Supreme Court rules on the validity of offer of possession without Completion Certificate in Consumer Dispute: Dharmendra Sharma vs. Agra Development Authority (2024) INSC 667 (06 September 2024)

Date of the Judgment: 06 September 2024
Citation: (2024) INSC 667
Judges: Justice Vikram Nath and Justice Prasanna Bhalachandra Varale
Can a builder offer possession of a flat without obtaining a completion certificate and firefighting clearance? The Supreme Court of India recently addressed this critical question in a consumer dispute case. The Court examined the obligations of both the builder and the buyer in a real estate transaction, particularly focusing on the validity of an offer of possession without the necessary certifications. This judgment clarifies the rights of consumers and the responsibilities of developers regarding the completion and handover of properties. The judgment was authored by Justice Vikram Nath, with Justice Prasanna Bhalachandra Varale concurring.

Case Background

On 28 July 2011, Dharmendra Sharma applied for an apartment with the Agra Development Authority (ADA) and paid a booking amount of ₹4,60,000. The allotment was done via lottery on 29 August 2011, and he was allotted Flat No. DT-1/1204. The tentative price was ₹56,54,000, which could be paid in installments or in full. Sharma opted for full payment and paid the amount by 21 October 2011. Possession was to be given within six months.

After six months, Sharma requested possession on 3 April 2012, but it was not given. On 4 February 2014, ADA offered possession subject to additional payments: ₹84,300 for a solar system, ₹46,878 as lease premium, and ₹2,12,000 for covered parking, along with ₹3,99,100 for non-judicial stamp papers. Sharma deposited the stamp papers on 15 February 2014. After inspecting the site, he noted deficiencies and requested their removal before taking possession. ADA sent reminders for the balance payment. On 4 June 2019, Sharma paid ₹3,43,178 but did not receive confirmation of the possession date.

Sharma then filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC) on 10 July 2020, alleging deficiency in service and unfair trade practices by ADA.

Timeline

Course of Proceedings

The NCDRC partly allowed Sharma’s complaint, directing ADA to refund the amount deposited (except the cost of non-judicial stamp paper) with 9% interest from the date of the complaint (11 July 2020) until the date of refund. The NCDRC rejected ADA’s arguments regarding limitation and pecuniary jurisdiction. It held that the additional demands made by ADA were permissible under the rules. However, it also noted that Sharma had delayed payment and did not make efforts to get a Commissioner’s report on the construction deficiencies.

Sharma filed a review application, which was dismissed. Subsequently, both parties filed appeals before the Supreme Court. Sharma sought interest from the date of deposit, while ADA challenged the NCDRC’s jurisdiction and the maintainability of the complaint due to limitation.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 23 of the Consumer Protection Act, 1986: This section deals with appeals to the Supreme Court.
• Section 24A of the Consumer Protection Act, 1986: This section prescribes a limitation period of two years for filing a complaint.
• Section 21(a)(i) of the Consumer Protection Act, 1986: This section defines the pecuniary jurisdiction of the NCDRC, which covers matters exceeding ₹1 crore.
• Sections 18 and 19 of the Limitation Act, 1963: These sections extend the limitation period where part payments or acknowledgments are made.
• Section 4(5) of the UP Apartment (Promotion of Construction, Ownership & Maintenance) Act, 2010: This section mandates that a developer must obtain a completion certificate before offering possession.
• Section 19(10) of the Real Estate (Regulation and Development) Act, 2016 (RERA): This section also requires developers to obtain a completion certificate before offering possession.

