LEGAL ISSUE: Determination of fair compensation for deficiency in service in a real estate contract breach.
CASE TYPE: Consumer
Case Name: M/s. Fortune Infrastructure (Now Known as M/s. Hicon Infrastructure) & Anr. vs. Trevor D’Lima & Ors.
[Judgment Date]: 12 March 2018
Date of the Judgment: 12 March 2018
Citation: [Not Available in Source]
Judges: N.V. Ramana, J. and S. Abdul Nazeer, J.
Can a consumer court award compensation based on current market value when a builder fails to deliver a property? The Supreme Court addressed this question in a case where a real estate developer failed to hand over a flat to the buyers. The court examined the principles for calculating damages in cases of deficiency of service in real estate contracts, ultimately reducing the compensation awarded by the National Consumer Disputes Redressal Commission (NCDRC). This judgment clarifies how compensation should be determined when a builder breaches a contract, emphasizing a balanced approach that considers both the loss suffered by the buyer and the market conditions.
Case Background
In 2011, the appellants, M/s. Fortune Infrastructure (now known as M/s. Hicon Infrastructure), launched a residential housing project called ‘Hicons Onyx,’ later renamed ‘Fortune Residency.’ The respondents booked a flat (No. 202) on the 2nd floor of the ‘A’ wing, measuring 828.40 sq. ft., with one parking space. The total cost of the flat was ₹1,93,00,000. The respondents paid ₹1,87,00,000 towards the sale consideration. The appellants later transferred the project to M/s. Zoy Shelcon Pvt. Ltd., citing increased costs. Aggrieved by the non-delivery of the flat, the respondents filed a consumer complaint.
Timeline
| Date | Event |
|---|---|
| 2011 | Appellants launched the residential housing project ‘Hicons Onyx’ (later renamed ‘Fortune Residency’). |
| 2011 | Respondents booked Flat No. 202, paid ₹1,87,00,000 out of total consideration of ₹1,93,00,000. |
| Unknown | Appellants transferred the project to M/s. Zoy Shelcon Pvt. Ltd. |
| 2015 | Respondents filed a consumer complaint with NCDRC due to non-delivery of the flat. |
| 08.09.2016 | NCDRC passed an order in favour of the respondents. |
| 03.11.2016 | NCDRC dismissed the review application filed by the appellants. |
| 23.02.2017 | Supreme Court directed the appellants to deposit ₹2,50,00,000 before NCDRC. |
| 31.05.2017 | Appellants deposited ₹2,50,00,000 before NCDRC. |
| 12.03.2018 | Supreme Court delivered the judgment, modifying the compensation awarded by NCDRC. |
Course of Proceedings
The respondents filed a consumer complaint (CC No. 636 of 2015) before the National Consumer Disputes Redressal Commission (NCDRC), seeking the delivery of the flat or, alternatively, a refund and compensation. The NCDRC ruled in favor of the respondents, directing the appellants to refund ₹1,87,00,000, pay ₹3,65,46,000 as compensation, and ₹10,000 as litigation costs, with an interest of 10% per annum until the actual date of payment. The appellants’ review application was also dismissed. Dissatisfied, the appellants appealed to the Supreme Court.
Legal Framework
The Supreme Court considered the following legal provisions:
- Section 2(1)(g) of the Consumer Protection Act, 1986: This section defines “deficiency” as “any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.”
The Court also referenced the principles of contract law, particularly concerning the assessment of damages for breach of contract, as generally understood in the Indian Contract Act.
Arguments
Appellants’ Arguments:
- The appellants argued that they transferred the project to another company and should not be liable for not handing over the property.
- They contended that the current market rate of the property is about half the price awarded by the NCDRC.
- They requested the Court to consider the downward trends in the real estate market, which would justify lesser compensation.
Respondents’ Arguments:
- The respondents supported the NCDRC’s decision, stating that the appellants provided deficient service by delaying the handover of the flat.
- They admitted that the compensation awarded by the NCDRC did not reflect the true market rates for similar flats in the vicinity.
| Main Submission | Sub-Submissions |
|---|---|
| Appellants: Transfer of Project |
✓ The appellants transferred the project to a different company. ✓ They should be discharged from any liability for not handing over the property. |
| Appellants: Market Rates |
✓ The current market rate of the property is approximately half the price awarded by the NCDRC. ✓ The Court should consider the downward trends in the real estate market. |
| Respondents: Deficiency in Service |
✓ The appellants provided deficient service by delaying the handover of the flat. ✓ The NCDRC’s decision should be upheld. |
| Respondents: Market Rates | ✓ The prices as contemplated under the impugned order of NCDRC are not reflective of the true market rates for similar flats available in the near vicinity of the disputed flats. |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether there is a deficiency of service on the part of the appellants?
