ONE SIDED CLAUSES IN AN AGREEMENT CONSTITUTES AN UNFAIR TRADE PRACTICE

[Mr. M. GOVINDARAJAN]

Builder service

When a person hires the services of a builder, or a contractor, for the construction of a house or a flat, and the same is for a consideration, it is a “service” as defined by Section 2 (o) of the Consumer Protection Act.   The inordinate delay in handing over possession of the flat clearly amounts to deficiency of service.

Building contract

There shall be definitely a contract made between the builder and purchaser containing all the provisions required to fulfill the requirements.  The clauses of the agreements should be fair, reasonable and applicable to both parties equally.  The clauses of the agreements shall not be a favor for one person and disfavor to another person.   If there is a position like this it would amount to ‘unfair trade practice’ under the provisions of the Consumer Protection Act, 1986.  This has been explained the case law discussed as below.

Case law

In ‘Pioneer Urban Land & Infrastructure Limited v. Govindan Raghavan [2019 (4) TMI 231 - SUPREME COURT]’ – Civil Appeal No. 12238 of 2018 – SC (decided on 02.04.2019) the Appellant – Builder launched a residential project by the name “Araya Complex” in Sector 62, Golf Course Extension Road, Gurugram.   The Respondent – Flat Purchaser entered into an Apartment Buyer’s Agreement dated 08.05.2012 with the Appellant – Builder to purchase an apartment in the said project for a total sale consideration of ₹ 4,83,25,280/-.

As per Clause 11.2 of the Agreement, the Appellant – Builder was to make all efforts to apply for the Occupancy Certificate within 39 months from the date of excavation, with a grace period of 180 days. The project was commenced on 04.06.2012.  The Building is supposed apply for the Occupancy Certificate by 04.09.2015, or within a further grace period of 6 months i.e. by 04.03.2016, and offer possession of the flat to the Respondent – Flat Purchaser as per Clause 11.2 of the Agreement.  The appellant failed to do so.

Therefore the flat purchaser filed a consumer complaint before the National Consumer Disputes Redressal Commission (‘National Commission’ for short) on 27.01.2017 alleging deficiency of service on the part of the Appellant – Builder for failure to obtain the Occupancy Certificate, and hand over possession of the flat.   In the complaint the flat purchaser prayed for the following-

• Refund of the entire amount deposited being ₹ 4,48,43,026/-, along with Interest @18% p.a.;
• Compensation of ₹ 10,00,000/- for mental agony, harassment, discomfort and undue hardship;
• Refund of the wrongfully charged taxes including Service Tax, and other charges along with Interest @18% p.a.; and
• Litigation Costs of ₹ 1,00,000/-.

The National Commission passed an ex-parte Interim Order restraining the Appellant – Builder from cancelling the allotment made in favor of the Respondent – Flat Purchaser during the pendency of the Consumer Case on 02.06.2017.   The Appellant – Builder obtained the Occupancy Certificate on 23.07.2018, and issued a Possession Letter to the Respondent – Flat Purchaser on 28.08.2018 during the pendency of proceedings before National Commission.

The appellant submitted before the National Commissioner that since the construction of the apartment was complete, and the Occupancy Certificate had since been obtained, the Respondent – Flat Purchaser must be directed to take possession of the apartment, instead of directing refund of the amount deposited. The flat purchaser expressed that he did not want to take the possession of the flat on account of three years delay in giving possession of the flat.  In the meanwhile he has taken an alternative flat and he demanded the refund of the entire amount with interest along with compensation.  The National Commission allowed the complaint holding that-

• the purchaser could not be compelled to take possession of the flat at the belated stage;
• the explanation offered by the builder for inordinate delay of giving possession of the flat is not justifiable;
• the clauses in the agreement are one sided, unfair and not binding on the purchaser.

The Appellant – Builder was directed to refund ₹ 4,48,43,026/- i.e. the amount deposited by the Respondent – Flat Purchaser, along with Interest @10.7% S.I. p.a. towards compensation. The rate of Interest @10.7% S.I. p.a. was fixed in accordance with Rule 15 of the Haryana Real Estate (Regulation and Development) Rules, 2017.  However, for the period when the Interim Order dated 06.02.2017 was in operation, which restrained the Appellant – Builder from cancelling the Respondent’s allotment, no Interest was awarded. The National Commission ordered payment of Interest from the date of each installment till 05.02.2017 and from the date of the Order passed by the Commission till the date on which the amount would be refunded.

The appellant, being aggrieved against the order of National Commissioner, filed appeal before the Supreme Court under section 23 of the Consumer Protection Act, 1986.  Before the Supreme Court the appellant pointed out the clauses of the agreement made between the appellant and the purchaser on 08.05.2012. 

• 11.5. (ii) In the event of further delay by the Developer in handing over of the possession of the Unit even after 12 months from the end of grace period, then in such case, the intending Allottee shall have an additional option to terminate this Agreement by giving termination notice of 90 days to the Developer and refund of the actual installment paid by him against the Unit after adjusting the taxes paid / interest / penalty on delayed payments.
• (iv) Developer shall, within ninety (90) days from the date of receipt of termination notice of said Unit, refund to the intending Allottee, all the monies received excluding the service tax collected on various remittances, till the date of the refund, from the Intending Allottee under this Agreement. In case the Developer fails to refund the Sale Price, the Developer shall pay interest to the Intending Allottee @ 9% per annum for any period beyond the said period of ninety (90) days. The Intending Allottee shall have no other claim against the Developer in respect of the said Unit along with the parking space. The Intending Allottee in this event shall have no right to seek any compensation apart from the interest as stipulated herein.
• (v) If the Intending Allottee fails to exercise his right of termination within the time limit as aforesaid, by delivery to the Developer of a written notice acknowledged by the Developer in this regard, then he shall not be entitled to terminate this Agreement thereafter and he shall continue to be bound by the provisions of this Agreement, provided that in such case, the Developer shall continue to pay the compensation provided herein.

