SC Asks Developer To Pay Rs. 2.27 Cr Compensation To Buyer, Modifies NCDRC Order Of Rs 3.65 Cr Damages [Read Judgment]

Observing that the rule of measuring damages from the time of breach of contract is flexible, the Supreme Court modified compensation of Rs 3.65 crore awarded by NCDRC to a flat buyer in a redevelopment project to Rs 2.27 crore.

A bench of Justice NV Ramana and Justice S Abdul Nazeer modified the order of NCDRC saying the claim granted by “NCDRC seems to surpass the actual-loss based damages and enter the domain of gain-based remedy”.

“As per the settled law, the damages become due on the date when the breach of contract takes place, and are normally assessed by the reference to the time of breach. The aforesaid rule is based on the principle that the injured party is presumed to be in knowledge of the breach as soon as it is committed and at that time he can take appropriate measures of mitigation to control the loss flowing from the breach. The courts may deviate from the aforesaid rule and fix appropriate date in facts and circumstance of a case if aforesaid presumptions could not be established or it would not be reasonable to follow the rule.

“It may be noted that where there is non-delivery of the flat/house, and the developer has refused to provide alternative and equivalent accommodation, and the buyer lacks means to purchase a substitute from the market, then in such circumstances, damages would not be reasonable to be assessed on the breach date,” the court said.

The bench was hearing an appeal filed by a real estate developers Fortune Infrastructure, now known as Hicon Infrastructure, against the order of NCDRC passed in 2016 granting a compensation of Rs 3.65 crore to a flat buyer after the project failed to take off.

The developer had in year 2011 launched a residential housing project named ‘Hicons Onyx’, renamed as Fortune Residency, which was a re-development of Mohammadi House.

Respondents Trevor D’lima booked a flat admeasuring 828.40 sq. ft. with one unit of parking-space for Rs. 1,93,00,000.

Due to unexpected increase in cost, the project was transferred to another company. The respondents had paid a sale consideration of Rs. 1.87 crore.

In 2015, aggrieved by the fact that developers were not willing to deliver the flat to them, the respondents approached NCDRC through a consumer complaint.

The NCDRC allowed their complaint and directed the developers to refund Rs 1.87 crore and further pay a compensation of Rs. 3,65,46,000 with Rs 10,000 as cost of litigation at 10% per annum from the date of the order.

A review of the order came to be dismissed.

Before the Supreme Court, the developer argued that since it had transferred the project to a different company, it should be discharged from any liability for not handing over the disputed property to the answering respondents (complainants).

It was further submitted that the circle rate of the property is pegged at half the price awarded by NCDRC and that the court should consider the downward trends in the real estate market which mandates a lesser compensation, compared to the one awarded by the NCDRC.

During the hearing, the apex court made several attempts to make the parties arrive at a settlement concerning the quantum of compensation and even asked senior counsel Raju Ramachandran to persuade the parties to settle the matter but the parties were not impressed by the endeavours made.

In its judgment, the apex court noted, “It is now well established that the contractual damages are usually awarded to compensate an injured party to a breach of contract for the loss of his bargain.

“The aforesaid proposition remains to hold the field and has been applied consistently. This rule is more qualified when it comes to the real estate sector. If the seller wants to limit their liability for breach of contract under the aforesaid rule, they have to portray that they have performed their obligation in a prudent manner. It may be noted that the onus is on the seller to show his best efforts and bona fides in discharging the obligation. It may be noted that even in the absence of fraud, mere unwillingness to carry out the duty could constitute bad faith sufficient for the purchaser to claim damages”.

Noting that the developer did not assign any valid reason for transferring the property to a third party, the bench said the developer was under an obligation to show that he was unable to transfer the property to the respondent and that a buyer cannot be made to wait indefinitely for the possession of the flats allotted to them and they are entitled to seek the refund of the amount paid by them, along with compensation.

“Law is well settled in this regard that whenever the builder has refused to perform the contract without valid justification, the buyer is entitled for compensation as he has been deprived of price escalation of the flat. Every breach of contract gives rise to an action for damages. Such amount of damages must be proved with reasonable certainty,” the bench said.

The court also considered the question whether damages should be awarded from the date of the breach of contract or the date of the judgment and arrived at the conclusion that the rule is flexible and needs to be assessed as per the facts of the case.

In the instant case, the court noted that, even in the first appeal, offers were being made on behalf of appellants to convey alternative properties, which were refused by the buyer as being insufficient.

“Therefore, in facts and circumstances of this case, the damage need not be determined from the date of breach of contract,” the court said.

Its attention was drawn to the fact that generally the real estate rates for re-developed properties are on the lower side instead of green-field projects.

Reiterating that the damages awarded should not be excessive and a court/tribunal needs to take a balanced approach so as to ensure right compensation, the bench fixed the market rate at Rs. 50,000 per sq. ft as the reference rate for determination of market price prevailing in the vicinity.

It then modified the compensation amount to Rs 2,27,20,000. It chose not to interfere with compensation of Rs 20,000 awarded for one parking space.

The amount has been ordered to be paid within six months from the date of the order.