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That the per se bar to the relief of interest on refund cannot be considered good law: SC

This court is of the opinion that the per se bar to the relief of interest on refund, enunciated by the decision in Raje Ram (supra) which was applied in Wg. Commander Arifur Rehman (supra) cannot be considered good law. The nature and extent of relief, to which a subsequent purchaser can be entitled to, would be fact dependent. (Para 31)


Civil Appeal No. 7042 of 2019

22nd July 2021

The Three Divisional Bench of Supreme Court consisting of Justice Uday Umesh Lalit, Justice Hemant Gupta & Justice S. Ravindra Bhat partly allowed the appeal observing that there is no per se bar to grant relief of interest on refund to a subsequent purchaser of flat.

The appellant (hereafter called “Laureate” or “the builder”) is aggrieved by an order of the National Consumer Dispute Redressal Commission (hereafter “NCDRC”). The respondent (hereafter “the purchaser”) had sought, through his complaint a direction against the builder, for refund of the consideration amount of ₹1,93,70,883/- received by the latter, as consideration for sale of a flat along with interest @ 24% p.a. from the date different instalments were paid, as well as compensation and costs.

It is argued by Mr. Jayanth Mithras, learned senior counsel on behalf of the builder that the relief granted by NCDRC is unwarranted. Highlighting that the entire project had come to a standstill on account of an interim order by the NGT, the learned senior counsel stressed that these facts were within the knowledge of the original allottee as well as the purchaser. When they decided to purchase it in 2015, it was decided that the respondent would purchase the flat and step into the shoes of the original allottee. Learned senior counsel argued that given these circumstances, the respondent, as a prudent purchaser, could not have reasonably expected the construction to be completed till the interim orders were vacated and some time was allowed for the construction to be completed. Clearly, the purchaser was only an investor and was not interested in residing in the flat.

Learned senior counsel submitted that barely a year after the transaction of stepping into the shoes of the original allottee – which was endorsed by the builder, the purchaser made an unreasonable demand for the refund of the entire amount. At that point in time, the interim order of the NGT had been vacated. Quite naturally, therefore, the construction had started, and the builder made the demand on 23.04.2017 towards subsequent instalments which were not paid. Although the purchaser sent a legal notice prior to these demands, the fact remained that so long as he assumed responsibility as an allottee, he could not shy away from fulfilling the demand towards the instalments.

Learned senior counsel argued that the purchaser could not claim the equities in the same manner that an original allottee could. In the present case, the original allottee had not paid the instalments in time and was constrained to pay penal interest – a fact noted by the NCDRC. In these circumstances, there were no equities compelling the NCDRC to grant any relief over and above a refund of compensation much less interest @ 10% from the period the deposits were made by the original allottee.

Learned senior counsel submits that since the complainant was not the original allottee but a subsequent purchaser, he could not claim any interest. He relied upon two rulings of this Court in HUDA v. Raje Ram and the recent judgment of this Court in Wing Commander Arifur Rahman Khan and Anr. v. DLF Southern Homes Pvt. Ltd. It is submitted that in both these cases, this Court had categorically ruled that when the allottee in a housing project transfers his or her rights in favour of another, such a third party cannot claim equities to the same extent as the original allottee, especially as regards a claim for interest. It was submitted by the learned senior counsel that there is a sound public policy rationale in support of such a rule which is that a subsequent purchaser is deemed to be aware of the nature of construction and the delay which occurred till the time he or she steps into the shoes of the allottee. The NCDRC overlooked these binding rulings and directed payment of interest for the entire period and clearly the respondent purchaser was not entitled to any interest at all.

Mr. M.L. Lahoty, learned counsel for the respondent urged this Court not to interfere with the findings and directions of the NCDRC. He highlighted that even if they were notified about the transfer by the original allottee in respect of the respondent, the builder had made demands towards penal interest, for various periods. A total amount of ₹ 5.9 lakhs was in fact paid during the period 01.03.2016 to 18.04.2016. The builder was made aware of the agreement to sell when its endorsement with respect to the transfer was sought. Further, it was only after receiving the amounts towards the so-called penal interest that the endorsement letter was ultimately issued on 09.05.2016 by the builder. This clearly confirmed ₹1,93,70,883/- was paid towards the flat. This endorsement letter also confirmed that the respondent purchaser would be entitled to the delivery of the flat.

It is submitted that the purchaser had entered into an understanding and paid the amounts towards the previous instalments as well as settled the later penal interest component to the original allottee and also paid penal interest up to October 2016. In these circumstances, it was not unreasonable for him to expect that project would be complete and the flat would be handed over at least in the first part of 2017. However, upon visiting the site and noticing that there was practically no progress, the respondent/purchaser was constrained to move the NCDRC for the relief of direction of refunding the entire amount.

Mr. Lahoty pointed to the findings and observations of the NCDRC which had noticed the facts that although the NGT’s interim order had subsisted for a while, and the builder had taken shelter under it to say that construction could not take place, the record indicated that the builder had sought for instalments from the original allottee, including demanding penal interest. Given these facts, there were no equities in favour of the builder; it was not open to it to claim that force majeure conditions operated and prevented it from going ahead with the construction.

It was submitted that upon the endorsement by the builder of all the transactions, and its acknowledgment, the purchaser had become entitled to seek delivery. There was no impediment in the purchaser claiming any kind of relief. Mr. Lahoty submitted that if for instance, there were to be any defect or deficiency in service, the purchaser could not be discriminated against and an application or a plaint in that regard cannot be dismissed as not maintainable. Likewise, the mere fact that a subsequent purchaser steps into the shoes of an original allottee who might have at an earlier point of time sought allotment but because of the delay in the construction, being unable to withstand economic pressures withdrew, does not mean that the builder’s default could be glossed over. Learned counsel urged that there is no rule or principle to support the judgment in Raje Ram (supra) or Wing Commander Arifur Rahman Khan and Anr. (supra) to say that subsequent purchasers should never be given the relief of interest on refunds. It was submitted that the refusal of the Court to grant relief have to be seen in the light of the peculiar circumstances of those cases.

After hearing the learned counsels, with the help of analyzing relevant case laws, facts and figures of the case, the court reached to a conclusion that:

In the present case, there is material on the record suggestive of the circumstance that even as on the date of presentation of the present appeal, the occupancy certificate was not forthcoming. In these circumstances, given that the purchaser/respondent had stepped into the shoes of the original allottee, and intimated Laureate about this fact in April 2016, the interests of justice demand that interest @ 9% per annum from the date the builder acquired knowledge of the transfer, or acknowledged it should be granted, in favour of the respondent. The directions of the NCDRC are accordingly modified in the above terms. (Para 32)

Subsequently, the appeal is partly allowed in the above terms.

Swadheen Singh