Supreme Court Upholds MRTP Commission’s Decision on Unfair Trade Practices in Real Estate: B.B. Patel vs. DLF Universal Ltd. (25 January 2022)

Date of the Judgment: 25 January 2022
Citation: Civil Appeal No. 1106 of 2009
Judges: L. Nageswara Rao, J., B.R. Gavai, J., B.V. Nagarathna, J.
Can a real estate developer be held liable for unfair trade practices for delays in handing over possession and for demanding extra charges? The Supreme Court of India addressed this question in a case concerning a group housing project. The Court examined the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) and the Consumer Protection Act, 1986, to determine whether the developer had engaged in unfair trade practices. This judgment was delivered by a three-judge bench comprising Justices L. Nageswara Rao, B.R. Gavai, and B.V. Nagarathna, with the opinion authored by Justice L. Nageswara Rao.

Case Background

In 1993, the appellants applied for the allotment of four apartments in the “Beverly Park-I” project in Gurgaon, developed by DLF Universal Ltd. The project offered a payment scheme where possession was to be given after 40% of the cost was paid within 2.5 years, with the remaining amount payable over the next 7.5 years. The Apartment Buyer Agreement (ABA) was executed on 23 March 1993. The agreement stipulated that possession would be given to the appellants as “Licensees” on a monthly license fee until the full sale price was paid. The basic sale price was set at Rs. 7,525 per sq. meter, with additional charges for External Development Charges (EDC), construction deposit, and a lump sum security.

Timeline

Course of Proceedings

The appellants filed a complaint with the Monopolies and Restrictive Trade Practices Commission (MRTP Commission) in 1999, alleging unfair and restrictive trade practices by the respondent. They challenged the cancellation of their apartment allotments and the extra charges levied by the respondent. The MRTP Commission dismissed the complaint on 19 January 2009, stating that the delay in handing over possession and the demand for extra costs were in accordance with the ABA. The Commission also noted that the appellants had not been coerced into signing the agreement, and some installments towards extra costs had been paid. The appellants then appealed to the Supreme Court.

Legal Framework

The Supreme Court examined the relevant provisions of the MRTP Act, 1969, particularly Sections 36-A, 36-B(a) and (d), 36-D, and 36-E, which deal with unfair trade practices. Section 36A of the MRTP Act defines unfair trade practice as a practice that adopts any unfair method or deceptive practice to promote the sale, use, or supply of goods or services. The Court also referred to the Consumer Protection Act, 1986, which has a similar definition of unfair trade practice in Section 2(r). The Court noted that the Consumer Protection Act was enacted to provide better protection to consumers and to establish consumer councils and forums for settling consumer disputes.

Arguments

Appellants’ Submissions:

• The appellants argued that the respondent misled them through advertisements and brochures, promising possession within 2.5 to 3 years.
• They contended that the ABA was a one-sided contract favoring the respondent, with clauses that were unconscionable and void.
• The appellants claimed that the demand for extra charges was impermissible and not disclosed at the time of signing the ABA.
• They asserted that the delay in construction and the imposition of extra costs constituted unfair trade practices.

Respondent’s Submissions:

• The respondent argued that the appellants were not coerced into signing the ABA and were aware of its terms.
• The respondent stated that the delay in handing over possession was due to unforeseen reasons, including delays in obtaining government approvals.
• The respondent contended that the ABA allowed for reasonable extensions of time for delivery of possession.
• The respondent maintained that the demand for extra charges was permissible under the terms of the ABA and that the appellants had initially accepted and paid some installments towards these charges.

Submissions Table

Innovativeness of the Argument: The appellants innovatively argued that the ABA was an unconscionable contract, similar to arguments made in consumer cases under the Consumer Protection Act, 1986. This was an attempt to extend the principles of consumer protection to cases under the MRTP Act.

Issues Framed by the Supreme Court

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

1. Whether the respondent engaged in unfair trade practices by misrepresenting the timeline for handing over possession of the apartments.
2. Whether the demand for extra charges by the respondent constituted an unfair trade practice.
3. Whether the terms of the ABA were unconscionable.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the MRTP Commission’s decision, concluding that the respondent had not engaged in unfair trade practices. The Court found that the delay in handing over possession was permissible under the terms of the ABA, which allowed for reasonable extensions of time. The Court also held that the demand for extra charges was in accordance with the ABA and that the appellants had initially paid some installments towards these charges. The Court did not find the terms of the ABA to be unconscionable.

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

How each authority was viewed by the Court?

