Strength to CPA: Exit deals don’t negate Right to Compensation, rules Supreme Court 

 A Real Estate Developer cannot deal with homebuyers Rights to Claim Compensation for delays in the completion of their apartments by merely offering refunds or some other exit option, the Supreme Court has ruled.


In the order that could strengthen the rights of homebuyers under the Consumer Protection Act, the court has held that the right to claim compensation is independent of schemes offered by developers that give an option to the buyers to rescind their purchase.


It also held that the damages to a Consumer can be over and above the amount mentioned in the developer-buyer agreement, defined as the contractual rate of compensation for delays.


In its order last week, a bench of the Apex Court headed by Justice Dhananjay Y Chandrachud, highlighted that “a genuine flat buyer wants a roof over the head” and therefore, schemes offering them a refund of what they had paid to date would not be sufficient.


“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,” held the bench, which also included Justice Indu Malhotra and Justice Indira Banerjee.The developer, said the bench, cannot assert that buyers who continue to be committed to the agreement for purchase of the flat give up their right to adequate compensation.


“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 is for each buyer to either accept the offer of the developer and opt out, or continue with the agreement for purchase of the flat,” it said.


The Court also addressed another contention regarding the appreciation of the capital value of the flats with the passage of time, stating that this factor could only be one of the considerations while determining the quantum of damages but that it cannot deprive the consumers of a just and fair compensation.


The order came as the bench dismissed DLF Home Developers Limited’s appeal against compensation to the flat buyers of the Capital Greens project in Delhi. The developer, through senior advocate Pinaki Misra, challenged the order of the National Consumer Commission, arguing the delay in completion of the apartments was due to certain reasons beyond the control of the developer.


Misra added that the developer also offered to its buyers refunds of the amount paid by them, together with interest at the rate of 9% per annum.


Representing the home buyers, senior advocate Shyam Divan defended the consumer commission’s order, directing DLF to pay compensation in the form of simple interest at the rate of 7% annually from the promised date of delivery for possession till the date on which the possession is actually offered.Affirming the order in favour of the home buyers, the bench said that “the fact that the developer offered an exit option with interest at 9% would not disentitle the flat purchasers from claiming compensation.”


The other argument by DLF, with respect to unmanageable circumstances, was also rejected with the court noting that if fatal accidents at the site stalled the work while it was found that accidents took place due to a developer’s laxity in adhering to safety norms, the flat buyers cannot be made to suffer.


“The flat buyers had to suffer on account of a substantial delay on the part of the appellants. In such a situation, they cannot be constrained to the compensation of ₹10 per square foot, provided by the agreements for flat purchase,” clarified the court, commenting on the contractual rate.However, in accordance with a previous ruling on the rate of interest, the bench ordered that the compensation on account of delay will be 6% per annum instead of 7%.


“We welcome the order of the Supreme Court because it will empower the thousands of homebuyers who have been suffering for a long time at the hands of the developers, who have delayed their projects for many years, and still denying justified compensation with refund of the investment. But we hope that this order will be implemented at the ground by the authorities to safeguard the rights of the homebuyers,” said Abhishek Kumar, president of Noida Extension Flat Owners Welfare Association.


“We will look into this order in detail and then figure out as to how it will impact the real estate sector ahead. But any order that gives power to the consumer helps the sector as it restores the faith of the homebuyer...So we hope this order will positively impact the realty sector,” said Subodh Goyal, secretary of the western Uttar Pradesh chapter of the Confederation of Real Estate Developers Association of India.The order has been issued by a bench comprising of Justice Dhananjay Y Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee on 14-12-2020.\

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