Supreme Court Denies Interest on Flat Purchases After Demolition in Kerala Coastal Zone Case (13 May 2022)

Introduction

Date of the Judgment: May 13, 2022
Citation: Not Available
Judges: Justice L. Nageswara Rao and Justice B.R. Gavai
Can flat owners claim interest on the money they invested in their apartments after those apartments were demolished due to violations of coastal zone regulations? The Supreme Court of India recently addressed this question in a case involving the demolition of four apartment complexes in Kerala. The court considered whether the flat owners, who had already received the principal amount for their flats, were also entitled to interest on that amount, given the circumstances of the demolition and the time they had spent living in the apartments. The judgment was delivered by a bench of Justice L. Nageswara Rao and Justice B.R. Gavai.

Case Background

The case revolves around the demolition of four apartment complexes in Ernakulam, Kerala, which were found to be in violation of coastal zone regulations. The flat owners had purchased these apartments and lived in them for several years before the demolition. After the demolition, the Supreme Court initiated a suo motu case to monitor the compliance of its earlier directions regarding compensation to the flat owners. The court had previously directed the State Government to pay an interim compensation of Rs. 25 lakhs to each flat owner. A committee headed by Justice K. Balakrishnan Nair, a retired judge of the Kerala High Court, was formed to oversee the payment of compensation. The committee determined the amount each flat owner was entitled to for the building portion of their apartment, while the undivided share of the land was retained by the flat owners.

Timeline

Course of Proceedings

The Supreme Court initiated a suo motu case (Miscellaneous Application Nos. 1808-1809 of 2019) to monitor the compliance of its directions issued in its judgment dated 08.05.2019 in Civil Appeal Nos. 4784-4785 of 2019 and 4790-93 of 2019. This was after the demolition of the four building complexes. The court appointed a committee headed by Justice K. Balakrishnan Nair to oversee the payment of compensation to the flat owners. The committee determined the amount each flat owner was entitled to for the building portion of their apartment. The State Government paid an interim compensation of Rs. 25 lakhs to each flat owner. The remaining amount, as determined by the committee, was to be paid by the builders. However, the flat owners also sought interest on the principal amount they had paid for the flats.

Legal Framework

The judgment references the definition of “interest” from Black’s Law Dictionary, which defines it as “the compensation fixed by agreement or allowed by law for the use or detention of money, or for the loss of money by one who is entitled to its use; especially, the amount owed to a lender in return for the use of the borrowed money.” The Court also cited the principle that a person deprived of the use of money to which they are legitimately entitled has a right to be compensated for the deprivation. The Court also considered the principles laid down in previous cases regarding the payment of interest as compensation.

Arguments

Arguments on behalf of the Flat Owners:

• Flat owners argued that they invested their life savings in the flats, which were later demolished, leaving them without a place to live.
• They contended that the compensation they received was not sufficient to purchase a similar accommodation due to price escalation.
• They highlighted that they had to bear the additional expense of renting alternate accommodation after vacating their flats.
• The Jain Coral Cove Allottee’s Association submitted that they made payments between 2007 and 2013, were given possession in 2013, and the demolition took place in 2019. They argued that the compensation was not the current market value but only the amount they originally paid. They also pointed out that they were paying high interest rates on loans taken for purchasing the flats.
• The Alfa Serene Flat Owners Association argued that the compensation should be treated as rehabilitation compensation and sought compound interest at 15 percent on the land price they paid.
• The Golden Kayaloram Residents Association and H2O Apartment Owners Association also sought interest, stating that they had been deprived of enjoying the flats they purchased more than a decade ago. They also mentioned that many of them are senior citizens and unable to construct anything on the land.

Arguments on behalf of the Builders:

• The builders argued that not all flat owners were similarly situated, as some had paid the full amount while others were still paying installments.
• They contended that a blanket rate of interest could not be applied to all flat owners.
• They stated that the flat owners had enjoyed the benefits of their investment from 2009 to 2019.
• The builders also highlighted that the flat owners still had ownership of the undivided interest in the land, which had increased in market value.
• They argued that the flats would have depreciated in value over time.
• One builder argued that the flat owners were aware of the show cause notices and still proceeded to invest and reside in the property.
• They further argued that construction was now permitted on the land as it fell under CRZ-II category, and the flat owners could construct new structures.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court addressed the following issue:

1. Whether the flat owners are entitled to interest on the amount they paid to the builders for the purchase of the flats.

Treatment of the Issue by the Court

Authorities

The following authorities were considered by the court:

Judgment

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

How each authority was viewed by the Court?

