Builder's Failure To Transfer Maintenance Funds Collected From Association Members Constitutes A Deficiency In Service: NCDRC

Brief Facts of the Case

The Complainant's Association/Dum Dum Club Town Residents Association argued that during the development and sale of the property, Canon Properties/builder executed agreements for sale with the flat owners. These agreements required buyers to deposit a sinking fund for the management, maintenance, repairs, and upkeep of the residential building and other necessary contingencies related to Dum Dum Club Town Estates. This sinking fund was set at Rs. 30 per square foot. Upon completion of the buildings and flats, the builder handed over the flats to the owners and subsequently transferred the management to the Dum Dum Club Town Residents' Association. However, after handing over the flats, the builder failed to transfer the sinking fund amounting of Rs. 78,05,510 and ignored several communications regarding this matter. Aggrieved by this, the complainant filed a complaint in the State Commission which allowed the complaint. Consequently, the builder filed a first appeal in the National Commission against the State Commission's order.

Contentions of the Builder

The builder argued that the complaint is time-barred because the Complainant Society had informed the builder via letter that the newly elected committee had taken over management and maintenance responsibilities. However, the complaint was filed much later. On the merits, the builder asserted that they withheld accounts for Rs. 78,65,000 because the Complainant allegedly occupied certain properties of the builder forcefully and illegally. The builder emphasized that he would provide an account of the sum once the Complainant returned the properties they were allegedly holding unlawfully.

Observations by the Commission

The Commission observed that the primary issue is whether the builder failed to transfer the sinking fund of Rs.78,05,510 to the Complainant Association. The Dum Dum Club Town Residents' Association, an association of flat owners, was formed and registered under the Companies Act, 1956. The builder, responsible for constructing the flats, handed over the flats and subsequently transferred maintenance responsibilities to the Association. However, the builder did not transfer the collected sinking fund to the Association. Regarding the limitation period, the commission noted that under Section 24A of the Act, a complaint must be filed within two years from the cause of action. Since the Association was incorporated later, it lacked the capacity to claim the sinking fund earlier. After registration, the Association repeatedly requested the fund transfer, but the builder did not comply, constituting a continuous cause of action. Hence, the complaint is not time-barred. Furthermore the Commission highlighted that the builder argued that the Association forcefully occupied certain properties, which justified withholding the sinking fund. The commission rejected this argument, stating the builder has no authority to retain the sinking fund. If the Association was in illegal possession, the builder could pursue legal action separately. The commission ruled that the the builder must transfer the sinking fund collected from flat buyers for maintenance purposes and the failure to do so is a deficiency in service under Section 2(1)(g) read with Section 2(1)(o) of the Act. Therefore, the builder is obligated to pay the Association Rs.78,05,510 with 9% interest from the registration date until full payment. Regarding additional charges, the commission cited the case of Kamal Kishore & Anr. versus M/s. Supertech Limited, stating that maintenance charges are payable only after offering possession with the necessary occupancy certificate. The builder's failure to transfer the sinking fund collected from the Association's members constitutes a deficiency in service. Thus, the Association is entitled to the amount along with interest. If the builder incurred expenses, they should have been established and the balance transferred.

The commission upheld the State Commission's order and dismissed the appeal.

Case Title: Canon Properties Pvt Ltd. Vs. Dum Dum Club Town Residents Association

Case Number: F.A. No. 1784/2018