- If so, what is just and reasonable compensation?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether there is a deficiency of service on the part of the appellants? | Yes | The appellants failed to provide valid reasons for transferring the property to a third party, breaching their contractual obligation to the respondents. A reasonable time of three years for completion was considered, and there was no redevelopment of the property even after this period. |
| What is just and reasonable compensation? | Reduced compensation to ₹2,27,20,000 plus ₹20,00,000 for parking space, along with a refund of ₹1,87,00,000 | The Court determined that the compensation awarded by NCDRC was excessive and entered the domain of gain-based remedy rather than actual loss. The Court fixed the market rate at ₹50,000 per sq. ft. and directed the appellants to pay the reduced compensation. |
Authorities
The following authorities were considered by the court:
| Authority | Court | How Considered |
|---|---|---|
| Johnson and Anr. V. Agnew, [1979] 1 All ER 883 | [Not Available in Source] | The court cited this case to reiterate the general principle that damages are compensatory, aiming to place the innocent party in the same position as if the contract had been performed. |
| Ghaziabad Development Authority v. Balbir Singh, (2004) 5 SCC 65 | Supreme Court of India | The court referred to this case to highlight that there is no fixed formula for fixing damages and that compensation must correlate with the loss or injury suffered by the consumer. It also emphasized that compensation should not be uniform in all cases. |
The following legal provisions were considered by the court:
| Legal Provision | How Considered |
|---|---|
| Section 2(1)(g) of the Consumer Protection Act, 1986 | The court used this definition of “deficiency” to determine that the appellants’ failure to deliver the flat constituted a deficiency in service. |
Judgment
| Submission by Parties | Treatment by the Court |
|---|---|
| Appellants: Transfer of Project absolves liability | Rejected. The Court held that the appellants could not transfer the project to a third party and evade their contractual obligations to the respondents. |
| Appellants: Market rates have fallen | Partially Accepted. The Court acknowledged the market trends but did not fully accept the appellants’ claim that the rates were half of what NCDRC had considered. |
| Respondents: Deficiency in Service | Accepted. The Court agreed that the appellants were deficient in service by not delivering the flat within a reasonable time. |
| Respondents: NCDRC’s compensation is justified | Partially Rejected. The Court found the compensation excessive and reduced it to reflect actual loss rather than gain. |
How each authority was viewed by the Court?
- Johnson and Anr. V. Agnew [1979] 1 All ER 883: The Court used this case to emphasize the compensatory nature of damages, stating that the aim is to place the injured party in the position they would have been in if the contract had been performed.
- Ghaziabad Development Authority v. Balbir Singh (2004) 5 SCC 65: The Court relied on this case to reiterate that there is no fixed formula for damages and that they must be based on the actual loss or injury suffered. The Court also highlighted that compensation should not be uniform and should reflect the specific circumstances of each case.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to balance the interests of both the consumer and the real estate developer. The Court acknowledged the deficiency in service by the appellants but found the NCDRC’s compensation to be excessive, leaning towards a gain-based remedy rather than compensation for actual loss. The Court emphasized that damages for breach of contract should be compensatory and not punitive. The Court also considered the prevailing market conditions and the fact that the property was a redevelopment project, which typically has lower rates than greenfield projects. The court’s reasoning was also influenced by the principle that the injured party should be placed in the same position as if the contract had been performed, but not in a better position.
| Reason | Percentage |
|---|---|
| Deficiency of Service | 25% |
| Excessive Compensation by NCDRC | 30% |
| Compensatory Damages | 20% |
| Market Conditions | 15% |
| Redevelopment Project | 10% |
| Category | Percentage |
|---|---|
| Fact | 40% |
| Law | 60% |
Logical Reasoning:
The Court considered the arguments from both sides, the facts of the case, and the legal principles of contract law and consumer protection. The Court noted that the appellants did not provide any valid reason for transferring the project to a third party, which constituted a breach of contract. The Court also considered the fact that the respondents were made to wait indefinitely for the possession of the flat, which constitutes deficiency of service. However, the Court also noted that the compensation awarded by the NCDRC was excessive and did not reflect the true market rates of the property. The Court, therefore, reduced the compensation to a more reasonable amount.
The court stated, “In light of the above, the damages other than consequential loss have to be measured at the time of the breach.” However, the court also noted, “However, the aforesaid rule is flexible which needs to be assessed in facts and circumstances of individual case.” The court further stated, “Therefore, the damages awarded should not be excessive and a court/tribunal needs to take a balanced approach so as to ensure right compensation.”
Key Takeaways
- Reasonable Time for Completion: A reasonable time period for completion of a real estate contract is approximately three years from the date of the agreement.
- Deficiency of Service: Failure to deliver a property within a reasonable time constitutes a deficiency in service under the Consumer Protection Act, 1986.
- Compensation for Breach: Damages for breach of contract should be compensatory, aiming to place the injured party in the same position as if the contract had been performed, but not in a better position.
- Market Rates: Market rates for compensation should be determined based on the actual loss suffered and not on gain-based remedies. The market rate for redeveloped properties is usually lower than greenfield projects.
- Balanced Approach: Courts and tribunals should take a balanced approach to ensure fair compensation, considering both the consumer’s loss and the market conditions.
Directions
The Supreme Court directed the appellants to:
- Refund ₹1,87,00,000 to the respondents.
- Pay ₹2,27,20,000 as compensation.
- Pay ₹20,00,000 as compensation for the parking space.
- Pay ₹10,000 as the cost of litigation.
- Pay 9% interest per annum if the payment was not made within six weeks from the date of the order.
The Court also allowed the respondents to withdraw the deposited amount of ₹2,50,00,000 with accrued interest, if any, which would be adjusted against the appellants’ liability.
Development of Law
The ratio decidendi of this case is that compensation for deficiency in service in real estate contracts should be compensatory and based on the actual loss suffered by the buyer, and not on gain-based remedies. The court also clarified that while the date of breach is generally the reference point for assessing damages, this rule is flexible and can be adjusted based on the circumstances of the case. This judgment emphasizes a balanced approach to determining compensation, taking into account both the consumer’s loss and the prevailing market conditions.
Conclusion
The Supreme Court’s judgment in M/s. Fortune Infrastructure vs. Trevor D’Lima partially allowed the appeals, reducing the compensation awarded by the NCDRC. The Court held that while the appellants were deficient in service for failing to deliver the flat, the compensation awarded was excessive. The Court fixed a more reasonable market rate for the property and directed the appellants to refund the amount paid by the respondents, along with reduced compensation. This judgment underscores the principle that damages should be compensatory and not punitive, emphasizing a balanced approach in consumer disputes.