20. RIGHT OF CANCELLATION BY THE ALLOTTEE

• Except to the extent specifically and expressly stated elsewhere in this Agreement, the Intending Allottee shall have the right to cancel this Agreement solely in the event of the clear and unambiguous failure of the warranties of the Developer that leads to frustration of the contract on that account. In such case, the Allottee shall be entitled to a refund of the installments actually paid by it along with interest thereon @ 6% per annum, within a period of 90 days from the date of communication to the Developer in this regard less any payments made towards taxes paid by the Developer or interest paid due or payable, any other amount of a non-refundable nature. No other claim, whatsoever, monetary or otherwise shall lie against the Developer nor shall be raised otherwise or in any manner whatsoever by the Allottee. Save and except to this limited extent, the Allottee shall not have any right to cancel this Agreement on any ground whatsoever.”

The appellant further submitted that-

• the Respondent – Flat Purchaser was not entitled to refund of the amount deposited, since
• the Apartment Buyer’s Agreement was not terminated by the Respondent – Flat Purchaser in accordance with Clause 11.5 (ii) of the Agreement, which stipulates that the allottee has to terminate the Agreement by giving a Termination Notice of 90 days to the Developer;
• since the Respondent – Flat Purchaser had not terminated the Agreement by a written notice the Builder could not sell the apartment, and refund the money to the Respondent – Flat Purchaser;
• the Respondent filed a Consumer Complaint and obtained an ex-parte Interim Order dated 06.02.2017 restraining the Builder from cancelling the allotment made in favor of the Respondent;
• even if the filing of the Consumer Complaint is considered as an act of termination of the Agreement, then the same was pre-mature;
• even if it is found that the Appellant – Builder is liable to refund the amount deposited with Interest, then the date of the Impugned Order i.e. 23.10.2018, must be treated as the date of serving the Termination Notice as per Clause 11.5 (ii) of the Agreement, and the Appellant – Builder should be held liable to pay Interest only after 90 days from the date of termination i.e. from 23.01.2019;
• the National Commission erred in granting Interest @10.7% S.I. p.a. even though Clause 20 of the Agreement provided Interest @6% p.a. in case of delay in handing over possession;
• even under Clause 11.5 of the Agreement, the Builder was liable to pay Interest @9% p.a., but not @10.7% S.I. p.a.

The respondent, the purchaser submitted the following before the Supreme Court-

• the filing of the Consumer Complaint may be treated as his Termination Notice under Clause 11.5 (ii) of the Agreement
• under the Agreement, the Builder was obligated to apply for the Occupancy Certificate within 39 months from the date of excavation, with a grace period of further 6 months. The period got over by 04.03.3016 after taking into account the grace period;
• on account of the inordinate delay, the Respondent – Flat Purchaser had no option but to arrange for alternate accommodation in Gurugram and therefore he could not be compelled to take possession of the flat;
• therefore the Respondent – Flat Purchaser sought stay of the cancellation of the allotment as a collateral, till his claim for refund was adjudicated by the National Commission;
• the agreement provided for charging 18% interest if there is a delay on the payment by the purchaser but at the same the agreement provided only 9% interest if there is a delay in refund of the amount to the purchasers;
• the purchaser is to pay interest @ 10% to the bank in which he get the loan for purchase o the flat from the appellant;

The Supreme Court heard the submissions of both the parties.  The Supreme Court observed that the Apartment Buyer’s Agreement dated 08.05.2012 reveals stark incongruities between the remedies available to both the parties. Clause 23.4 of the Agreement entitles the Appellant – Builder to serve a Termination Notice upon the Respondent – Flat Purchaser for breach of any contractual obligation. If the Respondent – Flat Purchaser fails to rectify the default within 30 days of the Termination Notice, then the Agreement automatically stands cancelled, and the Appellant – Builder has the right to forfeit the entire amount of Earnest Money towards liquidated damages.  On the other hand, as Clause 11.5 (v) of the Agreement, if the Respondent – Flat Purchaser fails to exercise his right of termination within the time limit provided in Clause 11.5, then he shall not be entitled to terminate the Agreement thereafter, and shall be bound by the provisions of the Agreement.

The Supreme Court held that-

• A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder.
• The contractual terms of the Agreement dated 08.05.2012 are ex-facie one-sided, unfair, and unreasonable. The incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the Builder.

The Supreme Court also rejected the submission made by the Appellant – Builder that the National Commission was not justified in awarding Interest @10.7% S.I. p.a. for the period commencing from the date of payment of each installment, till the date on which the amount was paid, excluding only the period during which the stay of cancellation of the allotment was in operation.   The Supreme Court dismissed the appeal filed by the appellant since it did not find any grounds to interfere with the orders of the National Commission.