Supreme Court enhances interest for delayed flat possession: Vidya vs. Parsvnath Developers (2024)

Introduction

Date of the Judgment: 29 July 2024
Citation: 2024 INSC 557
Judges: B.R. Gavai, J. and Sandeep Mehta, J.

Can a developer be allowed to pay a lower interest rate for delayed possession of a flat, while charging a higher rate for delayed payments from the buyer? The Supreme Court addressed this question in a recent consumer case, highlighting the need for fairness and parity in such agreements. The case involved a group of homebuyers who were seeking a refund and compensation for the delayed possession of their flat. The Supreme Court bench, comprising Justices B.R. Gavai and Sandeep Mehta, delivered the judgment.

Case Background

In 2008, M/s Parsvnath Developers Ltd. launched a housing project named ‘Parsvnath Paramount’ in New Delhi. The complainants, the appellants in this case, booked a 3BHK flat in this project and paid ₹16,03,066 on 15th July 2008, and a similar amount on 14th August 2008. On 10th October 2008, they entered into a Flat Buyer Agreement with the developer and were allotted Flat No. 301 in Tower 3, with an area of 1805 sq. ft. The total cost of the flat was ₹1,28,24,525, plus ₹3,00,000 for a covered car parking space. The agreement specified that the construction would be completed within 30 months from the start of construction of the tower, with a 6-month grace period. The homebuyers opted for a ‘Construction Linked Payment Plan’ and paid a total of ₹1,30,62,971 between 15th July 2008 and 21st December 2013, which was about 95% of the total cost.

In April 2011, the developer unilaterally changed the allotted flat to Flat No. 702 in Tower 2, with an area of 1942 sq. ft. The developer also demanded and received VAT payments of ₹60,141 on 29th January 2014 and 13th March 2014. Despite the payment of almost the entire amount, the possession of the flat was not handed over within the agreed timeline. The homebuyers made several attempts to contact the developer, but received no satisfactory updates. A site visit in June 2015 revealed that no construction work was ongoing. The homebuyers then sent letters to the developer in June 2015, October 2015 and January 2016, seeking updates and compensation for the delay. The developer responded vaguely, citing technical issues and a recession in the real estate sector as reasons for the delay. Subsequently, the homebuyers filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC) seeking a refund with 24% interest, along with compensation. The NCDRC partly allowed the complaint, directing a refund with 9% interest.

Timeline

Arguments

Arguments by the Homebuyers (Appellants):

• The homebuyers argued that the NCDRC erred in awarding interest at only 9% per annum.
• They highlighted that the agreement stipulated a 24% interest rate for delayed payments by the buyer, while only providing for a 12% interest rate for delays by the developer.
• The homebuyers contended that the agreement was unfairly tilted in favor of the developer.
• They submitted that the principle of parity should be applied, and the interest rate should be 24% per annum.
• They asserted that the 9% interest rate awarded was not sustainable.

Arguments by the Developer (Respondent):

• The developer claimed that the delay in the project was not deliberate.
• They stated that the delay was due to the delay in sanctioning of plans by the Delhi Development Authority.
• The developer argued that the delay should be covered under the force majeure clause.
• They submitted that even the 9% interest was not liable to be imposed on them.

The innovativeness of the argument by the homebuyers was that they sought parity in the interest rates, arguing that the same rate should apply to both the buyer and the developer for delays, which was not considered by NCDRC.

Issues Framed by the Supreme Court

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

1. Whether the National Consumer Disputes Redressal Commission (NCDRC) was justified in awarding interest at the rate of 9% per annum, which was less than the rate of interest that the developer would charge the flat purchaser for a delay in payment, as per the agreement.

Treatment of the Issue by the Court

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

Authorities

The following authorities were considered by the Supreme Court:

• DLF Home Developers Limited v. Capital Greens Flat Buyers Association [(2021) 5 SCC 537]: This case was cited to reject the developer’s argument that the delay was due to force majeure. The Supreme Court of India held that delays in obtaining approvals do not constitute force majeure.
• Clause 7(b) of the Flat Buyer Agreement: This clause specified that in case of delay in completion of the project by the respondent-Developer, it was liable to pay interest only at the rate of 12% per annum.

Judgment

The Supreme Court partly allowed the appeal, modifying the NCDRC’s order on the interest rate.

