top of page

When the construction was not done, developer would become liable to compensate the buyer: SC

In the Supreme court case of Chandigarh Housing Board v. M/s. Parasvanath Developers Pvt. Ltd. & Anr of CIVIL APPEAL NO. 10748 OF 2016.

The bench comprising of Justice MOHAN M. SHANTANAGOUDAR and Justice R. SUBHASH REDDY directed the Chandigarh Housing Board to pay the remaining sum of money awarded by the National Commission to the Complainant towards mental harassment and litigation charges.

This appeal arises out of the final order passed by the National Consumer Disputes Redressal Commission at New Delhi in Consumer Complaint (C.C.) No. 19 of 2011 which the Respondent No.1 and Appellant herein were directed to pay Respondent No. 2 herein a principal sum of Rs. 1,03,31,250/- with interest at 10% p.a., Rs.1,00,000 for mental harassment and agony, and Rs.1,00,000 towards litigation costs in the ratio of 70:30.

The Appellant, Chandigarh Housing Board invited bids to implement an integrated project with residential, commercial, and other related infrastructure facilities at the Rajiv Gandhi Chandigarh Technological Park in Chandigarh. The bid sent by Respondent No. 1 was accepted by CHB. Consequently, CHB and the Developer entered into a Development Agreement dated 06.10.2006 for the grant of development rights in respect of land measuring 123 acres. The said land was allotted to the Developer by CHB for constructing residential units, who then advertised its project for the sale of flats and penthouses as “Parsvanath Pride Asia”. Respondent No. 2 applied for the allotment of a five-bedroom apartment in this project and paid a sum of Rs.1,03,31,250/- towards the total tentative price of Rs. 3,93,25,000/-. Later, a tripartite flat buyer agreement was executed between the Developer, CHB, and the Complainant on 23.04.2008. Clause 9(a) of this agreement stated that the construction of the flat was likely to be completed within a period of 36 months from the signing of the Development Agreement between CHB and the Developer.

Having received no intimation from the Developer about the status of the project, between September-October 2009, the Complainant inquired and found that construction had not been commenced at the project site. Consequently, he sought a refund of the deposit amount of Rs.1,03,31,250 with interest at 20% p.a. When the refund was not made, the Complainant approached the National Commission on 24.02.2011. Before the National Commission, it was the case of the Developer that the construction could not be carried out in time, as CHB had failed to hand over the possession of unencumbered land to it for raising the construction.

CHB argued that disputes only existed for land earmarked for commercial activities, and there was no dispute with respect to the 123 acres of land handed over to the Developer for the construction of residential units. Therefore, it was contended by CHB that the Developer was liable to satisfy the claim of the flat buyer and the complaint was bad as against CHB for misjoinder of the party. The dispute between the Developer and the CHB with respect to the Development Agreement was referred to arbitration. The National Commission passed an order noting that the flat buyers could not be deprived of their legitimate claims due to an inter se dispute between CHB and the Developer. Observing that the Developer had failed to construct the residential units and hand over possession in time, the National Commission passed an interim order directing the Developer to pay compensation to the flat buyer in terms of Clause 9(c) of the Tripartite Agreement at Rs. 107.60 per sq metre, subject to the final outcome of the arbitration proceedings.

It is evident that the Developer and CHB agreed to complete the construction of the residential units within a period of 36 months from the date of signing of the Development Agreement on 06.10.2006. In the event that such construction was not done, Clause 9(c) would come into operation and the Developer would become liable to compensate the buyer at Rs. 107.60 per sq metre of the super area of the unit, per month.

The arbitrator passed an award in the arbitration proceedings between CHB and the Developer. The award specifically noted that since the flat buyers were not a party to the arbitration, the award would only bind CHB and the Developer, and the entitlement of the residential flat buyers would have to be decided based on the facts of each case in independent proceedings. However, with respect to the liability to refund the advances collected from the residential unit buyers, the learned arbitrator found that the non-completion of the project as a result of breaches committed by both, the Developer and CHB. Therefore, he directed that any amount payable on account of refund of price, interest, or compensation would be borne by the Developer and CHB in the ratio of 70:30. Taking into account the observations in the final arbitral award attributing responsibility of breach of the Development Agreement to the Developer and CHB, as well as the fact that the Developer had received the deposit sum from the Complainant long ago and had benefited from it, the National Commission directed CHB and the Developer to pay the principal sum of Rs. 1,03,31,250/- to the Complainant at 10% p.a. from the date of deposit till realization.

Learned Counsel for the Appellant submitted to set aside as it wrongly saddles CHB with the liability to pay the Complainant 30% of the amount due towards mental harassment and litigation costs. The held that the Appellant’s reliance on the revocation deed dated 04.02.2015 is misplaced, as para 4 of this deed clearly states that “the parties have accepted the award” and chosen to act in accordance with the same. Thus, it cannot be argued that this revocation deed displaces the arbitration award dated 09.01.2015 and the direction therein for the Developer and CHB to pay compensation.

The courts clearly observed that such settlement of rights and obligations cannot be extended in a manner that enables the Developer and CHB to wriggle out of their liability under the Tripartite Agreement with the Complainant. And also held that such division is well-founded as the sale proceeds from the flat buyers were apportioned in the same ratio of 70:30 between the Developer and CHB. This is supported by the Escrow Agreement executed by CHB and the Developer in pursuance of the Development Agreement dated 06.10.2006. Clause 4(b) of this Escrow Agreement provides that 30% of the sale proceeds in respect of the residential units would first be transferred to CHB, and the remaining amount shall then be transferred to the Developer.

With respect to the second issue, the court observed that the Clause 9(d) of the Tripartite Agreement is relevant. This Clause requires the Developer and CHB to refund the amounts received from the buyer with interest if the Developer is unable to deliver the unit to the buyer due to non-approvals from the competent authorities.

Hence based on the foregoing observations, it was held that the National Commission was right in directing the Developer and CHB to pay the principal sum of Rs. 1,03,31,250/- at 10% p.a. to the Complainant. Therefore, directed the CHB to pay the remaining amount, i.e. 30% of the total Rs. 2 lakhs awarded by the National Commission to the Complainant towards mental harassment and litigation charges, as well as an additional interest of 1% p.a. on its share of the principal sum within a period of 8 weeks.

– Pranav M Varma



bottom of page