• Black’s Law Dictionary: The Court used the definition of “interest” to establish the basic understanding of the term.
• Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy (1992) 1 SCC 508: The Court acknowledged the principle that a person deprived of the use of money is entitled to compensation, but distinguished it based on the specific facts of the case.
• Central Bank of India v. Ravindra (2002) 1 SCC 367: The Court used this case to acknowledge that interest is a form of compensation for the deprivation of money, but did not apply it to the present case.
• Allahabad Bank v. Bengal Paper Mills Company Limited & Ors. (2004) 8 SCC 236: The Court relied on this case to support the rejection of interest, as the flat owners had enjoyed the assets for several years.
• Supertech Limited v. Emerald Court Owner Resident Welfare Association (2021) 10 SCC 1: The Court distinguished this case, as it did not involve the transfer of possession or ownership of the land, unlike the present case.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the fact that the flat owners had enjoyed the benefit of residing in their flats for an average of 8-9 years. Additionally, the Court noted that the flat owners retained ownership of the land, which had likely increased in value. The Court also considered the depreciation of the flats over time, which further weighed against the claim for interest. The Court also distinguished the facts of the case from those in Supertech Limited v. Emerald Court Owner Resident Welfare Association, where the flat owners had not received possession of their flats or ownership of the land.

Sentiment Analysis

The following table shows the ranking of sentiment analysis of reasons given by the Supreme Court:

Fact : Law Ratio

The following table shows the ratio of fact:law percentage that influenced the court to decide:

Logical Reasoning

The Supreme Court reasoned that the flat owners were not entitled to interest on the amounts they had paid to the builders, stating, “the flat-owners had the benefit of staying in the flats for a period of 8-9 years on an average and also that the land belongs to the flat-owners as joint owners the market value of which has increased substantially.” The Court also noted that “flats that were taken possession of in the years between 2009-2013 would have depreciated in value.” The Court further observed that “in view of the position as stated above, we are of the considered view that the flat-owners are not entitled for any interest on the amounts paid by them to the builders.” The Court rejected the claim for interest based on the specific facts of the case, distinguishing it from cases where possession was not handed over or land ownership was not transferred.

Key Takeaways

• Flat owners who have enjoyed possession of their flats for several years and retain ownership of the land are generally not entitled to interest on the purchase amount after demolition.
• The court will consider the benefit of use and depreciation of the property when deciding on interest claims.
• The specific facts of each case, including possession, land ownership, and depreciation, will be considered when determining whether interest is applicable.

Directions

No specific directions were given by the Supreme Court in this order.

Development of Law

The ratio decidendi of this case is that flat owners are not entitled to interest on the amount paid for their flats if they have enjoyed possession of the flats for a considerable period and also retain ownership of the land, which has appreciated in value. This judgment clarifies that the court will consider the benefit of use and depreciation of the property when deciding on interest claims and distinguishes from cases where possession was not handed over or land ownership was not transferred. This is not a change in the previous position of law, but an application of existing principles to a unique set of facts.

Conclusion

The Supreme Court dismissed the claim for interest by the flat owners, stating that they had already benefited from residing in the flats for several years and also retained ownership of the land, which had increased in value. The court considered the specific facts of the case, including the duration of possession and the depreciation of the flats, in reaching its decision.

Category

Parent Category: Civil Law

Child Category: Compensation

Child Category: Interest

Child Category: Real Estate Law

Child Category: Coastal Zone Regulation

Parent Category: Civil Procedure Code, 1908

Child Category: Order 1 Rule 8, Civil Procedure Code, 1908

FAQ

Q: What was the main issue in this case?
A: The main issue was whether flat owners were entitled to interest on the money they paid for their flats after the flats were demolished due to violation of coastal zone regulations.

Q: What did the Supreme Court decide?
A: The Supreme Court decided that the flat owners were not entitled to interest on the amount they paid for their flats. The court reasoned that the flat owners had already benefited from residing in the flats for several years and also retained ownership of the land, which had increased in value.

Q: Why did the court deny the interest?
A: The court denied interest because the flat owners had enjoyed the use of the flats for an average of 8-9 years, they retained ownership of the land, which had appreciated in value, and the flats themselves would have depreciated over time.

Q: What is the significance of this judgment?
A: This judgment clarifies that when determining claims for interest, the court will consider factors such as the period of enjoyment of the property, the ownership of the land, and the depreciation of the property. It also highlights that flat owners who have enjoyed possession of their flats and retain land ownership may not be entitled to interest after demolition.

Q: What should flat owners do if their flats are demolished?
A: Flat owners should seek legal advice to understand their rights and potential remedies. This judgment indicates that interest on the purchase price may not be granted if the flat owners have had the benefit of using the property for a significant period and retain ownership of the land.