Home Buyers Can Seek Higher Compensation Than Token Amount Specified In Contract For Delayed Delivery Of Possession: NCDRC [Read Order]

The National Consumer Disputes Redressal Commission (NCDRC) has ruled that builders cannot shield themselves behind the clause in the builder-buyer agreement to pay Rs. 5 per sq. feet per month as compensation for delay in handing over flats for an “unreasonable” period and that the buyers have the option to seek higher compensation after taking possession of the property, or seek refund of the amount paid.

A Bench of Dr. SM Kantikar and Dinesh Singh observed, “The compensation for delay (Rs 5 per sq ft per month) cannot be for an unreasonably protracted period or indefinite; at best it can be for a short period that would appear to be reasonable and would be acceptable as such to a reasonable man... To say that possession can be delayed indefinitely or unreasonably and a token compensation for delay can be paid indefinitely or for an unreasonably protracted period is erroneous. Indefinite or unreasonable delay with token compensation for delay cannot continue forever without limit (such situation would be absurd).”

NCDRC was hearing an appeal filed by Emaar MGF under Section 19 of The Consumer Protection Act, 1986, challenging an order passed in August by the State Commission, Chandigarh.

The complainant, Mr. Govind Paul, had entered into an agreement with Emaar in September 2011 for a property that was supposed to be handed over in 36 months.

After a delay of about 20 months, Paul approached the consumer commission of Chandigarh seeking refund of his payment and compensation for the delay. The State Commission had ordered refund of the principal amount of Rs 38.9 lakh at 15% interest compounded quarterly and Rs. 3 lakh compensation to be paid by Emaar. It had further directed the builder to pay Rs. 25,000 to Paul as cost of litigation.

Disposing of the appeal, the NCDRC opined that the compensation prescribed by the agreement, at the rate of Rs. 5 per sq. ft. per month till the date of handing over the possession cannot be for an unreasonably long period of time.

Explaining that the builder would have to hand over possession within 36 months and that only a “short reasonable delay” would attract the token compensation provided for in the agreement, it asserted that the two natural corollaries flow from this assertion: 1. the consumer-complainant has the fundamental option to obtain the possession of the unit as and when it is offered by the builder and in addition seek equitable and just compensation for the delay; or 2. the consumer-complainant can claim refund of the principal amount; interest thereon; compensation; and cost of litigation if the offering of possession of the unit is unreasonably delayed.

The court then opined that the delay in the case at hand cannot be said to be reasonable or normal, and noted that Paul had opted for the second option.

It went on to elaborate on the considerations for determining the rate of interest to be awarded in such a scenario, asserting, “…adopting any other figure [simple or compound (quarterly or something else)] in an arbitrary or whimsical manner has to be avoided. A logical correlation has to be established, rationale has to be evident, subjectivity has to be minimised. Albeit detailed arithmetic or algebra is not required. Logical, (to the extent feasible) objective parameters should be adopted. Rounding off simplification etc. to make the computation doable could be adopted.”

For instance, in the case at hand, the NCDRC opined that the rate of interest paid by the complainant to bank for availing the loan can be a logical parameter. While this was lower than what was awarded by the State Commission, it highlighted the importance of refraining from awarding an exceptionally exorbitant interest rate or a meagre one, observing, “…an arbitrarily or whimsically high rate of interest for one consumer (while being inappropriate per se) could cause a ‘sudden run’ on the builder co. by some other similarly placed consumers and thereby cause impediments in the completion of the project which would be detrimental to yet other similarly placed consumers awaiting completion and possession, conversely, an arbitrarily or whimsically low rate of interest for any consumer (while being inappropriate per se) could also cause the builder co. to ‘go slow’ on the execution and hold on indefinitely to the ‘cheap money’ available from the consumer/s (the possible direct or indirect consequences of an arbitrarily or whimsically high or low rate of interest on other similarly placed consumers, the holistic picture, has also to be kept in view). Both contingencies, an arbitrarily or whimsically high rate of interest OR an arbitrarily or whimsically low rate of interest are inappropriate and have to be remedied”

It then enhanced the compensation to Rs. 5 lakh and litigation costs to Rs. 50,000, in addition to the refund. Emaar was directed to file a compliance report within four weeks and warned of higher compensation in case the payments were not made swiftly.

The NCDRC observed, “Creating yet further harassment, uncertainty and difficulty for the consumer by delaying payments or making reduced payments etc. (if the adjudication is not stayed or quashed or modified by a higher authority/court) will be an unacceptable situation, to be viewed seriously - the harassment, uncertainty and difficulty of the consumer should end promptly and fully, the chapter should close. Therefore, if the builder co. delays the adjudicated payments beyond the time stipulated, it would and should attract higher / penal interest and other compensation/costs.”

Read the Order Here