LEGAL ISSUE: Whether a purchaser can terminate an agreement for sale and claim a refund when the builder fails to offer possession for fit-outs by the agreed-upon date, despite obtaining a partial occupancy certificate.
CASE TYPE: Consumer
Case Name: Venkataraman Krishnamurthy and another vs. Lodha Crown Buildmart Pvt. Ltd.
Judgment Date: 22 February 2024
Introduction
Date of the Judgment: 22 February 2024
Citation: 2024 INSC 132
Judges: Aniruddha Bose, J., Sanjay Kumar, J.
Can a homebuyer terminate a purchase agreement and demand a full refund if the builder fails to deliver the property for interior fit-outs by the agreed date? The Supreme Court of India recently addressed this question in a case involving a dispute between a buyer and a real estate developer. The core issue revolved around the interpretation of clauses in the agreement regarding the timeline for possession and the consequences of delays. The Supreme Court bench, comprising Justices Aniruddha Bose and Sanjay Kumar, delivered the judgment, with Justice Sanjay Kumar authoring the opinion.
Case Background
The appellants, Venkataraman Krishnamurthy and another, sought to purchase an apartment in a building being developed by the respondent, Lodha Crown Buildmart Pvt. Ltd., in Mumbai. On 29 November 2013, they entered into an Agreement to Sell for a 4BHK apartment. The total sale consideration was ₹7,55,50,956. The agreement stipulated that the apartment would be ready for fit-outs by 30 June 2016, with a one-year grace period, extending the deadline to 30 June 2017. The appellants had paid ₹2,25,31,148 to the respondent by the time they filed a consumer complaint, and were not in default. When the respondent failed to deliver possession by the extended deadline, the appellants terminated the agreement and sought a refund with interest and compensation.
Timeline
| Date | Event |
|---|---|
| 29 November 2013 | Agreement to Sell executed between the appellants and the respondent. |
| 30 June 2016 | Original deadline for possession of the apartment for fit-outs as per the agreement. |
| 30 June 2017 | Extended deadline for possession of the apartment for fit-outs, including the one-year grace period. |
| 08 June 2017 | Respondent obtained a ‘Part Occupancy Certificate’ and called upon the appellants to make the balance payment. |
| 01 July 2017 | Appellants issued a legal notice to the respondent, terminating the agreement due to the failure to offer possession for fit-outs. |
| 21 July 2017 | Respondent replied to the legal notice, disclaiming liability. |
| 29 November 2017 | Respondent informed the appellants that their apartment was ready for possession. |
| 09 November 2022 | National Consumer Disputes Redressal Commission (NCDRC) disposed of the appellants’ consumer complaint. |
| 22 February 2024 | Supreme Court of India delivered the judgment in the appeal. |
Course of Proceedings
The appellants initially filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking a refund of the amount paid, along with interest and compensation. The NCDRC directed the respondent to provide possession of the apartment within three months, rectify any deficiencies, and pay a delay compensation of 6% per annum. The NCDRC also stated that if the appellants wished to seek a refund, the respondent was entitled to deduct/forfeit the earnest money as per the agreement. Aggrieved by this order, particularly the condition regarding forfeiture of earnest money, the appellants filed an appeal before the Supreme Court.
Legal Framework
The judgment primarily revolves around the interpretation of the clauses in the Agreement to Sell. Key clauses include:
- Clause 1.13: Defines “Date of Offer of Possession (for fit outs)” as the date specified in Annexure 2, when the company will endeavor to make the unit available for fit outs, subject to receipt of the total consideration.
- Clause 1.14: Defines “Date of Offer of Possession” as the date on which the occupation certificate is issued.
- Clause 11.1: States that the company will endeavor to provide the unit for fit outs by the date in Annexure 2, subject to the purchaser not being in breach and having paid all dues.
- Clause 11.2: Allows the company a grace period of one year beyond the date mentioned in Clause 11.1.
- Clause 11.3: Specifies that if the company fails to offer possession for fit outs by the date in Annexure 2 and the grace period, the purchaser may elect to continue with the agreement or terminate it, provided the right to terminate is exercised within 90 days of the grace period. If the agreement is terminated within 90 days, the company shall refund the amount with 12% interest per annum.
- Clause 11.5: Allows the company a reasonable extension of time for reasons beyond its control.
- Clause 21.u: Acknowledges that the works in the unit shall be complete as on the date of offer of possession for fit outs.
The Court also referred to Regulation 6(7) of the Development Control Regulations, 1991, which defines ‘Occupancy Certificate’ as denoting completion of the project in all respects.
