Supreme Court Enforces Agreement for Flat Allotment Despite Payment Dispute: Suman Jindal & Anr. vs. M/s. Adarsh Developers (25 April 2019)

Introduction

Date of the Judgment: 25 April 2019

Citation: (2019) INSC 399

Judges: Dr. Dhananjaya Y Chandrachud, J and Hemant Gupta, J

Can a developer cancel a flat allotment if the buyer has paid a reduced booking amount that was agreed upon by both parties? The Supreme Court of India recently addressed this issue in a case where a developer attempted to cancel a flat allotment, claiming that the full booking amount had not been paid, despite evidence of an agreement to reduce the booking amount. This case highlights the importance of written agreements and the obligations of developers under the Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972. The judgment was delivered by a two-judge bench comprising Dr. Dhananjaya Y Chandrachud, J and Hemant Gupta, J.

Case Background

The appellants, Suman Jindal and another, booked a residential apartment with the respondent, M/s. Adarsh Developers, in their project called “Adarsh Palm Retreat” in Bangalore. The apartment was split into two units, X 903 (a) and (b). Initially, the appellants had also booked another flat, F 703, for which an agreement to sell was entered into on 1 February 2005. The dispute arose concerning flat X 903 (a) and (b). The agreed sale consideration for this flat was Rs 40,95,801. The initial letter of allotment stipulated that the booking would be confirmed upon payment of 25% of the flat’s value as the booking amount.

The appellants paid Rs 1 lakh on or about 12 February 2005 and a further Rs 3 lakhs on 24 March 2005. A meeting took place on 21 February 2008, after which an email was sent by the appellants to the developer. In this email, the appellants stated that they had paid Rs 4 lakhs towards the booking and that their financial institution would make subsequent payments. They also noted that the developer had not yet provided the necessary documents for the loan disbursement. The email stated that the appellants needed to pay 15% of the agreement value, including the Rs 4 lakhs already paid, and that the agreement value for the flat was Rs 42.2 lakhs. The appellants agreed to pay the balance of Rs 2.33 lakhs by 29 February 2008.

The developer’s Vice-President responded on 22 February 2008, acknowledging the email and agreeing to the terms. Following this, on 28 February 2008, the appellants paid Rs 2,50,000, bringing the total payment to Rs 6,50,000, which was slightly more than 15% of the agreed sale consideration. The developer then stated that the agreement for flat X 903 would be ready by the first week of March. However, on 20 March 2008, the developer demanded the balance of the sale consideration, threatening penal interest for delays. The appellants informed the developer that further payments would be arranged through a loan. On 26 May 2008, the developer stated that the booking amount of 15% was not paid and refused to execute the agreement. Finally, on 30 November 2008, the developer cancelled the allotment, stating that the appellants had failed to pay 25% of the total cost of the flat as the booking amount. The Rs 2,50,000 paid on 28 February 2008 was adjusted to the cost of flat F 703.

Timeline:

Course of Proceedings

The appellants filed a consumer complaint before the Karnataka State Consumer Disputes Redressal Commission (SCDRC) after the developer cancelled the allotment. The SCDRC dismissed the complaint, holding that the appellants were not ‘consumers’ under the Consumer Protection Act, 1986, that they had not paid the booking amount, and that they could still pay the entire sale consideration or seek a refund. The National Consumer Disputes Redressal Commission (NCDRC) substantially affirmed this order, stating that the appellants had failed to make payment for the flat, and hence there was no deficiency of service.

Legal Framework

The Supreme Court considered Section 4 of the Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972, which states:

“Section 4. Promoter before accepting advance payment or deposit to enter into agreement and agreement to be registered – Notwithstanding anything contained in any other law a promoter who intends to construct or constructs a block or building of flats, all or some of which are to be taken or are taken on ownership basis, shall, before he accepts any sum of money as advance payment or deposit, which shall not be more than twenty per cent of the sale price, enter into a written agreement for sale with each of such persons who are to take or have taken such flats, and the agreement shall be registered under the Registration Act, 1908 and such agreement shall contain the prescribed particulars; and to such agreement there shall be attached, such documents or copies thereof, in respect of such matters, as may be prescribed.”

This section mandates that a promoter must enter into a written agreement for sale before accepting any advance payment or deposit, which should not exceed 20% of the sale price. The agreement must be registered under the Registration Act, 1908.

Arguments

Appellants’ Arguments:

• The appellants argued that there was a novation, where the original booking amount of 25% was reduced to 15%.
• They pointed to the email exchange of 21 and 22 February 2008, where the developer agreed to the reduced booking amount.
• The appellants stated that they paid Rs 6,50,000 by 28 February 2008, which was more than 15% of the agreed sale consideration.
• They also highlighted the developer’s email of 26 May 2008, which acknowledged that the booking amount was 15%.
• The appellants argued that under Section 4 of the Karnataka Ownership Flats Act, 1972, the developer was obligated to enter into an agreement to sell before accepting any advance payment.
• They stated that they had repeatedly asked the developer to execute the necessary documentation so that they could obtain a loan and make the balance payment.
• The appellants asserted that the cancellation of the agreement was a deficiency of service.

