Supreme Court clarifies maintenance charges and delay compensation in real estate: Utpal Trehan vs DLF Home Developers Ltd. (11 July 2022)

Introduction

Date of the Judgment: 11 July 2022
Citation: (2022) INSC 626
Judges: Dinesh Maheshwari, J. and Aniruddha Bose, J. The judgment was authored by Aniruddha Bose, J.

Can a builder demand maintenance charges from a flat buyer before handing over possession of the flat? What is the extent of compensation a builder must pay for delaying possession? The Supreme Court of India recently addressed these questions in a case between a flat buyer and a real estate developer, clarifying the obligations of both parties. This judgment is crucial for understanding the rights of flat buyers and the responsibilities of builders in India.

Case Background

In March 2008, Utpal Trehan (referred to as “allottee”) booked a flat in DLF Home Developers Limited’s (referred to as “builder”) New Town Heights project in Gurgaon, Haryana, by paying Rs. 5 lakhs. The allotment letter was issued on April 16, 2008, and the Apartment Buyers’ Agreement was executed on December 3, 2008. The agreement specified a flat area of 1760 square feet with a total consideration of Rs. 45,12,000, to be paid as per an installment plan. The builder was supposed to hand over the flat within 36 months from the date of the agreement, subject to certain conditions.

However, due to delays in obtaining environmental clearances, the builder could not start construction until May 2009. The builder then modified the payment plan to a “Construction Linked Payment Plan” and offered certain benefits to the buyers, including an advance payment rebate, a discount on the basic sale price, an increase in area, and compensation for delayed possession at Rs. 10 per sq. ft. per month.

The allottee approached the Delhi State Consumer Disputes Redressal Commission in May 2015, alleging that the builder was raising additional demands. The allottee also claimed that he was being denied certain payment-related benefits because the builder alleged that he had defaulted on an installment payment. The builder claimed that the allottee had delayed a payment due on January 18, 2012, by paying it on January 27, 2012. The allottee stated that he had not received the demand notice and paid the amount after receiving a reminder.

Timeline

Course of Proceedings

The allottee initially filed a complaint with the Delhi State Consumer Disputes Redressal Commission, seeking possession of the flat, compensation for mental trauma due to delay, additional delayed possession rent, waiver of unjustifiable demands, and litigation expenses. The State Commission ruled in favor of the allottee, directing the builder to issue a fresh offer of possession, execute the sale deed, and pay delayed compensation at Rs. 10 per sq. ft. per month from March 2011. However, the State Commission held the allottee liable to pay maintenance charges.

Both parties appealed to the National Consumer Disputes Redressal Commission. The allottee challenged the ruling on maintenance charges, while the builder challenged the directive for a fresh offer of possession and payment of delayed compensation. The National Commission partly allowed both appeals, directing the builder to offer fresh possession, pay 6% interest per annum on the deposited amount as compensation for delay from July 2013, and also pay the “Timely Payment Rebate”. The National Commission also held that the builder was entitled to collect maintenance charges from the date of the Occupation Certificate.

The allottee then appealed to the Supreme Court of India, challenging the National Commission’s decision on maintenance charges. The builder also appealed, contesting the directions for a fresh offer of possession. The Supreme Court granted leave on these limited questions.

Legal Framework

The Supreme Court examined the following clauses of the Apartment Buyers’ Agreement dated 3rd December 2008:

• Clause 11 (Definitions): Defines “Maintenance Agency” as the builder (DHDL) or an association of allottees or any other agency responsible for maintenance services.
• Clause 19 (Maintenance of the Said Building/Said Complex/Said Apartment): Stipulates that maintenance may be handed over to an association of apartment allottees or other agency. The allottee agrees to execute a Maintenance Agreement and pay the charges. Maintenance charges become applicable from the date of the occupation certificate or the date of allotment, whichever is later.
• Clause 20 (Fixation of total Maintenance Charges): States that maintenance charges shall be levied from the date of the occupation certificate or the date of allotment, whichever is later, and the allottee undertakes to pay the same promptly. It also specifies that payment is applicable whether or not the possession of the apartment is taken by the allottee.
• Clause 39 (Association of apartment owners): The allottee agrees to join an association of apartment owners formed by the builder and to pay any fees, subscription charges thereof.
• Clause 17 (Failure to deliver possession: Remedy to DHDL): If the builder is unable to give possession within 36 months, they are entitled to terminate the agreement and refund the amount with 6% interest. Alternatively, the builder may choose not to terminate the agreement and pay compensation at Rs. 5 per sq. ft. per month for the delay. This clause was later modified by the builder to Rs. 10 per sq. ft. per month via a letter dated 26th March 2009.

Arguments

The allottee argued that he should not be liable to pay maintenance charges as he had not been given possession of the flat. He also contended that the builder’s demand for payment of maintenance charges was unjust. He further argued that the compensation for delay should be calculated from March 2011, as per the builder’s modified terms.

The builder argued that the allottee was liable to pay maintenance charges as per the agreement, irrespective of whether possession was taken. They also contended that the compensation for delay should not go beyond the date of the offer of possession, which they claimed was June 10, 2013. The builder relied on the judgments of the Supreme Court in DLF Homes Panchkula Pvt. Ltd. vs D.S. Dhanda and Ors. [(2020) 16 SCC 318] and DLF Home Developers Ltd. And Another vs Capital Greens Flat Buyers Association & Ors. [(2020] SCC Online SC 1125] to support their argument that delay compensation should be awarded only up to the date of the offer of possession.