The Court relied on M/s Lakhanpal National Limited v. M.R.T.P. Commission & Anr. [1989] 3 SCC 251* to define unfair trade practice and to examine if the representation made by the respondent was misleading. The Court used M/s Philips Medical System (Cleveland) v. Indian MRI Diagnostic & Research Limited [2008] 10 SCC 227* to understand the intent behind the 1984 amendment to the MRTP Act. The Court referred to Rajasthan Housing Board v. Parvati Devi [2000] 6 SCC 104* to highlight the need to examine if the buyer was informed in advance about delays and cost increases. The Court used Bangalore Development Authority v. Syndicate Bank [2007] 6 SCC 711* to conclude that time was not the essence of the contract. The Court applied the five ingredients of unfair trade practice as laid down in Colgate Palmolive (India) Ltd. v. MRTP Commission & Ors. [2003] 1 SCC 129*. The Court acknowledged the principle of unconscionable contracts as laid down in Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly and Anr. [1986] 3 SCC 156* but did not find the ABA to be unconscionable. The Court distinguished the cases of Pioneer Urban Land & Infrastructure Limited v. Govindan Raghavan [2019] 5 SCC 725*, Wing Commander Arifur Rahman Khan And Aleya Sultana & Ors. v. DLF Southern Homes Private Limited [2020] 16 SCC 512* and Ireo Grace Realtech Private Limited v. Abhishek Khanna & Ors [2021] 3 SCC 241* as they pertained to disputes under the Consumer Protection Act. The Court relied on Girish Chandra Gupta v. U.P. Industrial Development Corn. Ltd. & Ors. [2012] 13 SCC 452* to clarify the powers of the MRTP Commission to grant compensation. The Court cited Sanjay Singh & Anr. v. U.P. Public Service Commission & Anr. [2007] 3 SCC 720* and U.P. Public Service Commission v. Manoj Kumar Yadav & Anr. [2018] 3 SCC 706* to justify its decision to direct the respondent to handover possession of the flats on payment of a reduced amount.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the terms of the Apartment Buyer Agreement (ABA) and the lack of evidence of misrepresentation or unfair practices by the respondent. The Court noted that the ABA allowed for reasonable extensions of time for delivery of possession and that the appellants did not terminate the agreement due to delay. The Court also observed that the demand for extra charges was in accordance with the ABA and that the appellants had initially paid some installments towards these charges. The Court also took into consideration that the appellants were seeking possession of the property without paying the balance amount, which was not a valid ground to declare the contract unconscionable.

Fact:Law

The Court’s reasoning was based on a careful examination of the facts and the law. The Court considered the factual aspects of the case, such as the terms of the ABA, the timeline of events, and the conduct of the parties. The Court also considered the legal aspects, such as the provisions of the MRTP Act, the Consumer Protection Act, and the relevant case laws. The Court’s analysis of the facts and the law led it to conclude that the respondent had not engaged in unfair trade practices.

Logical Reasoning

The Court considered alternative interpretations of the clauses in the ABA and the conduct of the parties but found no evidence to support the appellants’ claims of unfair trade practices. The Court emphasized that the appellants did not terminate the agreement despite the delay and that they were seeking possession without paying the balance amount. The Court also noted that the extra charges were permissible under the terms of the ABA.

The Court’s decision was based on the following reasons:

• The ABA allowed for reasonable extensions of time for delivery of possession.
• The appellants did not terminate the agreement due to delay.
• The demand for extra charges was in accordance with the ABA.
• The appellants were seeking possession without paying the balance amount.
• No specific clause in the ABA was found to be unconscionable.
• The appellants failed to prove that the respondent had engaged in unfair trade practices.

The Supreme Court quoted the following from the judgment:

• “According to clause 16, the company is entitled for reasonable extension of time for delivery of possession of the premises, in case, possession could not be delivered within 21/2 to 3 (two and half to three) years from the date of booking.”
• “There was no intention on the part of the appellants to insist on time being the essence of contract as they did not terminate the ABA due to delay in handing over possession of the apartments which they could have in accordance with clause 18 of the ABA.”
• “We are convinced that there is no misrepresentation made by the respondent and, therefore, we reject the allegation of unfair trade practice.”

There were no dissenting opinions in this case. The three-judge bench was unanimous in its decision.

The decision has implications for future cases involving similar disputes between real estate developers and buyers. The Court’s emphasis on the terms of the agreement and the conduct of the parties will likely be a key factor in future decisions. The ruling also clarifies the distinction between cases under the MRTP Act and the Consumer Protection Act.

Key Takeaways

• Real estate agreements are binding, and parties must adhere to the terms of the contract.
• Time is not of the essence in construction contracts unless explicitly specified.
• Buyers cannot claim unfair trade practices if they fail to terminate the agreement despite delays.
• Demands for extra charges are permissible if they are in accordance with the terms of the agreement.
• The MRTP Act and the Consumer Protection Act have different scopes and remedies.

This judgment underscores the importance of carefully reviewing real estate agreements before signing them. It also highlights the need for buyers to take timely action if they are aggrieved by the actions of the developer.

Directions

Despite upholding the MRTP Commission’s order, the Supreme Court, in the interest of justice, directed the respondent to hand over possession of the flats to the appellants on payment of Rs. 25,00,000 (Rupees Twenty-Five Lakhs Only) for each flat within four weeks. The respondent was directed to hand over possession within a week of payment.

Development of Law

The ratio decidendi of this case is that in real estate contracts, time is not of the essence unless explicitly stated, and parties are bound by the terms of the agreement. The Court also clarified that unfair trade practices must be substantiated with clear evidence of misrepresentation or deception. There was no change in the previous position of law, but the judgment reinforces the importance of contractual obligations and the limitations of the MRTP Act.

Conclusion

The Supreme Court upheld the MRTP Commission’s decision, finding no unfair trade practices by the respondent. The Court emphasized the importance of contractual terms and the need for buyers to take timely action if they are aggrieved by the actions of the developer. The Court, however, directed the respondent to hand over possession of the flats to the appellants on payment of a reduced amount, balancing the interests of both parties.