Co-Promoters Liable To Refund Amounts Under Real Estate Laws: NCDRC

Brief Facts of the Case

The complainant booked a flat from the Niraj Kakad Constructions/developer. The complainants made a payment of Rs.85 lakhs towards the flat cost. As per the agreement clause, Rs.55 lakhs was to be paid before execution and Rs.20 lakhs at possession time. After the agreement, the developer informed the complainants that it had taken a loan from Capital First Limited, which created a charge on part of the property. The developer asked the complainants to pay Rs.55 lakhs to Capital First Limited, which they paid. The complainant paid a total of Rs.1.40 crores, with the balance of Rs.20 lakhs to be paid at possession. As per the agreement clause, possession was to be delivered by December. However, the developer cancelled the development agreement. The complainant replied to the notice informing the shareholders (opposite parties 2-5) about his claim, right, title, and interest in the property but got no response. Subsequently, the complainant filed a consumer complaint before the National Commission.

Contentions of the Developer

The developer argued that as per the development agreement clause 5, it was required to obtain revised plans, transferable development rights, additional FSI etc., within a certain period, until which it was not entitled to sell any flat. However, it violated this clause by creating third-party rights with the complainants without permission from the shareholders, which was a pre-condition under clause 9. The shareholders stated that the complainant did not make specific allegations against them but sought relief against them, which is not permissible. They argued that they entered the development agreement with the developer and handed over land possession for development purposes. The shareholders claimed the developer stopped construction work for 1.5 years despite their emails. Therefore, they terminated the development agreement via legal notice and public notices in newspapers. They stated the developer gave an undertaking to complete development within a certain period plus a grace period, which expired, but the work was incomplete. The shareholders filed an arbitration petition against the developer, but it was dismissed with the liberty to appoint an arbitrator. The shareholders argued they were not responsible for any bookings made by the complainant with the developer, and there was no deficiency in service on their part, so the complaint should be dismissed.

Observations by the National Commission

The National Commission observed that the shareholders executed the development agreement, authorizing the developer to construct the building over their land. Under the agreement, the entire development was to be carried out at the developer's expense, who was required to give 58% of the built-up area to the shareholders, while the developer was entitled to 42% and authorized to sell it. The commission highlighted that based on the development agreement, the developer allotted a flat to the complainant via an allotment letter and agreement for sale, taking Rs.1.40 crore from them. The agreement clause provided for delivery of possession by a certain year. The commission emphasized that the shareholders cancelled the development agreement, which was upheld by the Arbitrator, directing the developer to hand over possession of the building to the shareholders in its existing position. In these changed circumstances, the complainants sought a refund. The commission observed that the shareholders relied on clause 5 of the development agreement, arguing the developer did not obtain revised plans, transferable development rights (TDR), additional FSI, etc., within the stipulated period, so was not entitled to sell flats. However, the Arbitrator's award showed the developer purchased TDR later, after which the shareholders could not cancel the agreement. The clause imposed restrictions on selling flats till obtaining TDR, etc., but the allotment to complainants was after purchasing TDR, so it was not invalid. The commission highlighted that the developer raised construction and sold flats in its share based on the development agreement. Now, the shareholders terminated the agreement and grabbed the entire construction raised by the developer. It emphasized the principal-agent relation between them, with the principal vicariously liable for the agent's acts, citing cases like Canara Bank Vs. Canara Sales Corporation, Achutrao Khodwa Vs. State of Maharashtra, Savita Garg Vs. National Heart Institute, and Pradeep Kumar Vs. Post Master General. The commission observed that the shareholders are co-promoters under the Maharashtra Ownership Flats Act 1963. Under the Real Estate Act 2016, the promoter is liable to refund amounts. As the shareholders took possession of the entire construction raised by the developer, in which the complainant's money was incurred, they should refund the entire amount with interest.

The National Commission partly allowed the complaint with the cost of Rs. 50,000 and directed the shareholders to refund the entire amount deposited by the complainant with interest @9% per annum.

Case Title: Nari Gulabani Vs. Niraj Kakad Constructions

Case Number: C.C. No. 511/2017