Supreme Court sets compensation for delayed possession in DLF Homes Panchkula Project (2019)

Introduction

Date of the Judgment: May 10, 2019
Citation: 2019 INSC 450
Judges: Dr. Dhananjaya Y. Chandrachud, J. and Hemant Gupta, J.

What happens when a builder delays handing over possession of a flat? The Supreme Court of India recently addressed this question, clarifying the compensation and interest applicable in such cases. This judgment arose from a dispute involving DLF Homes Panchkula Pvt. Ltd. and numerous homebuyers who experienced significant delays in receiving their promised flats.

The Supreme Court, in this case, was tasked with resolving appeals against orders passed by the National Consumer Disputes Redressal Commission (NCDRC) and State Consumer Disputes Redressal Commission (SCDRC) regarding compensation for delayed possession of flats. The court’s decision aimed to establish a fair and consistent approach to awarding compensation in such cases. The judgment was delivered by a bench comprising Justice Dr. Dhananjaya Y. Chandrachud and Justice Hemant Gupta.

Case Background

On March 30, 2010, homebuyers booked flats in the “DLF Valley” project in Panchkula, Haryana. The Buyer’s Agreement was executed on February 11, 2011, with possession expected within 24 months, i.e., by February 10, 2013. The agreement stipulated a penalty of Rs. 10 per sq. ft. per month for delays. However, the project faced delays, and homebuyers filed complaints with the State Consumer Disputes Redressal Commission (SCDRC) seeking possession, compensation for delays, and mental agony.

DLF Homes Panchkula Pvt. Ltd. cited a construction stay order from the Supreme Court between April 19, 2012, and December 12, 2012, as a reason for the delay. They also sought an extension of one year to hand over possession vide letter dated June 5, 2013, offering an alternative of refund with 9% interest. The SCDRC ordered DLF to hand over possession, pay interest at 12% p.a. on the deposited amount from February 10, 2014 (extended promised date), and pay litigation costs.

Timeline

Course of Proceedings

The State Consumer Disputes Redressal Commission (SCDRC) directed DLF to hand over possession within four months, along with interest at 12% p.a. on the deposited amount from February 10, 2014, until May 31, 2016, and continuing interest from June 1, 2016, until possession, plus litigation costs of Rs. 50,000. DLF appealed to the National Consumer Disputes Redressal Commission (NCDRC).

The NCDRC partially modified the SCDRC order, stating that compensation should be just and equitable, linked to the loss and injury suffered. The NCDRC determined that interest on the deposited amount should be computed from the extended promised date (February 10, 2014) and linked to the prevailing interest rates for house building loans from a nationalized bank (like State Bank of India). Additionally, it awarded a lump sum of Rs. 1 lakh per year for the delay in possession and Rs. 1 lakh as litigation costs.

DLF then appealed to the Supreme Court against the NCDRC order.

Legal Framework

The case primarily revolves around the interpretation and application of the Consumer Protection Act, 1986. The District Forum under the Consumer Protection Act, 1986, is empowered to order the opposite party to pay compensation to the consumer for any loss or injury suffered due to the negligence of the opposite party.

The relevant provision is the power of the District Forum under the Consumer Protection Act, 1986 to:

• “…order the opposite party to pay such amount as may be awarded as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party including to grant punitive damages.”

Arguments

The Appellant, DLF Homes Panchkula Pvt. Ltd., argued that the consumer complaints should be decided based on the consent orders passed by the Supreme Court in two previous sets of appeals related to the same project. These orders stipulated a 9% interest rate for both delay in possession and refund cases. DLF contended that some allottees were intentionally delaying taking possession to earn higher interest, which was more than the contractual penalty of Rs. 10 per sq. ft. per month and the loss of rent. They also argued that they would hand over possession only after obtaining the occupancy certificate and ensuring maintenance work was done.

