Supreme Court Modifies Compensation in Housing Delay Case: NBCC vs. Shri Ram Trivedi (2021)

Introduction

Date of the Judgment: March 08, 2021
Citation: Not Available
Judges: Dr Dhananjaya Y Chandrachud, J and M R Shah, J
Can a builder avoid responsibility for delays in handing over a dwelling unit by using the term “endeavour” in their agreement? The Supreme Court of India recently addressed this question in a case concerning a housing project delay. The court clarified that while “endeavour” implies an effort, it does not absolve the builder of the responsibility to make reasonable efforts to complete the project on time. This judgment impacts the rights of consumers who have invested in housing projects and face significant delays. The bench consisted of Justice Dr Dhananjaya Y Chandrachud and Justice M R Shah.

Case Background

In 2012, NBCC (India) Limited launched a group housing project in Gurgaon, inviting applications from prospective buyers. Shri Ram Trivedi applied on March 14, 2012, for a unit in the “NBCC Heights” project. The allotment letter, issued on June 30, 2012, stated that NBCC would “endeavour” to hand over possession within two and a half years. The agreement also included a clause for compensation at Rs. 2 per sq ft per month for delays beyond one year after the stipulated period, but only after four years from the date of allotment. However, the possession was not handed over within the stipulated time. Shri Ram Trivedi filed a consumer complaint in January 2017 due to the delay in receiving possession of his dwelling unit. The occupation certificate was obtained by the appellant on 19 July 2017 and a letter of possession was issued to the respondent on 9 February 2018. Possession was handed over on July 26, 2018, after part payments were made by the respondent.

Timeline:

Legal Framework

The case revolves around the interpretation of Clause 20 of the allotment letter, which states:

“20.Subject to the terms of this Application and the Agreement including but not limited to timely payment of the Total Price, stamp duty and other charges due and payable according to the payment plan applicable to the Applicant or as per demand raised by NBCC and the Applicant complying with all the terms and conditions of the Application, NBCC shall endeavor to complete the construction of the Dwelling Unit within 2 ½ (two years and six months) from the date of allotment letter. NBCC on obtaining certificate of occupation and / or use from the competent authorizes shall offer the Dwelling Unit to the Applicant for his / her occupation & use and subject to the applicant having complied with all the terms and conditions of the agreements.
In the event of the Applicant failure to clear all the outstanding dues including interest, if any and / or takeover / occupy the Dwelling Unit within 30 days from the date of intimation in writing by NBCC, then the same shall lie at the Applicant’s risk and cost and the Applicant shall be liable to pay a compensation to NBCC (for maintaining the complex) @ Rs. 2/-per sq. ft. of the super area per month for the entire period of such delay. This compensation shall be in addition to the other dues / claims of interest etc. as per terms of sale / allotment. The applicant agrees that if however the completion of the said Complex is delayed due to force majeure (such as acts of god or the public enemy, expropriation, compliance with any order or request of government authorizes, act of war, rebellions, sabotage, fire, floods illegal strikes, or riots etc.) then NBCC shall be entitled to extension of time for delivery of possession of the Dwelling Unit. NBCC agrees to pay to the allottee and subject to the applicant not being in default under any terms of this Application/ agreement Compensation @ Rs. 2/- per sq ft of the use super area of the Dwelling Unit per month for the period of such delay beyond One year (plus valid extend period due to force majeure reasons) from the stipulated date of completion of the complex. Thus the compensation, if any shall be payable only after four years plus valid extension due to force majeure reasons from date of alIotment. The adjustment of such compensation shall be done only at the time of execution of conveyance deed of the Dwelling Unit.”

The court also considered the Consumer Protection Act, 1986, particularly Section 2(1)(r) which defines unfair trade practices and Section 2 (1) (o) which defines “service”.

Arguments

Appellant (NBCC) Arguments:

• The respondent was allotted a unit under a time-linked plan, and payments were to be made according to a schedule.
• While the first four installments were paid on time, there was a delay in paying the fifth installment, and the final installment was payable on the issuance of the letter of possession.
• Since the respondent delayed the fifth installment, there was no justification to award interest.
• NBCC only committed to “endeavour” to complete the project within two and a half years, not an unconditional commitment for delivery by a specific date.
• Clause 20 stipulated compensation at the rate of Rs 2 per sq ft of the super area.
• The appellant was entitled to the benefit of supervening force majeure conditions.