The builder also argued that the allottee could have taken possession of the flat, subject to the outcome of the case, and the responsibility for the delay should not fall entirely on them. They also submitted that the allottee had delayed in making payments, which disentitled him to certain benefits.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the allottee was liable to pay maintenance charges to the builder.
2. Whether the builder was liable to pay delay compensation, and if so, till what date.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court distinguished the cases of DLF Homes Panchkula Pvt. Ltd. vs D.S. Dhanda and Ors. [(2020) 16 SCC 318] and DLF Home Developers Ltd. And Another vs Capital Greens Flat Buyers Association & Ors. [(2020] SCC Online SC 1125], stating that in the present case, there was no valid offer for possession.
• The Supreme Court also distinguished the case of Wing Commander Arifur Rahman Khan and Aleya Sultana and Others vs DLF Southern Homes Pvt. Ltd. and Others [(2020) 16 SCC 512], stating that the agreement in that case was lopsided.

What weighed in the mind of the Court?

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

• The builder’s own admission that they were not the maintenance agency and that the maintenance charges were to be paid to the association.
• The fact that the maintenance association was an independent body and not an agent of the builder.
• The builder’s modification of the agreement which specified that the compensation would be calculated from the date of booking.
• The builder’s conditional offer of possession which was deemed invalid.
• The lack of a valid offer of possession to the allottee.

The Court’s reasoning was based on a combination of factual considerations, such as the builder’s conduct and the terms of the agreement, and legal considerations, such as the interpretation of contractual clauses and principles of consumer law.

The Court considered alternative interpretations, such as the builder’s argument that the delay compensation should not go beyond the date of the offer of possession, but rejected it because the offer of possession was conditional and thus invalid. The Court also rejected the builder’s argument that the allottee could have taken possession subject to the outcome of the case, stating that the allottee was justified in seeking proper adjudication before taking possession.

The Supreme Court’s decision was based on a careful analysis of the facts, the terms of the agreement, and the relevant legal principles. The Court emphasized the importance of fairness and equity in consumer disputes and held that the builder could not impose unjust conditions on the allottee.

The Court quoted the following from the judgment:

“The definition of Maintenance Agency means “DHDL (the builder) or association of allottees or such other agency…….” but the conjunction “or” as has been applied in the definition clause ought to mean in the alternative and this definition cannot be construed to infer that even after handing over the maintenance work to an association, the builder shall continue to remain as a maintenance agency entitled to collect maintenance charges.”

“But without any claim from the entity, who are to render maintenance services and charge for the same, in our opinion, the two statutory fora ought not to have directed the allottee to make payment of maintenance charges.”

“As the offer for possession was conditional on settling of accounts and, as the accounts reflected illegal demand, the builder cannot argue that there was a valid offer for possession under the letter dated 10th June 2013.”

Key Takeaways

• Builders cannot collect maintenance charges from flat buyers before handing over possession, unless they are the ones providing the maintenance services and have a valid claim.
• Delay compensation is payable from the date agreed upon by the parties, and not just until the date of a conditional or invalid offer of possession.
• Builders must ensure that their offers of possession are unconditional and do not impose illegal demands on the flat buyers.
• The Supreme Court has emphasized the importance of fairness and equity in consumer disputes, and builders cannot take undue advantage of flat buyers.

This judgment is likely to have a significant impact on the real estate sector in India, as it clarifies the obligations of builders and protects the rights of flat buyers. It sets a precedent that builders cannot impose unjust conditions on flat buyers, and that they must adhere to the terms of the agreement and provide valid offers of possession.

Directions

The Supreme Court gave the following directions:

• The findings of the National Commission and the State Commission that the allottee would be required to pay maintenance charges were set aside.
• The builder was directed to issue a fresh offer of possession within eight weeks from the date of the judgment.
• The builder was directed to pay delayed compensation at the rate of Rs. 10 per square feet per month for the entire period from March 2011 till the date on which the fresh offer of possession is issued.
• The delayed possession compensation was to be paid to the allottee after adjusting the delayed compensation already paid. The early payment rebate of Rs. 95,136 was also to be adjusted.
• The order as to costs to be paid to the allottee quantified by the National Commission as Rs. 50,000 was retained.

Development of Law

The ratio decidendi of this case is that a builder cannot collect maintenance charges from a flat buyer before handing over possession, unless the builder is the maintenance agency. The builder cannot impose unjust conditions on the flat buyer, such as demanding illegal payments before handing over possession. The delay compensation is payable from the date agreed upon by the parties, and not just until the date of an invalid offer of possession.

This judgment clarifies the position of law regarding maintenance charges and delay compensation in real estate disputes. It also reinforces the principle that consumer disputes must be decided in a fair and equitable manner.

Conclusion

The Supreme Court’s judgment in the case of Utpal Trehan vs DLF Home Developers Ltd. provides significant relief to flat buyers by clarifying that builders cannot collect maintenance charges before handing over possession and that delay compensation must be paid from the agreed-upon date until a valid offer of possession is made. This judgment reinforces the rights of consumers and sets a precedent for fair and equitable practices in the real estate sector.