Supreme Court Rules on Delay in Apartment Possession: IREO Grace Realtech Pvt. Ltd. vs. Abhishek Khanna & Others (2021)

Introduction

Date of the Judgment: January 11, 2021
Citation: (2021) INSC 11
Judges: Dr. Dhananjaya Y Chandrachud, J., Indu Malhotra, J., and Indira Banerjee, J.

Can a real estate developer delay handing over possession of an apartment by linking the deadline to a fire safety clearance, even when construction has already begun? The Supreme Court of India recently addressed this critical question in a batch of appeals concerning the “The Corridors” project in Gurgaon. The court examined the legality of clauses in apartment buyer agreements that heavily favored the developer, and whether homebuyers are entitled to a refund for inordinate delays. This judgment clarifies the rights of homebuyers and sets a precedent for fair practices in the real estate sector. The judgment was authored by Justice Indu Malhotra, with Justices Dr. Dhananjaya Y Chandrachud and Indira Banerjee concurring.

Case Background

The case revolves around the “The Corridors” housing project in Gurgaon, where several apartment buyers faced significant delays in receiving possession of their units. The project was initially licensed to Precision Realtors Pvt. Ltd. and Blue Planet Infra Developers, but the license was later transferred to IREO Grace Realtech Pvt. Ltd. (the Appellant). The project involved multiple towers and 1356 apartments.

Building plans were sanctioned on July 23, 2013, with a condition to obtain a Fire Authority NOC within 90 days. Apartment bookings began in 2013, and on August 7, 2013, one of the respondents, Abhishek Khanna, was allotted a 2BHK apartment. The developer applied for a Fire NOC on October 23/24, 2013, but faced objections from the Municipal Corporation, which were not resolved until November 27, 2014, when the Fire Service granted approval.

The Apartment Buyers’ Agreements were issued with a construction-linked payment plan. The agreement stipulated that possession would be given within 42 months from the approval of building plans, with a grace period of 180 days. However, the developer contended that the 42-month period should commence from the date of the Fire NOC. The homebuyers argued that the delay was due to the developer’s failure to obtain timely approvals and that they were entitled to a refund due to the inordinate delay.

Timeline

Course of Proceedings

The National Consumer Disputes Redressal Commission (National Commission) initially ruled in favor of the apartment buyers, directing a refund of the deposited amounts due to the inordinate delay in completing the project and obtaining the Occupation Certificate. This decision was based on the Commission’s earlier ruling in “IREO Grace Realtech Pvt. Ltd. v. Ritu Hasija,” where similar clauses in the Apartment Buyer’s Agreement were deemed unfair and one-sided.

The National Commission also followed its previous order in the case of “Subodh Pawar v. IREO Grace Realtech Pvt. Ltd.”, where it had directed a refund with interest. The Supreme Court had dismissed the Special Leave Petition (SLP) filed by the developer in the Subodh Pawar case, with the developer agreeing to refund the amount with interest.

The Haryana Real Estate Regulatory Authority (RERA) also addressed the issue, holding that the due date for possession should be calculated from the date of the Fire NOC. However, RERA did not allow a refund, directing the developer to hand over possession by June 30, 2020.

The developer appealed the National Commission’s decision to the Supreme Court, arguing that the 42-month period for handing over possession should commence from the date of the Fire NOC and that the apartment buyers were bound by the terms of the agreement.

Legal Framework

The Supreme Court considered the following key legal provisions:

• Consumer Protection Act, 1986: This act defines “complaint,” “deficiency,” “service,” and “unfair trade practice.” It provides a framework for consumer protection and redressal of grievances, including the power to declare unfair contract terms as null and void.
  • Section 2(1)(c): Defines “complaint” as an allegation of unfair or restrictive trade practices, or defects in goods.
  • Section 2(1)(g): Defines “deficiency” as any fault, shortcoming, or inadequacy in the quality, nature, or manner of performance.
  • Section 2(1)(o): Defines “service” to include housing construction.
  • Section 2(1)(r): Defines “unfair trade practice” as a practice that adopts unfair methods to promote the sale or supply of goods or services.
  • Section 3: States that the provisions of this Act are in addition to, and not in derogation of, any other law.
  • Section 14: Empowers Consumer Fora to redress deficiency of service and compensate consumers.
• Haryana Fire Safety Act, 2009: This act mandates obtaining a Fire NOC before commencing construction of buildings.
  • Section 15: Requires approval of a Fire Fighting Scheme and issuance of a No Objection Certificate before construction.

Arguments

Appellant (Developer) Arguments:

• The 42-month period for handing over possession should start from the date of the Fire NOC (November 27, 2014), as the agreement stated that the period would commence after “fulfilment of the pre-conditions imposed thereunder.”
• The Building Plans stipulated that the developer must obtain an NOC from the Ministry of Environment & Forests before starting construction.
• The Apartment Buyers were bound by the terms of the agreement, which clearly stated that the “Commitment Period” would start only after fulfilling pre-conditions.
• The delay in obtaining the Fire NOC was not attributable to the developer, as the authority was responsible for granting a provisional NOC within 60 days.
• The payment plan was linked to construction milestones, and no installments were taken before the Fire NOC was obtained.
• Delays are inevitable in large development projects, and the agreement contemplated a reasonable grace period.
• The National Commission did not have the jurisdiction to declare contractual terms as unfair under the Consumer Protection Act, 1986.
• The RERA decision should be given primacy over the National Commission decision, as RERA is a specialized fact-finding authority for real estate projects.
• The developer had completed Phase I of the project and offered possession to the apartment buyers.
• The Consent Order passed in “IREO Grace Realtech Pvt. Ltd. v. Surendra Arora” could not be relied upon as a precedent.

