Mere Offer Of Refund By Developer Does Not Disentitle Flat Buyers From Claiming Compensation For Delay In Handing Over Possession: Supreme Court

The Supreme Court has observed that the flat purchasers are not disentitled from claiming compensation merely because the developer offered an exit option of refund of consideration together with interest.

For a genuine flat buyer, who has booked an apartment in the project not as an investor or financier, but for the purpose of purchasing a family home, a mere offer of refund would not detract from the entitlement to claim compensation, the bench comprising Justices DY Chandrachud, Indu Malhotra and Indira Banerjee observed while disposing an appeal against an order passed by National Consumer Disputes Redressal Commission (NCDRC).

An association representing flat purchasers [ Capital Greens Flat Buyers Association] had filed a complaint before the Commission alleging that there was a substantial delay on the part of the developer  [DLF Home Developers Ltd.] in handing over possession of the apartments which were contracted to be sold. The commission allowed their complaints and directed the developer to pay compensation in the form of simple interest @ 7% per annum from the expected date for delivery of possession till the date on which the possession was actually offered to the allottees.

The Developer, challenged this order before the Apex Court, raising two grounds: 1) as a result of force majeure conditions, they were prevented from achieving timely completion of their contractual obligations (2)) exit offers were given to the flat buyers on two occasions when the developer became aware of the fact that there was a delay beyond the contractual period of thirty-six months and the purchasers were offered refunds of the consideration together with interest at the rate of 9% per annum and 45% of the flat buyers in the project have sold away their apartments.

On Force Majeure aspect, the bench observed:

"It is evident that a delay in the approval of building plans is a normal incident of a construction project. A developer in the position of the appellant would be conscious of these delays and cannot set this up as a defence to a claim for compensation where a delay has been occasioned beyond the contractually agreed period for handing over possession. As regards the stop work orders, there is a finding of fact that these were occasioned by a succession of fatal accidents which took place at the site and as a result of the failure of the appellant to follow safety instructions. This is a pure finding of fact. There is no error of law or fact. Hence, we find no substance in the force majeure defence."

The court, while rejecting the second ground observed that merely because the developer offered an exit option with interest at 9% would not disentitle the flat purchasers from claiming compensation. Referring to Pioneer Urban Land and Infrastructure Ltd vs. Govindan Raghvan (2019) 5 SCC 725 and Wing Commander Arifur Rahman Khan and Aleya Sultana and Others vs DLF Southern Homes Pvt Ltd and Others, the bench said:

"For a genuine flat buyer, who has booked an apartment in the project not as an investor or financier, but for the purpose of purchasing a family home, a mere offer of refund would not detract from the entitlement to claim compensation. A genuine flat buyer wants a roof over the head. The developer cannot assert that a buyer who continues to remain committed to the agreement for purchase of the flat must forsake recourse to a claim for compensation occasioned by the delay of the developer. Mere refund of consideration together with interest would not provide a just recompense to a genuine flat buyer, who desires possession and remains committed to the project. It was for each buyer to either accept the offer of the developer or to continue with the agreement for purchase of the flat. Similar is the position in regard to the submission on the appreciation of the value of the flats. Undoubtedly, this is one factor which has to be borne in mind in considering whether and, if so to what extent, compensation for delay should be awarded. Having regard to the principles which have been enunciated in the earlier two decisions which have been noted above, we are unable subscribe to the submission that the flat buyers are not entitled to any payment whatsoever on account of delayed compensation."

The court noted that the flat buyers had to suffer on account of a substantial delay on the part of the developers and thus they cannot be constrained to the compensation of Rs 10 per square foot provided by the agreements for flat purchase. The Court, however, observed that compensation on account of delay in handing over possession of the flats to the flat buyers is reduced from 7% to 6%;

Case: DLF Home Developers Ltd. (Earlier Known as DLF Universal Ltd) vs. Capital Greens Flat Buyers Association [CA 3864-3889/2020]
Coram: Justices DY Chandrachud, Indu Malhotra and Indira Banerjee
Counsel: Sr. Adv. Pinaki Misra, Sr. Adv. Shyam Divan

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