Respondent (Shri Ram Trivedi) Arguments:

• The respondent argued that there was a delay in handing over the possession of the dwelling unit.
• The compensation of Rs. 2 per sq. ft. as per the agreement is not sufficient to cover the losses suffered by the respondent due to the delay.

Submissions Table:

Issues Framed by the Supreme Court

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

• Whether the term “endeavour” in the allotment letter constitutes a binding commitment for timely possession.
• Whether the compensation clause in the allotment letter (Rs 2 per sq ft) is fair and reasonable.
• Whether the delay in payment of the fifth installment by the respondent justifies denial of interest.
• Whether the appellant’s force majeure claims are valid.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court relied on the following authorities:

Cases:

• Pioneer Urban Land and Infrastructure Limited v. Govindan Raghavan [ (2019) 5 SCC 725] – Supreme Court of India: This case was cited to support the view that one-sided contracts are unfair and constitute an unfair trade practice. The court upheld the NCDRC’s award of compensation at 10% per annum instead of the contractually stipulated rate.
• Wg. Cdr. Arifur Rahman Khan and Aleya Sultana & Ors. v. DLF Southern Homes Pvt Ltd (now known as Begur OMR Homes Pvt Ltd) [Civil Appeal No 6239 of 2019] – Supreme Court of India: This case followed the decision in Pioneer Urban, interpreting an Apartment Buyers’ Agreement that was breached due to a gross delay. It held that the consumer forum’s jurisdiction to award just and reasonable compensation is not constrained by the terms of a rate prescribed in an unfair bargain.
• DLF Home Developers Ltd v. Capital Greens Flat Buyers Association [Civil Appeal Nos 3864-3889 of 2020] – Supreme Court of India: This case was cited to reject the force majeure defense, stating that delays in building plan approvals and stop work orders due to safety failures are normal incidents of a construction project and do not constitute force majeure.
• Central Bank of India v Ravindra [(2002) 1 SCC 367] – Supreme Court of India: This case was cited in the context of determining a reasonable rate of interest.

Legal Provisions:

• Section 2(1)(r) of the Consumer Protection Act, 1986: Defines unfair trade practices.
• Section 2(1)(o) of the Consumer Protection Act, 1986: Defines “service”.

Authority Usage Table:

Judgment

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

How each authority was viewed by the Court?

• Pioneer Urban Land and Infrastructure Limited v. Govindan Raghavan [(2019) 5 SCC 725]*: The court followed this precedent to hold that one-sided contracts are unfair and constitute an unfair trade practice, justifying the award of compensation at a rate higher than the contractually stipulated rate.
• Wg. Cdr. Arifur Rahman Khan and Aleya Sultana & Ors. v. DLF Southern Homes Pvt Ltd [Civil Appeal No 6239 of 2019]*: The court followed this precedent to reinforce the principle that consumer forums can award just compensation for delays, not constrained by unfair contractual terms.
• DLF Home Developers Ltd v. Capital Greens Flat Buyers Association [Civil Appeal Nos 3864-3889 of 2020]*: The court followed this precedent to reject the force majeure defense, stating that routine delays in construction are not valid force majeure grounds.
• Central Bank of India v Ravindra [(2002) 1 SCC 367]*: The court referred to this case while determining a reasonable rate of interest.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect consumer rights and ensure fairness in contractual agreements. The court emphasized that developers cannot exploit standard form contracts to impose unfair terms on consumers. The court also highlighted that the term “endeavour” does not absolve the builder from the responsibility to make reasonable efforts to complete the project on time. The court was also influenced by the fact that the compensation clause in the allotment letter was one-sided and unfair, as it imposed a much higher interest rate on the buyer for delayed payments while offering a meager compensation to the buyer for the delay on the part of the builder.

Sentiment Analysis of Reasons:

Fact:Law Ratio:

Logical Reasoning:

The court considered alternative interpretations of the “endeavour” clause, but ultimately rejected them as they would leave the purchaser at the mercy of the builder. The court also considered the force majeure defense but rejected it as the reasons given by the appellant were not valid force majeure events. The final decision was reached by considering the need to balance the interests of both the builder and the consumer.