Respondent (Apartment Buyers) Arguments:

• The 42-month period should start from the date of approval of the building plans (July 23, 2013), and the developer was required to hand over possession by January 22, 2017, plus a grace period of 6 months, which expired on July 22, 2017.
• The grant of Fire NOC was not a pre-condition for commencing construction, as the developer had started construction before the Fire NOC was obtained.
• The developer sought payment of the first three installments before receiving the Fire NOC.
• The sanctioned Building Plans required the Fire Safety NOC (Provisional) to be obtained within 90 days of the Building Plan approval, which expired on October 21, 2013. The developer applied for the NOC after this period.
• The developer was lax in obtaining the Fire NOC, which took more than 16 months from the date of Building Plan approval.
• The agreement contained one-sided clauses and constituted an unfair trade practice.
• The homebuyers had availed loans to pay installments and were unable to pay further installments due to the inordinate delay.
• The Fire NOC was not a pre-condition for commencement of construction work, as per the order passed in the case of “IREO Victory Valley Pvt. Ltd. v. Shamshul Hoda Khan”.

The innovativeness of the argument by the Apartment Buyers lies in challenging the developer’s interpretation of the agreement, emphasizing that the delay was due to the developer’s own negligence and not due to external factors. They also highlighted the one-sided nature of the agreement, which was a novel approach at that time.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Determination of the date from which the 42-month period for handing over possession is to be calculated under Clause 13.3 of the Apartment Buyer Agreement.
2. Whether the terms of the Apartment Buyer’s Agreement were one-sided and not binding on the Apartment Buyers.
3. Whether the provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act) must be given primacy over the Consumer Protection Act, 1986.
4. Whether, due to the inordinate delay in handing over possession, the Apartment Buyers were entitled to terminate the agreement and claim a refund with interest.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the 42-month period for handing over possession would be computed from the date of the Fire NOC, i.e., November 27, 2014. However, the court also noted that the terms of the Apartment Buyer’s Agreement were one-sided and unfair and that the Consumer Protection Act provided an additional remedy to the homebuyers.

The court categorized the apartment buyers into two groups: those in Phase 1, where the Occupation Certificate was obtained, and those in Phase 2, where it was not. The court directed the following:

• Phase 1 Buyers: The buyers were obligated to take possession of the apartments, but the developer was liable to pay delay compensation for the period of delay from November 27, 2018, until the date of the offer of possession.
• Phase 2 Buyers: The buyers were entitled to a full refund of the amount deposited, along with interest at 9% per annum from November 27, 2018, until the date of payment. The refund was to be paid within three months, with a default interest of 12% per annum for any further delay.

The court also held that the developer could not deduct the Earnest Money or any other amount as mentioned in Clause 21.3 of the agreement.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors, primarily focusing on the protection of consumer rights and ensuring fairness in real estate transactions. The court emphasized that the terms of the Apartment Buyer’s Agreement were heavily skewed in favor of the developer, imposing stringent conditions on buyers while providing limited recourse for delays. The court also took note of the inordinate delays in the project, and the hardship faced by the homebuyers.

The court also considered the fact that the developer had started construction before obtaining the Fire NOC, thus undermining the argument that the delay in obtaining the Fire NOC was the reason for the overall delay in the project. The court also took into account the fact that the homebuyers had availed loans and were paying high rates of interest, which further exacerbated their hardship.

The ratio of fact to law indicates that while the court considered the factual aspects of the case, such as the delays and the specific clauses of the agreement, the legal considerations, including the interpretation of the Consumer Protection Act and the RERA Act, played a more significant role in the final decision.

Logical Reasoning

Conclusion

The Supreme Court’s judgment in IREO Grace Realtech Pvt. Ltd. vs. Abhishek Khanna & Others is a significant ruling that upholds the rights of homebuyers and sets a precedent for fair practices in the real estate sector. The court’s decision to calculate the deadline for possession from the date of the Fire NOC, while acknowledging the unfairness of the one-sided clauses in the agreement, strikes a balance between the legitimate interests of developers and the rights of consumers.

The court’s emphasis on the Consumer Protection Act as an additional remedy reinforces the importance of consumer rights and ensures that homebuyers have access to effective redressal mechanisms. The judgment also highlights the need for transparency and fairness in real estate transactions, and it serves as a reminder to developers to act responsibly and ethically.

The judgment has significant implications for the real estate sector, as it clarifies the rights of homebuyers and sets a precedent for calculating deadlines and addressing unfair contract terms. It also serves as a warning to developers that they cannot use one-sided agreements to exploit homebuyers.

In summary, the Supreme Court’s ruling in the IREO Grace Realtech case is a landmark judgment that strengthens consumer protection in the real estate sector. It sets a precedent for calculating possession deadlines, addresses unfair contract terms, and reinforces the importance of the Consumer Protection Act as an additional remedy for homebuyers. The judgment underscores the need for fairness and transparency in real estate transactions, ensuring that homebuyers are not exploited by developers.