Lack of statutory compliance by the builder: Not a justification for a delay in possession

On March 23, 2023, the National Commission reached a decision in the case of Naresh Garg and Sons VS CHD Developers Ltd. Consumer Case No. 1753 of 2018. The Developers’ argument that the National Green Tribunal’s rules weren’t followed was rejected by the Commission as the cause of the delay. The bench stated that the opposing party cannot be permitted to profit from his own fault of non-compliance and refused to accept his justification as force majeure. 

  Dr Prem Lata, Legal Head VOICE

  • Case Title: Naresh Garg and Sons vs CHD Developers Ltd.
  • CC No. 1753 of 2018, Decided on 23rd March 2023

Brief Facts

The complainant, Mr. Naresh Garg, applied to the Opposite Party, CHD Developers, for re-allotment of a unit near the Golf Course Avenue in Gurgaon by way of an application. The flat was earlier allotted to one Sh. Sarvesh Kumar Tiwari. The Opposite Party permitted the re-allotment, after all the necessary formalities and payment of charges, to the complainant. An apartment’s buyer agreement was also entered into between the parties and as per that, the possession of the unit was to be delivered by the opposite party within 42 months from the date of agreement. However, the Opposite Party failed to deliver the possession within the stipulated time. Hence, the Complainant filed this consumer complaint praying for a refund of the amount Rs. 79, 37,091/- with an interest and damages to the extent of Rs. 5 Lakhs.

Arguments extended by the Opposite Party

  • As stated in Section 2(1)(d) of the Consumer Protection Act of 1986, the complainant would not fit the definition of a “consumer” because the property was bought for investment and resale and has a commercial purpose.  
  • The complainant’s claim is inflated to bring the complaint within the pecuniary jurisdiction of NCDRC. 
  • That the delay was caused due to a notification by the National Green Tribunal, Delhi resulting in stopping all construction activities by OP for a few months. 

Observations of the National Commission

  • The Opposite Party failed to place on-record the updated status of construction & likely date of its completion. Reliance was placed on the Supreme Court’s decision in Wg. Cdr. Arifur Rahman Kgan and Aleya Sultana and Ors. vs DLF Southern Homes Pvt. Ltd. & ors. (2020) 16 SCC 512, wherein it was held that failure of the developer to comply with the contractual obligation to provide the flat to a flat purchaser within the contractually stipulated period, amounts to deficiency. As per  order in case of Kolkata West international City Pvt. Ltd. vs Devasis (2020) 18 SCC 613, a buyer can be expected to wait for possession for a reasonable period but not an indefinite period.
  • The contention of the Opposite Party that Mr. Naresh is not a consumer was rejected, as no evidence was produced to corroborate the same. 
  • Perusal of the evidence showed that there was no blanket order of the NGT to stop construction activities. The direction to stop construction activities was only where the construction was being carried out in violation of the MOEF Guidelines 2010. No material was presented by the Opposite Party to know the exact nature of ban on construction activity under the NGT’s order and the period for which such ban was in force. 
  • The bench remarked that the Opposite Party cannot be allowed to reap benefits of his own wrongdoing of non-compliance. 

In light of the aforementioned discussion, the Opposite Party was ordered to refund the amount given by the Complainant along with compensation in the form of simple interest at 9% per annum from the date of each payment till the date of refund.

Similar cases decided by Hon’ble SC in similar matters 

  • DLF Universal Ltd and Another Versus Capital Greens Flat Buyers Association (SC) Civil Appeal No’s 3864-3889 of 2020
  • December 14, 2020

Facts: There was a substantial delay on the part of the developer in handing over possession of the apartments. OP took plea of force majeure conditions.

  1. Delay in the approval of building plans.
  2. Issuance of stop work orders in Covid situation. 
  3. The buyers of the flat received exit offers twice. When the developer learned that the delay had gone over the agreed time frame of 36 months, he offered the buyers refunds of the purchase price plus interest at a rate of 9% per year. 
  4. 45% of the flat buyers in the project have sold away their flats.
  5. The flat buyers have the benefit of an appreciation in the capital value of the apartments purchased.
  6.  The developer has extended the benefit of timely payment and goodwill rebates to the flat purchasers.

Supreme Court held

  • On all counts—non-approval and a directive to halt work—the force majeure clause is unacceptable. The builder should have anticipated the possibility of rejection before starting this project. The state’s order to halt building was made in response to accidents that occurred due to safety carelessness. This resulted from inadequate safety precautions and poor building practises.  
  • Mere offer to exit option with interest at 9% would not disentitle the flat purchasers from claiming compensation.

In view of the above discussions it is clear that Apex Court reiterates its stand that builders are to bear the consequences for the delays caused due to their own mismanagements and if any order by any courts are passed subsequently, that cannot be treated as force majeure conditions.

The concept of “deficiency in service” under the Consumer Protection Act, 1986 must be distinguished from the criminal or tortious acts.

It is often noticed that complainants using words cheating, fraud or likewise words often used in criminal offences while complaining against financial institutes for deficiency in services. In return, banks and financial institutes also escape from their liability and suggest the consumer to file an FIR when the fraud if any is against bank or financial institute and not against consumer when the bank is the custodian for consumer’s money. Consumers can register complaints against banks for poor service, and the banks are responsible for looking into any fraud that occurred. But disputes over serious allegations of fraud or deceit are outside the purview of consumer courts.

The Chairman & Managing Director, City Union Bank Ltd. & Anr. Versus R. Chandramohan Civil Appeal No. 7289 of 2009 SC

Decided on 27.03.2023

Supreme Court reiterated in a case of The Chairman & Managing Director, City Union Bank Ltd. & Anr. Vs R. Chandramohan that the concept of “deficiency in service” under the Consumer Protection Act, 1986 must be distinguished from the criminal or tortious acts.

“The proceedings before the Commission being summary in nature, the complaints involving highly disputed questions of facts or the cases involving tortious acts or criminality like fraud or cheating, could not be decided by the Forum/Commission under the said Act. The “deficiency in service”, as well settled, has to be distinguished from the criminal acts or tortious acts. There could not be any presumption with regard to the wilful fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance in service, as contemplated in Section 2(1) (g) of the Act. The burden of proving the deficiency in service would always be upon the person alleging it,” a Bench of Justices Ajay Rastogi and Bela Trivedi explained.

“As emerging from the record, some disputes were going on amongst the Directors of the Company and one of the Directors, if allegedly had committed fraud or cheating, the employees of the bank could not be held liable, if they had acted bona fide and followed the due procedure,” the Court said.

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