Supreme Court clarifies liability of landowners in tripartite agreements: Janpriya Buildestate vs. Amit Soni (2021)

Introduction

Date of the Judgment: 07 December 2021

Citation: 2021 INSC 723

Judges: K.M. Joseph, J., Pamidighantam Sri Narasimha, J.

Can a landowner be held responsible for a builder’s failure to complete a housing project, even if they are not directly involved in the construction? The Supreme Court of India recently addressed this question in a case involving a tripartite agreement between a landowner, a developer, and a homebuyer. This judgment clarifies the extent to which a landowner can be held liable under the Consumer Protection Act, 1986, for deficiencies in service. The bench was composed of Justice K.M. Joseph and Justice Pamidighantam Sri Narasimha, with the majority opinion authored by Justice K.M. Joseph.

Case Background

On April 9, 2011, Janpriya Buildestate Pvt. Ltd. (the appellant) entered into a collaboration agreement with Uppal Housing Private Limited and Umang Realtech Private Limited for a group housing project. Janpriya Buildestate owned the land for the project. Following this, a tripartite agreement was made between Janpriya Buildestate (as the confirming party/owner), the buyer, and the developer. The project faced delays, leading to a complaint before the National Consumer Disputes Redressal Commission (NCDRC) under the Consumer Protection Act, 1986. The NCDRC held both the developer and the landowner liable to refund the amount to the homebuyers.

Timeline:

Legal Framework

The case revolves around the interpretation of the Consumer Protection Act, 1986, specifically concerning the definition of a ‘consumer,’ ‘consumer dispute,’ ‘deficiency,’ and ‘service’.

• Section 2(d) of the Consumer Protection Act, 1986: Defines a ‘consumer’ as someone who buys goods or hires services for consideration, excluding those for resale or commercial purposes.
• Section 2(e) of the Consumer Protection Act, 1986: Defines a ‘consumer dispute’ as a dispute where the person against whom a complaint is made denies the allegations.
• Section 2(g) of the Consumer Protection Act, 1986: Defines ‘deficiency’ as any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance required by law or contract. “deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service;
• Section 2(o) of the Consumer Protection Act, 1986: Defines ‘service’ to include housing construction. “service” means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;

Arguments

Appellant’s (Landowner) Arguments:

• The appellant argued that they were merely the landowner and had not undertaken any liability towards the homebuyers under the collaboration or tripartite agreements.
• The developer was responsible for the project’s execution and completion.
• The appellant’s obligations were limited to contributing the land and facilitating the transfer of title.
• The appellant relied on clause 14.3 of the collaboration agreement, which stated that the developer would indemnify the landowner from any losses or liabilities arising from the project’s development.

Respondents’ (Homebuyers) Arguments:

• The homebuyers contended that the appellant was liable as a confirming party to the tripartite agreement.
• They argued that the appellant was jointly and severally liable with the developer.
• The homebuyers highlighted that the collaboration agreement was mentioned in the Apartment Buyer’s Agreement.

Submissions Categorized by Main Arguments:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether the appellant (landowner) could be held liable under the Consumer Protection Act, 1986, based on the collaboration agreement and the tripartite agreement.
2. Whether the appellant, as a confirming party to the tripartite agreement, could be held jointly and severally liable with the developer.
3. Whether the NCDRC correctly appreciated the nature of obligations under the agreements and the Consumer Protection Act, 1986.

Treatment of the Issue by the Court:

Authorities

The Supreme Court considered the following legal provisions:

• Consumer Protection Act, 1986: Sections 2(c), 2(d), 2(e), 2(g), and 2(o) were examined to understand the definitions of ‘complaint,’ ‘consumer,’ ‘consumer dispute,’ ‘deficiency,’ and ‘service.’

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court analyzed the definitions of ‘consumer,’ ‘consumer dispute,’ ‘deficiency,’ and ‘service’ under the Consumer Protection Act, 1986. The Court emphasized that deficiency must arise from an obligation under law or contract, or “otherwise.”

What weighed in the mind of the Court?

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

• The need to establish a clear contractual obligation or legal duty for liability under the Consumer Protection Act, 1986.
• The importance of examining the specific terms of the collaboration and tripartite agreements to determine the nature of obligations of each party.
• The finding that the NCDRC did not properly analyze the obligations of the parties under the agreements and the Act.
• The Court’s concern that the NCDRC’s order was based on a superficial reading of the agreements.

Fact:Law Ratio

The Court’s reasoning was heavily influenced by legal considerations, specifically the interpretation of the Consumer Protection Act, 1986, and the contractual obligations between the parties. While the factual aspects of the case were considered, the legal framework played a more significant role in the decision.

Logical Reasoning:

The Court rejected the NCDRC’s finding that the appellant was automatically liable as a confirming party. The Court emphasized that the NCDRC should have examined the specific obligations of each party under the agreements and the Consumer Protection Act, 1986. The Court stated that a mere confirming party to the agreement does not automatically make the landowner liable.

“The NCDRC has not adverted to the relevant provisions, the collaboration agreement and the tripartite agreement which would spell out the nature of the obligations incurred by the developer and the appellant.”

“The mere fact without anything more that the appellant was a confirming party also would not advance the case of the complainant.”

“We are of the view that in the contracts in question, the NCDRC has not correctly appreciated the nature of the obligations and requirement under the Act to make a party liable.”

Key Takeaways

• Landowners are not automatically liable for deficiencies in service under the Consumer Protection Act, 1986, simply by being a confirming party to a tripartite agreement.
• The specific terms of the collaboration and tripartite agreements must be examined to determine each party’s obligations.
• Consumer forums must conduct a thorough analysis of contractual obligations and legal duties before holding a party liable.
• The judgment emphasizes the need for clear contractual obligations to establish liability under the Consumer Protection Act, 1986.

Directions

The Supreme Court directed the following:

• The appeals were allowed, and the NCDRC’s order was set aside.
• The matter was remanded back to the NCDRC.
• The respondents (homebuyers) were given the opportunity to seek amendment of pleadings and adduce material in support of their contentions.
• The appellant (landowner) was allowed to raise all contentions, including those against the amended pleadings and the jurisdiction of the NCDRC.

Development of Law

The ratio decidendi of this case is that landowners cannot be held automatically liable under the Consumer Protection Act, 1986, merely by being a confirming party to a tripartite agreement. The judgment clarifies that a thorough analysis of the specific obligations under the agreements and the relevant legal provisions is necessary to establish liability. This ruling sets a precedent for consumer cases involving tripartite agreements, emphasizing the need for a detailed examination of the contractual and legal obligations of each party.

Conclusion

The Supreme Court’s judgment in M/S Janpriya Buildestate Pvt. Ltd. vs. Amit Soni & Ors. clarifies that landowners cannot be held automatically liable for deficiencies in service under the Consumer Protection Act, 1986, simply by being a confirming party to a tripartite agreement. The Court emphasized the need to examine the specific obligations under the agreements and the relevant legal provisions. The matter was remanded back to the NCDRC for fresh consideration, allowing the homebuyers to amend their pleadings and present further evidence, while also allowing the landowner to raise all possible defenses.