Supreme Court Holds Landowners Liable Along With Builder For Deficiencies In Flat Constructions

The Supreme Court recently held that a revocation of power of attorney executed between landowners and builder for developing their land would not absolve the landowners from being jointly and severally liable along with the builder in a consumer case for deficiency of service. 

The Court observed that the Joint Venture Agreement (JVA) between the builder and the landowners remained operative even after the revocation of the power of attorney. It was also held that the expression 'henceforth' used in the revocation letter to the builder meant that landowners would be ceased of any liability for builder's actions that occurs subsequent to the termination and that would not exclude the landowners' liability for the agreements that the builder entered into with the buyers before the termination. 

"It further appears that though allegedly the said power of attorney was revoked by the appellants vide the letter dated 12-8-2014, the JVA has not been revoked so far and the same still continues to be in force.

As rightly submitted by the learned counsel for the respondents, in the letter dated 12-8-2014, the appellants had stated to be not liable “Henceforth”, i.e. after the said letter was sent. The appellants therefore were bound by the acts/deeds of the Respondent No.2 carried out pursuant to the irrevocable Power of Attorney till it was terminated, in accordance with law."

The bench of Justices Bela Trivedi and SC Sharma was considering the challenge to the order of the  National Consumer Disputes Redressal Commission, New Delhi dated November 28, 2017 which upheld the order of the State Commission in holding the appellants and Respondent no.2 liable for deficiency in service for the completion of the construction of dwelling units to flat buyer who are the respondents. 

The appellants who are landowners, and respondent no.2 (builder) had entered into a Joint Venture Agreement (JVA) for building flats and selling them subsequently. 

The appellants had also executed an Irrevocable Power of Attorney (IPA) in favour of the respondent no.1 on July 6, 2013. On the premise of the said IPA, the respondent no.2 entered into sale agreements with respondents for the sale of the flat units. 

The respondents subsequently filed a complaint before the Maharashtra State Consumer Disputes Redressal Commission for being jointly and severally liable for unfair trade practices and deficiency of service in completing and handing over the possession of the6 promised flat units by the appellant and the respondent no.2

The State Commission in its order dated July 10, 2017 held (1) the appellants and respondent no.2 to be liable and directed them to hand over the possession to the complainants in a span of 6 months from date of order; (2) execute sale deed of the units as the agreement to sell between the parties; (3) the respondent no.2 to give compensation of Rs 1,00,000/- to each of the complainants for physical and mental harassment. 

The said decision was upheld by the NCDRC which observed the appellants had only cancelled the JVA and IPA on August 18, 2014 which was much after the agreement entered between the Respondent no.1 and flat buyers/ remaining respondents. Noting the observation from the State Commission's order, NCDRC stated : 

"The State Commission concluded that at the time of the agreement between the builder and the complainants, the JVA and IPA were very much operative. It is evident, therefore, that the appellants cannot wash their hands off from the matter, as it would result in grave injustice to the complainants consumers."  

Arguments By The Counsels 

Senior Advocate Kailash Vasdev  appearing for the appellants argued that the appellants revoked the IPA granted to respondent no.2 on August 12, 2014 along with a public notice and hence could not be held liable for the acts done by the respondent no.2.

It was additionally argued that since the appellants were not privy to the agreement between the respondent no.2 and flat buyer/remaining respondents, a complaint against them under the Consumer Protection Act would not be maintainable.  

Senior Advocate Siddarth Dave representing respondent no.2 had submitted that respondent no.2 was ready to complete the construction work and honour the JVA . 

Senior Advocate Gopal Sankaranarayan appearing for one the flat buyers/ remaining respondents highlighted that the IPA revocation letter of August 12, 2014 stated that the appellants will not be liable for the acts of the Respondent No.2 “henceforth”- that is acts done after the revocation letter is communicated. 

Appellants Jointly & Severally Liable As Per The Revocation Letter; JVA Was Operative Even After Revocation Of Power Of Attorney : Bench Observes 

The Bench made two key observations is holding the appellants liable jointly and severally along with the respondent no.2 - (1) the appellants while revoking the power of attorney executed to the respondent no.2 had not revoked the JVA, which continues to stay operative and (2) the use of the expression 'henceforth' in the revocation letter by the appellants would mean that they cease their liability only for the actions of respondent no.2 after August 12, 2014 and this wouldnot exclude them from the liability of the builder's conduct of entering into agreements with the flat buyers.

"It further appears that though allegedly the said power of attorney was revoked by the appellants vide the letter dated 12-8-2014, the JVA has not been revoked so far and the same still continues to be in force.

As rightly submitted by the learned counsel for the respondents, in the letter dated 12-8-2014, the appellants had stated to be not liable “Henceforth”, i.e. after the said letter was sent. The appellants therefore were bound by the acts/deeds of the Respondent No.2 carried out pursuant to the irrevocable Power of Attorney till it was terminated, in accordance with law."

It was also observed that appellants have also taken against respondent no.2 for non-compliance of the JVA, implying it be remain operative between the parties. 

"It is also not denied that the appellants have not taken any action whatsoever against the respondent No.2 with regard to the alleged non-compliance of the terms and conditions of JAV by the said Respondent. Under the circumstances, it does not lie in the mouth of the appellants to say that the appellants are not liable for the acts of Respondent No.2."

The Court therefore upheld the decision of the NCDRC and refused to interfere with the impugned order. The appeal was dismissed as being devoid of any merits. 

Case Details : AKSHAY & ANR. v.  ADITYA & ORS Civil Appeal Nos.3642-3646/2018

Citation : 2024 LiveLaw (SC) 658

Click here to read the judgment