Respondent’s Arguments:

• The respondent argued that the original agreement stipulated a booking amount of 25% of the total cost of the flat.
• They claimed that the initial booking amount of 25% was not paid until February 2008.
• The respondent contended that the builder was justified in cancelling the agreement due to non-payment of the full booking amount.
• They also noted that after the dismissal of the appeal by the NCDRC, the developer had entered into an agreement to sell with a third party on 16 March 2013.
• The respondent argued that at most, the appellants were entitled to a refund of the consideration with reasonable interest.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

1. Whether the developer was justified in cancelling the allotment of the flat to the appellants on the ground that they had not paid the full booking amount of 25%, when the parties had agreed to reduce the booking amount to 15%.

Treatment of the Issue by the Court

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

Authorities

The Court considered the following legal provision:

✓ Section 4 of the Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972: This section mandates that a promoter must enter into a written agreement for sale before accepting any advance payment or deposit, which should not exceed 20% of the sale price. The agreement must be registered under the Registration Act, 1908.

Judgment

The following table shows how each submission made by the parties was treated by the Court:

The following table shows how each authority was viewed by the Court:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the documentary evidence, particularly the email exchanges between the appellants and the developer. The Court emphasized the following points:

• The email exchange between the parties on 21 and 22 February 2008, which clearly indicated an agreement to reduce the booking amount from 25% to 15%.
• The developer’s email of 26 May 2008, which acknowledged that the booking amount was 15% of the total sale consideration.
• The fact that the appellants had paid Rs 6,50,000, which was more than 15% of the agreed sale consideration.
• The statutory obligation of the developer under Section 4 of the Karnataka Ownership Flats Act, 1972, to enter into a written agreement for sale before accepting advance payment.
• The appellants’ consistent requests for the execution of the agreement to facilitate loan disbursement.

These factors led the Court to conclude that the developer’s cancellation of the allotment was misconceived and that the appellants were entitled to the fulfillment of the agreement.

Logical Reasoning:

Judgment

The Supreme Court allowed the appeal, setting aside the orders of the SCDRC and NCDRC. The Court directed the following:

1. The appellants were to pay the balance of the sale consideration (Rs 40,95,801 minus Rs 6,50,000) within four weeks, along with interest at 9% per annum from 20 April 2008, until the date of payment.
2. The appellants were also to pay BWSSB & BESCOM charges, Maintenance Deposit, Registration and Stamp Duty charges, and service tax as applicable.
3. The respondent was directed to execute all necessary agreements to complete the title of the appellants and to have the agreements duly registered, simultaneously with the handing over of the payment. If the respondent failed to do so, the Registrar of the SCDRC would execute the agreements on behalf of the respondent.
4. Possession of the flat was to be handed over to the appellants simultaneously with the completion of registration formalities.
5. The interim order directing status quo passed by the Court on 15 July 2013 was to continue until the above exercise was completed.

The Court stated, “The subsequent agreement must necessarily be subordinate to the rights of the appellant.” The Court also noted, “The insistence of the appellants on the developer doing so was, therefore, consistent with the statutory obligation cast on the respondent.” Furthermore, the court observed, “Hence the entire basis on which the termination of the allotment took place was misconceived.”

Key Takeaways

• Written agreements and email communications are crucial in establishing the terms of a contract.
• Developers are obligated under the Karnataka Ownership Flats Act, 1972, to enter into a written agreement for sale before accepting advance payment.
• A subsequent agreement with a third party cannot override the rights of a prior contract holder.
• If a booking amount is reduced by mutual consent, the developer cannot cancel the allotment based on the original booking amount.

Directions

The Supreme Court directed the following:

1. The appellants were to pay the balance of the sale consideration (Rs 40,95,801 minus Rs 6,50,000) within four weeks, along with interest at 9% per annum from 20 April 2008, until the date of payment.
2. The appellants were also to pay BWSSB & BESCOM charges, Maintenance Deposit, Registration and Stamp Duty charges, and service tax as applicable.
3. The respondent was directed to execute all necessary agreements to complete the title of the appellants and to have the agreements duly registered, simultaneously with the handing over of the payment. If the respondent failed to do so, the Registrar of the SCDRC would execute the agreements on behalf of the respondent.
4. Possession of the flat was to be handed over to the appellants simultaneously with the completion of registration formalities.
5. The interim order directing status quo passed by the Court on 15 July 2013 was to continue until the above exercise was completed.

Development of Law

The ratio decidendi of this case is that a developer cannot cancel a flat allotment if the buyer has paid the booking amount as agreed upon by both parties, even if it is less than the initially stipulated amount. This judgment reinforces the importance of written agreements and the obligations of developers under the Karnataka Ownership Flats Act, 1972. There is no change in the previous position of law, but it clarifies the application of the law in cases of agreed reduction in booking amount.

Conclusion

The Supreme Court’s judgment in Suman Jindal & Anr. vs. M/s. Adarsh Developers underscores the significance of adhering to agreed-upon terms in real estate transactions. The Court held that the developer’s cancellation of the flat allotment was unjustified, as the appellants had paid the reduced booking amount agreed upon by both parties. This decision reinforces the importance of written agreements and the statutory obligations of developers, providing clarity and protection for consumers in similar situations.