas this case involves the sale of immovable property.
• The appellant contended that they are not service providers under the Consumer Protection Act, 1986.
• The appellant argued that the allottees are not consumers as the conversion fee is not for any services to be rendered but to grant complete title to the allottees.
• The appellant relied on UT Chandigarh Administration and Another v. Amarjeet Singh and Others [(2009) 4 SCC 660], arguing that the auction of sites does not involve the sale of goods or rendering of service.
• The appellant also argued that even if some sites have been converted in contravention of the decision communicated on 10.05.2013, it would not confer any enforceable right in favor of the allottees, citing Chandigarh Administration v. Jagjit Singh [(1995) 1 SCC 745].

Respondents’ Arguments (Charanjit Kaur and Others):

• The respondents argued that the Chandigarh Administration was charging a fee for the conversion of leasehold to freehold, and therefore, they were consumers under the Consumer Protection Act, 1986.
• The respondents relied on the judgment of Lucknow Development Authority v. M.K. Gupta [(1994) 1 SCC 243], stating that the authority is providing a service by developing land and allotting sites.
• The respondents contended that the Estate Officer had not produced any public notification suspending all conversions of plots from leasehold to freehold.
• The respondents emphasized that the administration was acting arbitrarily by not processing their applications for conversion.
• The respondents highlighted that some conversions were allowed even after the letter dated 10.05.2013, indicating discriminatory practices.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether the allottees seeking conversion of leasehold property to freehold are ‘consumers’ under the Consumer Protection Act, 1986, and whether the conversion fee paid by them is for a ‘service’ as defined under the Act?
2. Whether the rejection of the request for conversion was arbitrary and discriminatory?

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

On the Definition of ‘Service’ and ‘Consumer’ under Consumer Protection Act, 1986:

• Lucknow Development Authority v. M.K. Gupta [(1994) 1 SCC 243]: The court distinguished this case, stating that it dealt with the construction and allotment of flats, which is considered a ‘service,’ unlike the conversion of leasehold to freehold. The court in this case held that when a statutory authority develops land or allots a site or constructs a house for the benefit of common man it is as much service as by a builder or contractor. The one is contractual service and other statutory service.
• Ghaziabad Development Authority v. Balbir Singh [(2004) 5 SCC 65]: This case was referenced in the context of granting interest at 18%. The Court approved the judgment in M.K. Gupta, holding that the Consumer Protection Act has a wide reach and the Commission has jurisdiction even in cases of service rendered by statutory and public authorities.
• Chandigarh Housing Board v. Avtar Singh and Ors. [(2010) 10 SCC 194]: This case was cited concerning the refund of earnest money and interest. The Court held that the members of the Societies did not get an opportunity to accept the allotment because even after deposit of full earnest money and 18% interest, the Board did not allot land to the Societies on which they could construct dwelling units/flats.

On Whether Auction of Sites Involves Sale of Goods or Rendering of Service:

• UT Chandigarh Administration and Another v. Amarjeet Singh and Others [(2009) 4 SCC 660]: The Court relied on this judgment to hold that in a public auction of existing sites, the purchaser/lessee is not a consumer, and the owner is not a service provider. The Court held that any grievance by the purchaser/lessee will not give rise to a complaint or consumer dispute and the fora under the Act will not have jurisdiction.

On the Validity of Administrative Orders:

• Bachhittar Singh v. State of Punjab [AIR 1963 SC 395]: The Court referred to this case to emphasize that a noting in a file does not constitute an order unless it is communicated to the affected person. The Court held that merely writing something on the file does not amount to an order. Before something amounts to an order of the State Government two things are necessary. The order has to be expressed in the name of the Governor as required by clause (1) of Article 166 and then it has to be communicated.
• Chandigarh Administration v. Jagjit Singh [(1995) 1 SCC 745]: The Court rejected the argument of negative equality based on this case. The Court held that there cannot be any negative equality as even if some sites have been converted in contravention of the decision communicated on 10.05.2013, it would not confer any enforceable right in favor of the allottees.

On the Interpretation of Rules and Acts:

• Capital of Punjab (Development and Regulation) Act, 1952, Section 3: The Court analyzed this section to determine the Central Government’s power to transfer land and buildings.
• Chandigarh Lease Hold of Sites and Building Rules, 1973, Rules 13 and 17: The Court examined these rules to understand the conditions of lease, rent, and transfer of property.
• Chandigarh Conversion of Residential Leasehold Land Tenure into Freehold Land Tenure Rules, 1996, Rules 5 and Annexure A: The Court referred to these rules to understand the conditions and charges for conversion of leasehold to freehold properties.

On the Issues of Governance in Chandigarh Administration:

• Amritpal Singh v. Chandigarh Administration [2012 SCC OnLine P&H 9310]: This judgment was cited regarding the requirement of a no-objection certificate for sale of freehold properties. The Court had set aside the requirement of no-objection certificate from the Chandigarh Administration before affecting sale of freehold properties.
• Dheera Singh v. U.T. Chandigarh Admn. and Ors. [2012 SCC Online P&H 21473]: This case was referenced regarding the need to revamp and update the 1952 Act. The Court noticed that the Executive has failed to live-up to the expectations of the residents.