How each authority was viewed by the Court?

• DLF Home Developers Limited v. Capital Greens Flat Buyers Association [(2021) 5 SCC 537]*: The Court followed this authority to reject the developer’s claim of force majeure, reinforcing the principle that delays in obtaining approvals do not qualify as force majeure.
• Clause 7(b) of the Flat Buyer Agreement: The Court relied on this clause to enhance the interest rate to 12%, emphasizing the importance of contractual terms and ensuring fairness in the application of interest rates.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of fairness and the need to protect the interests of homebuyers. The court emphasized that the homebuyers had made timely payments and were deprived of possession due to the developer’s delay. The court also noted the imbalance in the agreement, where the developer charged a high interest rate for delayed payments by the buyer but offered a lower rate for their own delays. The Court was swayed by the fact that the homebuyers had suffered due to no fault of their own. The Court also considered the fact that the developer had not provided any reasonable explanation for the delay.

Fact:Law Ratio

The Court’s reasoning was based on the following points:

• The homebuyers had made timely payments and were deprived of possession due to the developer’s delay.
• The agreement was tilted in favor of the developer, with a higher interest rate for delayed payments by the buyer and a lower rate for delays by the developer.
• The developer’s claim of force majeure was rejected, as delays in obtaining approvals do not constitute force majeure.
• The NCDRC was not justified in awarding a lower interest rate than what was agreed upon in the agreement.

Logical Reasoning:

The Court considered the argument for awarding 24% interest based on parity but ultimately decided to enhance the interest rate to 12% as per the terms of the agreement. The Court reasoned that while parity is important, the specific terms of the agreement should also be respected. The Court rejected the developer’s argument that the delay was due to force majeure, citing that delays in obtaining approvals do not constitute force majeure. The Court’s final decision was to uphold the refund but enhance the interest to 12%, aligning with the contractual terms while ensuring fairness.

The Supreme Court observed:

“Undisputedly, the facts of the case show that the project was delayed inordinately. The complainants-appellants were made to suffer for long, for no fault of them. In spite of making the entire payment, they were deprived of the possession within the stipulated time.”

“In our view, the learned Commission, at least, ought to have awarded interest at the rate of 12% per annum in view of clause 7(b) of the Agreement.”

“The direction made by the learned Commission for refund of the entire amount deposited by the complainants-appellants is upheld. However, the direction with regard to interest is modified to the extent that it shall be paid at the rate of 12% per annum from the date of respective deposit till the date of refund.”

Key Takeaways

• Developers cannot impose unfair conditions in agreements that favor them over homebuyers.
• Homebuyers are entitled to fair compensation for delays in possession, at least as per the terms of the agreement.
• Delays in obtaining approvals do not constitute force majeure and cannot be used as an excuse for delaying projects.
• The principle of parity should be considered when determining interest rates for delays by both parties.
• The Supreme Court’s emphasis on fairness and the protection of homebuyers’ rights will likely influence future cases.

Directions

The Supreme Court directed that:

• The developer must refund the entire amount deposited by the homebuyers.
• The developer must pay interest at the rate of 12% per annum from the date of respective deposit till the date of refund.
• The unpaid amount must be paid within three months from the date of the judgment.

Development of Law

The ratio decidendi of this case is that the interest rate for delayed possession should not be less than what is stipulated in the agreement for the developer’s delay and that delays in obtaining approvals do not constitute force majeure. This judgment reinforces the principle that contractual terms should be fair and balanced, and that developers cannot exploit their position to the detriment of homebuyers. It also clarifies that developers cannot use the excuse of delays in obtaining approvals to justify project delays. This case does not change any previous position of the law, but rather reinforces existing principles of fairness and contractual obligations.

Conclusion

The Supreme Court’s judgment in Vidya and Others vs. M/s Parsvnath Developers Ltd. underscores the importance of fair and balanced agreements between developers and homebuyers. The Court enhanced the interest rate to 12% per annum, emphasizing that developers cannot impose unfair conditions and must compensate homebuyers fairly for delays. The judgment also clarifies that delays in obtaining approvals do not constitute force majeure. This ruling reinforces the protection of homebuyers’ rights and sets a precedent for future cases involving delayed possession of flats.