Arguments
Appellants’ Submissions:
- The appellants argued that the respondent failed to offer possession of the apartment for fit-outs by the extended deadline of 30 June 2017.
- They contended that the “Part Occupancy Certificate” obtained by the respondent was not equivalent to the “Occupancy Certificate” as defined under the Development Control Regulations, 1991, and did not fulfill the requirement for offering possession.
- The appellants asserted their right to terminate the agreement as per Clause 11.3 due to the delay and claimed a full refund with interest.
- The appellants contended that they had not acquiesced to the change in the agreement by the respondent.
Respondent’s Submissions:
- The respondent argued that they had obtained a “Part Occupancy Certificate” on 8 June 2017, which should be considered as the date of offer of possession.
- The respondent contended that the appellants were in default as they failed to make the balance payment.
- The respondent claimed that the appellants wanted to back out of the contract due to the introduction of the Goods and Service Tax (GST).
- The respondent contended that the appellants had accepted and acquiesced with its proposal to dispense with delivery of possession of the apartment for fit outs.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Delay in Possession | Failure to offer possession for fit-outs by the extended deadline | Appellants |
| Part Occupancy Certificate not equivalent to full Occupancy Certificate | Appellants | |
| Part Occupancy Certificate obtained on 08.06.2017 should be considered as date of offer of possession | Respondent | |
| Right to Terminate | Right to terminate as per Clause 11.3 due to delay | Appellants |
| Appellants’ acceptance and acquiescence with the change proposed by the respondent | Respondent | |
| Reason for Termination | Appellants wanted to back out due to introduction of GST | Respondent |
| Default | Appellants failed to make the balance payment | Respondent |
Issues Framed by the Supreme Court
The Supreme Court considered the following issue:
- Whether the appellants were entitled to terminate the Agreement and claim a refund due to the respondent’s failure to offer possession of the apartment for fit-outs by the agreed-upon date?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the appellants were entitled to terminate the Agreement and claim a refund due to the respondent’s failure to offer possession of the apartment for fit-outs by the agreed-upon date? | Yes, the appellants were entitled to terminate the agreement and claim a refund. | The respondent failed to offer possession for fit-outs by the extended deadline. The Part Occupancy Certificate was not equivalent to the full Occupancy Certificate. The appellants had the right to terminate the agreement under Clause 11.3. |
Authorities
The Supreme Court relied on the following authorities:
| Authority | Court | How it was used | Legal Point |
|---|---|---|---|
| General Assurance Society Ltd. vs. Chandumull Jain and another [AIR 1966 SC 1644] | Supreme Court of India | Reiterated that the duty of the Court is to interpret the words in which the contract is expressed by the parties and it is not for the Court to make a new contract. | Interpretation of contracts. |
| Rajasthan State Industrial Development & Investment Corporation vs. Diamond & Gem Development Corporation Ltd. [(2013) 5 SCC 470] | Supreme Court of India | Reiterated that a contract is to be interpreted by giving the actual meaning to the words contained in the contract, and it is not permissible for the Court to make a new contract. | Interpretation of contracts. |
| Shree Ambica Medical Stores vs. Surat People’s Coop. Bank Ltd. [(2020) 13 SCC 564] | Supreme Court of India | Observed that the Court cannot rewrite or create a new contract and has to simply apply the terms and conditions of the agreement as agreed between the parties. | Interpretation of contracts. |
| GMR Warora Energy Ltd. vs. Central Electricity Regulatory Commission [(2023) 10 SCC 401] | Supreme Court of India | Observed that Courts cannot substitute their own view of the presumed understanding of commercial terms by the parties if the terms are explicitly expressed. | Interpretation of contracts. |
| Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna [(2021) 3 SCC 241] | Supreme Court of India | Distinguished on facts, as the contract in that case provided for refund without interest, whereas in the present case, the agreement itself provided for interest on refund. | Rate of interest on refund. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Failure to offer possession for fit-outs by the extended deadline | Accepted as valid. The Court held that the respondent failed to offer possession by the deadline of 30.06.2017. |
| Part Occupancy Certificate not equivalent to full Occupancy Certificate | Accepted. The Court held that the Part Occupancy Certificate was not equivalent to the full Occupancy Certificate as defined by the Development Control Regulations, 1991. |
| Right to terminate as per Clause 11.3 due to delay | Accepted. The Court held that the appellants had the right to terminate the agreement under Clause 11.3 due to the delay. |
| Part Occupancy Certificate obtained on 08.06.2017 should be considered as date of offer of possession | Rejected. The Court held that the Part Occupancy Certificate was not equivalent to the full Occupancy Certificate and hence the date of obtaining the same cannot be considered as the date of offer of possession. |
| Appellants’ acceptance and acquiescence with the change proposed by the respondent | Rejected. The Court held that there was no novation of contract in writing by the parties. |
| Appellants wanted to back out due to introduction of GST | Rejected. The Court held that avoidance of tax is neither illegal nor equivalent to tax evasion. |
| Appellants failed to make the balance payment | Rejected. The Court held that the respondent had failed to offer possession for fit-outs by the extended deadline. |
How each authority was viewed by the Court?
