Builder liable to pay damages for delay in occupation certificate: SC

Delay in occupation certificate leads to a lot of unwanted worry and tension on the part of home buyers. Here we are discussing a unique case decided by the Hon’ble Supreme Court on 11th January 2022. It has given a new dimension to the issue of fixing liability of developers when occupancy certificate is not provided to home buyers.

Dr Prem Lata

It’s a common grievance of home buyers that builders fail to complete the construction work including amenities as per the plan and agreed terms. With the result, occupancy certificate is not issued by the concerned authorities. In some cases, home buyers take possession under compelling circumstances with incomplete work and occupancy certificate still remains a problem. An exceptional case decided by the Hon’ble Supreme Court on 11th January 2022 has brought a breath of fresh air to the issue of fixing liability of developers when occupancy certificate is not provided to home buyers.  It is a twofold deficiency on the part of builder.
  • One for delay in possession due to incomplete construction.
  • Another for not obtaining completion certificate /occupancy certificate.
It creates further difficulties for the home buyers when they have to pay extra taxes to the corporation because residents are not permitted by the corporation to occupy premises unless it is fit to reside.  This case had come up before the Hon’ble Supreme Court with these facts in the matter of Samruddhi Co-operative Housing Society Ltd V/S Mumbai Mahalaxmi Construction Pvt. Ltd against the order from NCDRC and was decided on 11th of Jan 2022 NCDRC had dismissed the complaint on 3rd December 2018 on two grounds.
  • That it was barred by limitation
  • That it was not maintainable since it was in the nature of a recovery proceeding and not a consumer dispute

Particulars of the case

Mumbai Mahalaxmi Construction Pvt. Ltd constructed Wings ‘A’ and ‘B of their project. The members of the Samruddhi Co-operative Housing Society booked the flats in 1993 and got possession in 1997 without taking occupancy certificate from the municipal authorities. Flat owners were not eligible for electricity and water connections. Temporary water and electricity connections were granted by the authorities on request of the residents of the society. Subsequently, now they had to pay property tax at a rate 25% higher than the normal rate and water charges at a rate which was 50% higher than the normal charge. The society filed a consumer complaint on 8 July 1998 before the State Consumer Disputes Redressal Commission, Mumbai seeking a direction to the respondent to obtain the occupation certificate. The SCDRC directed the respondent VIDE order dated 20 August 2014, to obtain an occupancy certificate within four months. The SCDRC also directed the respondent to pay Rs. 1, 00,000/- towards reimbursement of extra water charges paid. The society filed an application for execution of the order of the SCDRC dated 20 August 2014. However, no occupancy certificate was obtained in spite of the State commission order. The Society now filed a complaint before the NCDRC seeking payment of Rs. 2,60,73,475/- as reimbursement of excess charges and tax paid by the members of the appellant due to the deficiency in service of the respondent and Rs. 20,00,000/- towards the mental agony and inconvenience caused to the members of the appellant. NCDRC dismissed the complaint as the above matter was a recovery suit. The society is not considered a consumer under the Consumer Protection Act.

Observations by the Supreme Court

That Complainant Society is entitled to file complaint on behalf of home buyers under Section 2(1) (d) of the Consumer Protection Act for availing services in case of any deficiency or shortcoming or inadequacy in the quality of service. There has been a direct impact on the members of the appellant in terms of the payment of higher taxes and water charges to the municipal authority. This continuous failure to obtain an occupancy certificate is a breach of the obligations imposed on the respondent under the MOFA (Maharashtra Ownership of Flats Act, 1963) and amounts to a continuing wrong. The appellants therefore, are entitled to damages arising out of this continuing wrong and their complaint is not barred by limitation. Sections 3 and 6 of the MOFA indicates that the promoter has an obligation to provide the occupancy certificate to the flat owners. Apart from this, the promoter must make payments of outgoings such as ground rent, municipal taxes, water charges and electricity charges till the time the property is transferred to the flat-owners. Where the promoter fails to pay such charges, the promoter is liable even after the transfer of property. .The society is currently pursuing the execution of the order of the SCDRC arising from that complaint.  In the present case, the respondent was responsible for transferring the title of the flats to the society along with the occupancy certificate. The failure of the respondent to obtain the occupation certificate is a deficiency in service for which the respondent is liable. Thus, the members of the appellant society were well within their rights as ‘consumers’ to pray for compensation as a recompense for the consequent liability (such as payment of higher taxes and water charges by the owners) arising from the lack of an occupancy certificate. Section 24A of the Consumer Protection Act 1986 provides a two year period of limitation from the date of cause of action. The failure to obtain the occupancy certificate in spite of Order by SCDRC dated 20 August 2014 and even after filing execution petition, it is continuation of wrong which has resulted in the levy of higher taxes on the members of the society. The complainant Society adopted the correct course of litigation in demanding for indemnification of extra payments made due to the failure on the part of builder to obtain the occupancy certificate. Homebuyers continue to suffer the injury inflicted by the builder merely due to the delay in the execution of the order against them. The fact that the Society is currently pursuing the execution of the order of the SCDRC arising from that complaint, that itself does not preclude it from claiming compensation for the consequences which have arisen out of this continuing wrong. Looking into the peculiar facts and circumstances, the Supreme Court allowed the appeal filed by the Society on behalf of home buyers and held that the complaint is justifiable. The SC directed the NCDRC to decide the case on and dispose the complaint within a period of three months from the date of this judgment.  
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