The homebuyers argued that they were entitled to compensation for mental agony and litigation expenses, as awarded by the SCDRC and modified by the NCDRC. They claimed that the possession being offered was of incomplete buildings.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the judgment. However, the core issues that the court addressed were:

• What is the appropriate compensation for delay in handing over possession of flats?
• Whether interest can be awarded in addition to compensation for delay?
• Whether the NCDRC and SCDRC were correct in awarding compensation using a rule of thumb?
• Whether the consent orders passed by the Supreme Court in previous cases should be applied to the present case?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court modified the orders of the NCDRC and SCDRC, aligning them with the consent orders passed in previous cases related to the same project.

The Supreme Court also analyzed the authorities relied upon:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to bring consistency and fairness in the compensation awarded to the homebuyers. The court emphasized that compensation should be just and commensurate with the loss suffered. The court also considered the previous consent orders passed in similar cases involving the same project, aiming to settle the disputes and avoid further litigation.

The court’s reasoning was based on the principle that interest is a form of compensation for the deprivation of the use of money. The court also noted that awarding compensation under multiple heads for the same default (delay in possession) is not sustainable.

The court rejected the NCDRC’s approach of awarding interest at the maximum rate of interest charged by nationalized banks for home loans, deeming it arbitrary and without a nexus to the default committed. The court also found that the NCDRC’s and SCDRC’s method of awarding compensation was without any foundation.

The court emphasized that “a person deprived of use of money to which he is legitimately entitled has a right to be compensated for the deprivation which may be called interest, compensation or damages.” The court also stated, “There cannot be multiple heads to grant of damages and interest when the parties have agreed for payment of damages at the rate of Rs.10/- per sq. ft. per month.” Additionally, the court highlighted that “the order of NCDRC or that of SCDRC of awarding compensation is without any foundation being laid down by the complainant on judicially recognised principles and is by rule of thumb.”

Key Takeaways

✓ Compensation for delayed possession should be based on the terms agreed in the buyer’s agreement.
✓ Interest is a form of compensation for the deprivation of the use of money and cannot be awarded separately from damages for the same default.
✓ Consumer forums cannot award compensation using a rule of thumb; it must be based on judicially recognized principles.
✓ Consent orders passed in previous cases can be used to settle similar disputes.
✓ Homebuyers are entitled to interest at 9% per annum for delayed possession, calculated from the date of expiry of three years from the agreement or from the date of transfer, whichever is later.
✓ Homebuyers are entitled to a consolidated amount of Rs. 50,000 for mental agony and litigation expenses.
✓ Builders must provide an occupation certificate and ensure necessary maintenance work is completed before offering possession.

Directions

The Supreme Court issued the following directions:

• DLF was directed to send a copy of the occupation certificate to the complainants along with an offer of possession.
• DLF was directed to engage Jones Lang LaSalle, a real estate maintenance agency, to undertake necessary maintenance work.
• Complainants were allowed to seek assistance from the maintenance agency for any maintenance work.
• Maintenance work was to be completed within two months of the offer of possession.
• Interest at the rate of 9% per annum was to be paid for a period of two months from the date of offer of possession.
• A consolidated amount of Rs. 50,000 was awarded in each complaint for mental agony and litigation expenses.
• In cases of transfer, the transferee would be entitled to interest from the date of expiry of three years from the agreement or from the date of transfer, whichever is later.

Development of Law

The ratio decidendi of this case is that compensation for delayed possession should be based on the terms agreed in the buyer’s agreement and that interest is a form of compensation for the deprivation of the use of money. The judgment clarifies that consumer forums cannot award compensation arbitrarily and must follow judicially recognized principles. The court also emphasized the importance of settling similar disputes using previous consent orders. This judgment solidifies the legal position that multiple heads of damages for the same default are not permissible.

Conclusion

In conclusion, the Supreme Court’s judgment in the DLF Homes Panchkula case provides clarity on the compensation and interest applicable in cases of delayed possession of flats. The court emphasized the need for consistency and fairness, aligning the compensation with the terms agreed in the buyer’s agreement and the principles established in previous consent orders. The judgment also reiterates that interest is a form of compensation for deprivation of the use of money and cannot be awarded separately from damages for the same default.