Borrower-service provider dispute: No liability on financier

The consideration payable for the flat is a matter between the builder and the buyer, and the financier is not concerned with a dispute between the buyer and the seller

If there is a defect in a product or deficiency in service, can the financer be held liable along with the seller or service provider? Usually, the financer is roped in but is this necessary or legally permissible? This intriguing question has been answered by the National Commission in a recent judgement delivered on July 1, 2019, by Dinesh Singh for the bench, along with S M Kantikar.

Sangwan Heights, a company engaged in building and land development, had taken a loan from Kotak Mahindra Bank. As there was a default in payment, the bank initiated proceedings before the Debt Recovery Tribunal (DRT).

During the proceedings, the builder, the bank and a buyer – Anurag Kaul – worked out a settlement. It was decided that the builder would apply to the DRT for permission to sell one of the flats to Kaul. Kaul would obtain a loan from the same Kotak Mahindra Bank to finance the purchase of the flat, use the loan amount to clear the builder’s dues payable to the bank, and then repay the loan in instalments.

When permission was sought from the DRT, the tribunal directed the builder and Kaul to jointly pay Rs 29,55,095 to the bank along with 12 per cent interest compounded monthly. In case of non-compliance, the tribunal ordered that this amount be realised through the auction of the flat. Kaul challenged this order, but the appeal was dismissed in view of the settlement. Nevertheless, permission was granted to revive the appeal, if required.

The builder then sold Kaul’s flat, on the ground floor of Jasmine 4, in a complex called Hindon Heights at Ghaziabad. As Kaul did not want to pay the interest component, he filed a complaint before the District Forum against the builder as well as against the bank. The forum ruled against the builder, but absolved the bank of any liability. Kaul challenged this order before the Delhi State Commission, but his appeal was dismissed. He finally filed a revision petition.

The National Consumer Commission noted that a tripartite agreement had been executed between Kaul, the builder and the bank for purchase of a flat on loan. Even though there was a settlement, the DRT had awarded interest, and its order had not been set aside in appeal. Even though Kaul had been granted liberty to revive the appeal, he had not bothered to revive it.

The National Commission also observed that the consideration payable for the flat was a matter between the builder and the buyer, and the financier was not concerned with a dispute between the buyer and the seller. It concluded that the bank was entitled to charge interest.

The Commission pointed out that the consumer court’s jurisdiction is limited to a dispute between a buyer and a trader or service provider. It deprecated the tendency to needlessly drag a financial institution into this dispute. Consequently, Kaul’s revision was dismissed and he was saddled with costs of ~10,000 payable to legal aid.