One-sided Clauses constitute Unfair Trade Practice under Section 2(r) of Consumer Protection Act, Supreme Court
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One-sided Clauses constitute Unfair Trade Practice under Section 2(r) of Consumer Protection Act, Supreme Court

Murali Krishnan

The Supreme Court today ruled that incorporation of one-sided clauses in an agreement between builders and flat purchasers constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986.

A builder cannot bind an apartment buyer with such one-sided contractual terms, a Bench of Justices UU Lalit and Indu Malhotra held.

The judgment came in an appeal filed by the builder, Pioneer Urban Land & Infrastructure Ltd. against an order of the National Consumer Disputes Redressal Commission (NCDRC).

By way of background, the Appellant Builder launched a residential project by the name “Araya Complex” in Gurugram. The Respondent Flat Purchaser entered into an Apartment Buyer’s Agreement dated May 8, 2012 with the Builder to purchase an apartment in the said project. The total sale consideration for the same was of Rs. 4,83,25,280.

As per Clause 11.2 of the Agreement, the Builder was to make all efforts to apply for the Occupancy Certificate within 39 months from the date of excavation, with a grace period of 180 days.

The Builder, however, failed to apply for the Occupancy Certificate as per the stipulations in the Agreement. The Respondent filed a Consumer Complaint before the NCDRC on January 27, 2017 alleging deficiency of service on the part of the Builder for failure to obtain the Occupancy Certificate, and hand over possession of the flat.

The appellant prayed for refund of the entire money deposited which was Rs. 4,48,43,026, along with interest at 18 percent per annum.

During the pendency of the proceedings before the NCDRC, the Builder obtained the Occupancy Certificate on July 23, 2018, and issued a Possession Letter to the Flat Purchaser on August 28, 2018.

The Builder submitted before the NCDRC that since the construction of the apartment was complete, and the Occupancy Certificate had since been obtained, the Flat Purchaser must be directed to take possession of the apartment, instead of directing refund of the amount deposited.

The Flat Purchaser, however, submitted that he was not interested in taking possession of the apartment on account of the inordinate delay of almost 3 years. He further stated that he had, in the meanwhile, taken an alternate property in Gurugram, and wanted a refund of the money paid by him along with interest.

The NCDRC by its judgment dated October 23, 2018 allowed the Consumer Complaint filed by the Flat Purchaser. It held that since the last date stipulated for construction had expired about 3 years before the Occupancy Certificate was obtained, the Respondent Flat Purchaser could not be compelled to take possession at such a belated stage.

The grounds urged by the Builder for the delay in handing over possession were not justified, so as to deny awarding compensation to the Respondent Flat Purchaser. The clauses in the Agreement were held to be wholly one-sided, unfair, and not binding on the Flat Purchaser.

The Builder was directed to refund the amount deposited by the Flat Purchaser, along with interest at 10.7 percent per annum towards compensation. The rate of Interest was fixed in accordance with Rule 15 of the Haryana Real Estate (Regulation and Development) Rules, 2017.

Aggrieved by the Order passed by the NCDRC, the Builder preferred the statutory appeal under Section 23 of the Consumer Protection Act, 1986.

After hearing both the parties, the Court noted that the Builder obtained the Occupancy Certificate almost 2 years after the date stipulated in the Apartment Buyer’s Agreement. As a consequence, there was a failure to hand over possession of the flat to the Flat Purchaser within a reasonable period. The Occupancy Certificate was obtained after a delay of more than 2 years when the proceedings before the NCDRC were pending.

Placing reliance on the judgments in Lucknow Development Authority v. MK Gupta and Fortune Infrastructure & Anr. v. Trevor D’Lima & Ors., the Court concluded that delay in delivering possession of flat amounted to clear deficiency of service on the part of the Builder. Hence, the flat purchaser was entitled to terminate the agreement and seek a refund.

The Appellant Builder had placed heavy reliance on the terms of the Apartment Buyer’s Agreement.

The Court, however, noted the stark incongruities available to the Builder and Flat Purchaser under the Apartment Buyer’s Agreement when it came to the remedies available to the Builder and Flat Purchaser under the agreement.

“A perusal of the Apartment Buyer’s Agreement dated 08.05.2012 reveals stark incongruities between the remedies available to both the parties.”

Clause 6.4 (ii) of the Agreement entitles the Builder to charge interest at 18 percent per annum on account of any delay in payment of installments from the Flat Purchaser. Clause 6.4 (iii) of the Agreement entitles the Builder to cancel the allotment and terminate the Agreement, if any installment remains in arrears for more than 30 days.

On the other hand, as per Clause 11.5 of the Agreement, if the Builder fails to deliver possession of the apartment within the stipulated period, the Flat Purchaser has to wait for a period of 12 months after the end of the grace period, before serving a Termination Notice of 90 days on the Builder. Even thereafter, the Builder gets 90 days to refund only the actual installment paid by the Flat Purchaser, after adjusting the taxes paid, interest and penalty on delayed payments. In case of any delay thereafter, the Builder is liable to pay interest at 9 percent per annum only.

Another instance is Clause 23.4 of the Agreement which entitles the Builder to serve a Termination Notice upon the Flat Purchaser for breach of any contractual obligation. If the Flat Purchaser fails to rectify the default within 30 days of the Termination Notice, then the Agreement automatically stands cancelled, and the Builder has the right to forfeit the entire amount of Earnest Money towards liquidated damages.

On the other hand, as per Clause 11.5 (v) of the Agreement, if the Flat Purchaser fails to exercise his right of termination within the time limit provided in Clause 11.5, then he shall not be entitled to terminate the Agreement thereafter and shall be bound by the provisions of the Agreement.

Taking note of the above framework of the Agreement, the Court held that contractual terms of the Agreement were ex-facie one-sided, unfair, and unreasonable. The incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the Builder, the Court ruled.

The Court made it clear that a term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder.

“In view of the above discussion, we have no hesitation in holding that the terms of the Apartment Buyer’s Agreement dated 08.05.2012 were wholly one-sided and unfair to the Respondent – Flat Purchaser. The Appellant – Builder could not seek to bind the Respondent with such one-sided contractual terms.”

The Court, therefore, dismissed the appeal and upheld the order of NCDRC.

Senior Counsel CA Sundaram appeared for the appellant. Advocate Sushil Kaushik appeared for flat buyer Govindan Raghavan and advocates Aditya Parolia, Piyush Singh and Nithin Chandran appeared for another flat buyer, Geetu Gidwani.

Read the judgment below. 

Consumer-Protection-Act-judgment.pdf
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