- The Court relied on General Assurance Society Ltd. vs. Chandumull Jain and another [AIR 1966 SC 1644], Rajasthan State Industrial Development & Investment Corporation vs. Diamond & Gem Development Corporation Ltd. [(2013) 5 SCC 470], Shree Ambica Medical Stores vs. Surat People’s Coop. Bank Ltd. [(2020) 13 SCC 564] and GMR Warora Energy Ltd. vs. Central Electricity Regulatory Commission [(2023) 10 SCC 401] to reiterate the principle that courts must interpret contracts based on the explicit terms agreed upon by the parties and cannot rewrite or create new contracts.
- The Court distinguished Ireo Grace Realtech Pvt. Ltd. v. Abhishek Khanna [(2021) 3 SCC 241], stating that the contract in that case provided for refund without interest, whereas in the present case, the agreement itself provided for interest on refund.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the explicit terms of the Agreement to Sell. The Court emphasized that the agreement clearly stipulated two separate dates for possession: one for fit-outs and another for final possession after obtaining the occupancy certificate. The Court noted that the respondent failed to meet the deadline for offering possession for fit-outs and that the “Part Occupancy Certificate” did not equate to the full “Occupancy Certificate” required under the relevant regulations. The Court also stressed that the parties were bound by the terms of the contract and that the NCDRC could not rewrite the terms of the contract or introduce its own subjective criteria. The Court was also influenced by the fact that the agreement itself provided for the interest component on refund and stipulated the rate thereof as 12% p.a.
Sentiment Analysis of Reasons Given by the Supreme Court:
| Reason | Percentage |
|---|---|
| Adherence to contractual terms | 40% |
| Failure to meet the deadline for possession for fit-outs | 30% |
| Part Occupancy Certificate not equivalent to full Occupancy Certificate | 20% |
| Contractual rate of interest of 12% p.a. | 10% |
Fact:Law Ratio Analysis:
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Logical Reasoning:
Agreement to Sell: Possession for fit-outs by 30.06.2017 (with grace period)
Respondent failed to offer possession for fit-outs by 30.06.2017
Part Occupancy Certificate not equivalent to full Occupancy Certificate
Clause 11.3 of the agreement allows the purchaser to terminate the agreement
Appellants exercised the right to terminate within 90 days
Appellants entitled to refund with 12% interest
Key Takeaways
- Builders must adhere to the agreed-upon timelines for offering possession of properties, including the specific date for fit-outs.
- A “Part Occupancy Certificate” is not equivalent to a full “Occupancy Certificate” and does not fulfill the requirement for offering possession of the property.
- Purchasers have the right to terminate the agreement and claim a refund with interest if the builder fails to offer possession by the agreed-upon date, as per the terms of the agreement.
- Courts will uphold the terms of the contract and will not rewrite the terms of the contract or introduce its own subjective criteria.
Directions
The Supreme Court set aside the order of the NCDRC and directed the respondent to refund the deposited amount of ₹2,25,31,148 with simple interest at 12% per annum, from the date of receipt of the amount until actual repayment, in twelve equal monthly installments. The first installment is to be paid on 5 April 2024, and subsequent installments on the fifth of each month thereafter.
Development of Law
The ratio decidendi of this case is that if a builder fails to offer possession for fit-outs by the agreed-upon date, the purchaser has the right to terminate the agreement and claim a refund with interest, as per the terms of the agreement. This judgment reinforces the principle that contractual terms are binding and that courts will not rewrite the terms of the contract or introduce its own subjective criteria. This case clarifies that a “Part Occupancy Certificate” does not equate to a full “Occupancy Certificate” and does not fulfill the requirement for offering possession of the property.
Conclusion
The Supreme Court’s judgment in Venkataraman Krishnamurthy vs. Lodha Crown Buildmart Pvt. Ltd. reinforces the importance of adhering to contractual terms in real estate agreements. The Court upheld the right of the purchasers to terminate the agreement and claim a full refund with interest due to the builder’s failure to offer possession for fit-outs by the agreed-upon date. This decision serves as a reminder to builders to fulfill their contractual obligations and to purchasers of their rights in case of delays.