Authority Consideration Table

Judgment

The Supreme Court held that the allottees seeking conversion of leasehold property to freehold are not ‘consumers’ under the Consumer Protection Act, 1986. The Court reasoned that the conversion fee is not a charge for a service but a part of the sale consideration for transferring the title of the property. The Court distinguished the case from Lucknow Development Authority v. M.K. Gupta, stating that the latter case dealt with the construction and allotment of flats, which is considered a service, whereas the present case involves the sale of immovable property. The Court relied on UT Chandigarh Administration and Another v. Amarjeet Singh and Others to hold that the auction of sites does not involve the sale of goods or rendering of service.

Treatment of Submissions

Treatment of Authorities

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legal interpretation of the term ‘service’ under the Consumer Protection Act, 1986, and the nature of the transaction involved in the conversion of leasehold to freehold property. The Court emphasized that the conversion fee is essentially a part of the sale consideration for the transfer of title, rather than a charge for any service provided by the administration. The Court also highlighted the arbitrary and discriminatory actions of the Chandigarh Administration in keeping the conversion requests pending despite the existing statutory rules.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

The Court reasoned that the conversion fee is not a charge for a service but rather a part of the sale consideration for the transfer of title of the immovable property. The Court observed that the allottees were seeking to purchase the remaining rights of the Central Government to convert the site into freehold. The Central Government continues to be the owner of the land until the entire consideration is paid. Therefore, the owner (Central Government) cannot be said to be a trader or a service provider. The Court also noted that the appellant was not providing any services within the meaning of Section 2(1)(o) of the Consumer Act. The expression ‘service’ includes housing construction and not allotment of a site or a plot.

Final Orders

The Supreme Court passed the following final orders:

• The appeals filed by the Estate Officer were allowed.
• The orders passed by the National Consumer Disputes Redressal Commission (NCDRC), State Consumer Disputes Redressal Commission (SCDRC), and District Consumer Disputes Redressal Forum (DCDRF) were set aside.
• The Court directed the Chandigarh Administration to consider the applications for conversion of leasehold to freehold in accordance with the rules, without any further delay.
• The Court also instructed the administration to consider the applications of the respondents, including the claims for interest on the amounts deposited by them, in accordance with law.

Implications

The judgment has significant implications for both consumer law and property law:

• Consumer Law: The Supreme Court clarified that the mere payment of a fee for the conversion of leasehold to freehold property does not make the allottee a ‘consumer’ under the Consumer Protection Act, 1986. This narrows the scope of the Act in cases involving the sale of immovable property.
• Property Law: The judgment underscores the distinction between the sale of immovable property and the provision of services. It reinforces the principle that the conversion of leasehold to freehold is essentially a sale transaction, not a service.
• Administrative Actions: The Court’s criticism of the Chandigarh Administration’s arbitrary actions highlights the need for transparency and adherence to statutory rules in administrative processes.
• Precedent: The judgment sets a precedent for similar cases involving the conversion of leasehold properties, where the allottees cannot claim to be ‘consumers’ under the Consumer Protection Act.

Critical Analysis

Strengths:

• Clarity on ‘Consumer’ Status: The judgment provides clarity on the definition of ‘consumer’ under the Consumer Protection Act, particularly in the context of property transactions. It clarifies that the conversion of leasehold to freehold is a sale transaction and not a service.
• Emphasis on Rule of Law: The Court rightly criticized the arbitrary actions of the Chandigarh Administration, emphasizing the importance of adhering to statutory rules and procedures.
• Consistency with Precedents: The Court’s reliance on UT Chandigarh Administration and Another v. Amarjeet Singh and Others to distinguish the case from Lucknow Development Authority v. M.K. Gupta demonstrates a consistent application of legal principles.
• Balance of Interests: While clarifying that the allottees are not ‘consumers,’ the Court ensured that the administration was directed to consider their applications and claims for interest, thus balancing the interests of all parties.

Weaknesses:

• Narrow Interpretation of ‘Service’: The Court’s narrow interpretation of ‘service’ may limit the scope of the Consumer Protection Act in similar cases. The allottees are at the receiving end of the administration and some kind of service is being rendered by it.
• Potential for Injustice: The judgment may leave allottees with grievances without a remedy under the Consumer Protection Act, forcing them to seek recourse through other legal avenues, which may be more time-consuming and expensive.
• Limited Relief: While the Court directed the administration to consider the conversion requests, it did not provide specific timelines or penalties for non-compliance, which may lead to further delays.

Conclusion

The Supreme Court’s judgment in Estate Officer and Anr. vs. Charanjit Kaur (2021) provides a crucial clarification on the status of allottees seeking conversion of leasehold property to freehold under the Consumer Protection Act, 1986. The Court held that such allottees are not ‘consumers’ as the conversion fee is part of the sale consideration and not a charge for services. While the decision narrows the scope of the Consumer Protection Act in property transactions, it also highlights the need for administrative bodies to act transparently and in accordance with statutory rules. The Court’s direction to the Chandigarh Administration to consider the conversion requests and claims for interest ensures that the allottees’ grievances are addressed, even if not under the ambit of consumer law. The judgment underscores the importance of adhering to legal principles and administrative procedures in property-related matters.