Arguments

Appellant (Dharmendra Sharma)’s Arguments:

• The offer of possession by ADA was invalid because it did not have the completion certificate and firefighting clearance certificate.
• The demand for additional payment of ₹3,43,178 along with the offer of possession dated 4 February 2014 was unjustified and illegal.
• Interest should be awarded from the date of deposit, not from the date of filing the complaint, considering that he had deposited approximately ₹60 lakhs after taking a loan.
• Relied on:
  • Debashis Sinha & Ors. vs. R.N.R. Enterprise (2023) 3 SCC 195, stating that possession offered without a completion certificate is illegal.
  • Pioneer Urban Land and Infrastructure Limited vs. Union of India & Ors. (2019) 8 SCC 416
  • Treaty Construction vs. Ruby Tower Cooperative Housing Society Ltd. (2019) 8 SCC 157
  • Ghaziabad Development Authority vs. Balbir Singh (2004) 5 SCC 65, for the principle that interest should be awarded from the date of deposit.
  • Rishab Singh Chandel & Anr. vs. Parsvnath Developers Ltd. & Anr. Civil Appeal No.3053 of 2023
  • Lucknow Development Authority vs. M.K.Gupta (1994) 1 SCC 243
  • Marvel Omega Builders Pvt. Ltd. vs. Shri Hari Gokhale & Ors. (2020) 16 SCC 226
  • Experion Developers Pvt. Ltd. vs. Sushma Ashok Shierror (2022) 6 SCALE 16

Respondent (Agra Development Authority)’s Arguments:

• The complaint was barred by limitation since it was filed more than two years after the offer of possession on 4 February 2014.
• The NCDRC lacked pecuniary jurisdiction because the amount deposited was only ₹59,91,000, which is less than ₹1 crore.
• The additional demands for solar system, lease premium, and car parking were separate from the cost of the flat and permissible under the terms of allotment.
• The appellant delayed payment of the additional demand and continuously requested a waiver of interest.

Innovativeness of the argument: The appellant’s argument that the offer of possession is invalid without a completion certificate and fire safety clearance is innovative and aligns with the statutory requirements under the UP Apartment Act, 2010 and RERA Act, 2016. This argument highlights a critical deficiency in the developer’s conduct and seeks to protect the rights of the consumer.

Issues Framed by the Supreme Court

1. Whether the offer of possession made by the ADA on 04.02.2014 was a valid offer, considering the absence of a completion certificate and firefighting clearance certificate.
2. Whether the NCDRC was correct in awarding interest from the date of the complaint rather than the date of deposit.
3. Whether the complaint was barred by limitation.
4. Whether the NCDRC had the pecuniary jurisdiction to entertain the complaint.

Treatment of the Issue by the Court

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

Authorities

Cases Relied Upon by the Court:

Legal Provisions Considered by the Court:

Judgment

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

How each authority was viewed by the Court?

• Debashis Sinha & Ors. vs. R.N.R. Enterprise (2023) 3 SCC 195:* The Supreme Court followed this authority, holding that possession offered without the requisite completion certificate is illegal.
• Pioneer Urban Land and Infrastructure Limited vs. Union of India & Ors. (2019) 8 SCC 416:* The Supreme Court relied upon this authority to support the view that the absence of a completion certificate constitutes a deficiency in service.
• Treaty Construction vs. Ruby Tower Cooperative Housing Society Ltd. (2019) 8 SCC 157:* The Supreme Court relied upon this authority to support the view that the absence of a completion certificate constitutes a deficiency in service.
• Ghaziabad Development Authority vs. Balbir Singh (2004) 5 SCC 65:* The Supreme Court referred to this authority for the principle that interest should be awarded from the date of deposit, but did not apply it in this case due to the appellant’s delay.

What weighed in the mind of the Court?

The Supreme Court considered several factors in reaching its decision. The Court acknowledged that both parties had contributed to delays. While the appellant delayed the payment of the balance amount, the ADA failed to provide the completion and fire safety certificates, which are mandatory under the UP Apartment Act, 2010 and RERA Act, 2016. The Court emphasized that a valid offer of possession cannot be made without these certificates. The Court also considered that the appellant had deposited a substantial amount of money, and the delay was partly due to the ADA’s failure to meet its statutory obligations.