The court’s reasoning can be summarized as follows:

• The term “endeavour” in the allotment letter does not absolve the builder of the responsibility to make reasonable efforts to complete the project on time.
• The compensation clause in the allotment letter (Rs 2 per sq ft) is one-sided and an unfair trade practice.
• The delay in the fifth installment payment by the respondent did not justify denial of interest.
• The force majeure defense raised by the appellant was not valid.

The court quoted the following from the judgment:

• “A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder.”
• “The agreement does not reflect an even bargain….”
• “Flat purchasers suffer agony and harassment, as a result of the default of the developer.”

The court did not have any minority opinion.

Key Takeaways

• Builders cannot use the term “endeavour” to avoid responsibility for delays in handing over possession of dwelling units.
• Compensation clauses in standard form contracts that are one-sided and unfair will not be upheld by the courts.
• Consumers are entitled to fair compensation for delays in possession, and the compensation cannot be limited to a meager amount.
• Force majeure defenses must be based on valid reasons and not on routine business exigencies.
• The Consumer Protection Act, 1986, provides remedies to consumers who have been subjected to unfair trade practices.

Potential Future Impact:

• This judgment will serve as a precedent for future cases involving similar disputes between builders and consumers.
• It will encourage builders to draft fair and balanced contracts with consumers.
• It will empower consumers to seek appropriate compensation for delays in possession.

Directions

The Supreme Court gave the following directions:

• The appellant shall pay simple interest to the respondent at the rate of 7% per annum from 1 January 2016 until 26 July 2018, which is the date on which possession was handed over.
• The direction in regard to the payment of an amount of Rs 2,00,000 towards loss of rent shall stand set aside.
• The appellant shall cooperate in completing all necessary formalities for completing the documentation (including formalities for registration) in respect of the dwelling unit within a period of one month from the date of receipt of a certified copy of this order.
• The payment of interest shall also be effected within one month.

Development of Law

The ratio decidendi of this case is that the term “endeavour” in a builder-buyer agreement does not absolve the builder of the responsibility to make reasonable efforts to complete the project on time. The court also held that one-sided compensation clauses in such agreements are unfair and an unfair trade practice. This judgment reinforces the position of law that consumer rights must be protected, and that builders cannot exploit standard form contracts to impose unfair terms on consumers. This is a reiteration of the position taken in Pioneer Urban Land and Infrastructure Limited v. Govindan Raghavan [(2019) 5 SCC 725] and Wg. Cdr. Arifur Rahman Khan and Aleya Sultana & Ors. v. DLF Southern Homes Pvt Ltd [Civil Appeal No 6239 of 2019].

Conclusion

In conclusion, the Supreme Court partially allowed the appeal, modifying the NCDRC’s order by reducing the interest rate to 7% per annum and setting aside the additional compensation for loss of rent. The court emphasized the need to protect consumer rights and ensure fair contractual practices in the real estate sector. This judgment clarifies the interpretation of the “endeavour” clause and highlights the importance of balanced and equitable agreements between builders and consumers.

Category

Parent Category: Consumer Law
Child Category: Real Estate Disputes
Child Category: Consumer Protection Act, 1986
Parent Category: Contract Law
Child Category: Standard Form Contracts
Parent Category: Consumer Protection Act, 1986
Child Category: Section 2(1)(r), Consumer Protection Act, 1986
Child Category: Section 2(1)(o), Consumer Protection Act, 1986

FAQ

Q: What does “endeavour” mean in a builder-buyer agreement?
A: “Endeavour” means that the builder must make a reasonable effort to complete the project on time. It does not mean that the builder can delay the project indefinitely without any consequences.

Q: Can a builder impose one-sided compensation clauses in standard form contracts?
A: No, the courts will not uphold one-sided compensation clauses that are unfair to the consumer. The contract should be balanced and equitable.

Q: What is the appropriate compensation for delays in handing over possession of a dwelling unit?
A: The compensation should be fair and reasonable, considering the losses suffered by the consumer due to the delay. It cannot be limited to a meager amount.

Q: What is the significance of the Consumer Protection Act, 1986, in such cases?
A: The Consumer Protection Act, 1986, provides remedies to consumers who have been subjected to unfair trade practices. It empowers consumers to seek appropriate compensation for delays in possession and other deficiencies in service.

Q: What are valid force majeure conditions in construction projects?
A: Valid force majeure conditions are events beyond the builder’s control, such as natural disasters or government orders. Routine business exigencies like disputes with contractors or boundary wall disputes are not considered valid force majeure conditions.