M J Antony: Housing agreements under scanner

OUT OF COURT

The Supreme Court summarises the remedies available to a buyer if the builder violates promises.

Along with the fast growth of the housing sector, there has been a comparative increase in litigation over the contractual obligations of builders and related service providers. Consumer commissions and the Monopolies and Restrictive Trade Practices Commission (MRTPC) have been taking the brunt of this burden these days. Those who have grievances have largely ignored the long and expensive route to the civil courts.

The cause of action is mainly delay in delivering the promised houses, leading to escalation in prices. The other frequent complaint is poor quality of construction. The disputes have often reached the Supreme Court and it has passed several rulings in the past decade. However, the issues refuse to die. Therefore, the Supreme Court summarised the law recently in its judgement, Bangalore Development Authority vs Syndicate Bank.

In this case, the bank booked a number of flats for its staff. However, the housing authority did not deliver all the flats on time. Therefore, the bank demanded delivery of the rest of the flats on time, payment of interest for the delayed period, reimbursement of rent paid by it to its employees, compensation for the mental agony and harassment caused and future interest till the delivery of possession. The National Consumer Commission ordered the development authority to pay 18 per cent interest.

The development authority appealed to the Supreme Court challenging the order arguing that the bank was not a consumer as defined in the Consumer Protection Act and the authority was not selling goods or providing any service. Therefore, the consumer commission has no jurisdiction to decide the dispute. It further pointed out that the contract did not specify any period for completion and delivery. The delay was due to a dispute between it and the construction company and there was, therefore, no negligence or intentional breach of contract.

It was in this context that the Supreme Court reviewed its earlier judgements on housing and laid down 10 principles to be followed when there are complaints of delay in delivery or non-delivery of houses. These set of guidelines do not take into account the quality of construction, which is another sore point in the relationship between the house builders and the buyers.

According to the court, where the authority has received the full price and does not deliver the house within the stipulated/reasonable time, or the allotment is cancelled without justification, the allottee is entitled to the refund with reasonable interest from the date of payment to the date or refund. Where the contract does not specify any time for delivery, there is no breach of condition and, therefore, there is no obligation to pay damages.

Where an alternative price is offered or delivered at the agreed price, the allottee will not be entitled to any interest or compensation. This is because the buyer has the benefit of appreciation in value.

Though the relationship between a development authority and an allottee is that of a seller and buyer, and governed by the law of contract, a consumer can seek compensation for mental agony and harassment by applying the principles of administrative law "" that the statutory authority acted negligently, arbitrarily and capriciously.

Where the alternative house is delivered at the market price, which is higher than that was agreed, the buyer is entitled to interest and compensation. Where the house has been allotted at a tentative price, subject to final determination of the price on completion of the project, the authority will be entitled to revise the price. Where full payment has been made and possession delivered, but the title deed has not been executed, the allottee may be entitled to compensation for harassment and mental agony.

When the house is not complete according to the specifications when it is delivered, the allottee will be entitled to compensation equivalent to the cost of completing the building or rectifying the defects. The amount of compensation in all these cases will depend on the facts of each case, nature of harassment, the period of harassment and the nature of the arbitrariness and negligence. The judgement goes on to explain the rules to be followed when the court or tribunal grants relief to the buyers in such cases.

Though the Supreme Court was dealing with housing authorities constituted by state governments, the principles have a strong and persuasive bearing on all contracts dealing with the construction and delivery of houses.

Significantly, the court has not gone into the question whether a contract for construction amounted to providing a service and thus amenable to the consumer law. This nettlesome question has apparently been reserved for another bout of litigation.