Logical Reasoning:

The Court rejected the argument that the offer of possession was valid, emphasizing that without the completion and fire safety certificates, the offer was legally incomplete. It also rejected the argument that the complaint was barred by limitation, noting that the ADA’s continuous reminders and acceptance of part payment extended the limitation period. The Court also upheld the NCDRC’s finding that it had the necessary pecuniary jurisdiction.

The Court quoted the following from Debashis Sinha v. R.N.R. Enterprise:

“20. Finally, we cannot resist but comment on the perfunctory approach of Ncdrc while dealing with the appellants’ contention that it was the duty of the respondents to apply for and obtain the completion certificate from KMC and that the respondents ought to have been directed to act in accordance with law. The observation made by Ncdrc of the respondents having successfully argued that it was not their fault, that no completion certificate of the project could be obtained, is clearly contrary to the statutory provisions.”

“23. It is, therefore, evident on a conjoint reading of Sections 403, 390 and 394 of the KMC Act that it is the obligation of the person intending to erect a building or to execute works to apply for completion certificate in terms of the Rules framed thereunder. It is no part of the flat owner’s duty to apply for a completion certificate. When the respondents had applied for permission/sanction to erect, the Calcutta Municipal Corporation Buildings Rules, 1990 (hereafter “the 1990 Rules” for short) were in force. Rule 26 of the 1990 Rules happens to be the relevant Rule. In terms of sub-rules (1) to (3) of Rule 26 thereof, the obligation as cast was required to be discharged by the respondents. Evidently, the respondents observed the statutory provisions in the breach.”

“This position is supported by other decisions, including Pioneer Urban Land and Infrastructure Ltd. (supra) and Treaty Construction (supra), where the absence of these certificates was found to constitute a deficiency in service. In the present case, the ADA’s failure to provide the required certificates justifies the appellant’s refusal to take possession. This strengthens the appellant’s claim for additional compensation to compensate for the delay caused by ADA’s breach of its statutory obligations.”

The Court concluded that both parties had lapses in their obligations. Therefore, while the appellant was entitled to a refund with interest, it would be inequitable to award interest from the date of the original payment. The Court thus awarded additional compensation of ₹15,00,000 to the appellant, along with the refund of the deposited amount with interest from the date of the complaint.

Key Takeaways

• A developer cannot offer valid possession of a flat without obtaining a completion certificate and firefighting clearance certificate.
• Consumers are entitled to a refund with interest if the developer fails to provide necessary certifications.
• The limitation period for filing a consumer complaint can be extended by continuous reminders and part payments.
• The pecuniary jurisdiction of the NCDRC is determined by the total claim, including compensation, not just the deposited amount.
• Both developers and consumers have obligations, and delays from both sides may affect the final outcome.

Directions

The Supreme Court directed the ADA to:
✓ Refund the entire amount deposited by the appellant.
✓ Pay interest at 9% per annum from 11 July 2020 until the date of refund.
✓ Pay an additional compensation of ₹15,00,000 to the appellant.
✓ Return the non-judicial stamp papers worth ₹3,99,100 to the appellant.
✓ Complete all payments within three months of the order.

Development of Law

The ratio decidendi of this case is that an offer of possession by a developer is invalid if it is not accompanied by a completion certificate and a fire safety clearance certificate. This ruling reinforces the statutory obligations of developers under the UP Apartment Act, 2010 and RERA Act, 2016. It also clarifies that the limitation period for filing a consumer complaint can be extended by continuous reminders and part payments, and that the pecuniary jurisdiction of the NCDRC is determined by the total claim, including compensation, not just the deposited amount. This judgment does not change any previous position of law but reinforces the existing law and provides clarity on its application.

Conclusion

The Supreme Court’s judgment in Dharmendra Sharma vs. Agra Development Authority clarifies the obligations of developers to obtain necessary certifications before offering possession of flats. It also reinforces the rights of consumers to receive properties that comply with legal standards. The Court’s decision to award additional compensation reflects a balanced approach, acknowledging the lapses from both parties while protecting the interests of the consumer. This judgment serves as a significant precedent for consumer disputes in the real estate sector.