The Supreme Court on Monday ruled that consumer courts can intervene in unfair builder-buyer agreements, calling them an “unfair trade practice” under the Consumer Protection Act, 2019. In a case involving the “Godrej Summit” project in Gurgaon, the court upheld a 10% deduction instead of 20% on cancellation, siding with homebuyers. It also stated that contracts heavily favoring developers will not be enforced. However, the court removed the 6% interest on the refund, citing that the buyers canceled due to market conditions, not builder fault.
Thank you for reading this post, don't forget to subscribe!
NEW DELHI: The Supreme Court decided that consumer courts can step in if builder-buyer agreements are unfair and favor the builder too much. The court said that such agreements are an “unfair trade practice” under the Consumer Protection Act, 2019.
The judges, Justice BR Gavai and Justice SVN Bhatti, explained,
“This Court, by taking recourse to Article 14 of the Constitution of India, has held that the courts will not enforce an unfair and unreasonable contract or an unfair and unreasonable clause in a contract, entered into between Parties who are not equal in bargaining power.”
This case started when some homebuyers booked an apartment in January 2014 in the “Godrej Summit” project at Sector 104, Gurgaon. The agreement they signed had a clause saying that if the buyer canceled the booking, Godrej could keep 20% of the Basic Sale Price (BSP) of the property. Construction was finished in June 2017, and Godrej got the occupation certificate before offering possession on June 28, 2017. However, the homebuyers decided to cancel their booking and asked for a full refund.
After canceling, the buyers sent a legal notice demanding their money back. When they didn’t get a refund, they filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC), asking for a full refund along with 18% interest per year. The NCDRC ruled in their favor but allowed Godrej to deduct only 10% from the BSP. The rest of the money had to be refunded with 6% simple interest per year. Godrej tried to challenge this decision, but the NCDRC dismissed their review application in December 2022.
Still unhappy with this ruling, Godrej took the matter to the Supreme Court in 2023. The Supreme Court issued a notice and paused the NCDRC order for the time being. However, the court said that Godrej must refund the amount after deducting 20% as an earnest money deposit and pay 6% interest per year from the date of cancellation.
Godrej argued before the Supreme Court that the buyers canceled their booking due to a market slowdown, not because of any mistake by the company. The developer also said that the NCDRC’s decision to reduce the forfeiture amount was unfair since the contract allowed them to keep the full 20% as an earnest money deposit.
The homebuyers, on the other hand, said that the clause allowing Godrej to keep 20% was unfair and only benefited the builder. They referred to past court decisions and the Real Estate (Regulation and Development) Act, 2016, which says that builders should not forfeit more than 10% of the BSP.
The Supreme Court found that the agreement was completely in favor of the developer. The penalties for buyers were strict, but the obligations on the builder were very weak. The court agreed with the NCDRC that only 10% should be deducted and called this a fair and reasonable decision.
“If we consider the obligations of the Developer in the event it does not comply with the timelines, a very meagre compensation is provided to the Apartment purchaser….if the Developer fails or neglects to issue the Possession Notice on or before the Tentative Completion Date and/or on such date as may be extended by mutual consent of the Parties, the Developer shall be liable to pay to the Buyer a meagre compensation for such a delay at the rate of Rs.5/- per month per square feet of the Super Built Up Area of the Apartment. It can thus be seen that the Agreement is one-sided and totally tilted in favour of the Developer,”
-the judgment stated.
The court pointed out that if an agreement is clearly one-sided and unfair, it qualifies as an unfair trade practice under the Consumer Protection Act, 1986. It also mentioned that the 2019 Act includes a clear definition of what an “unfair contract” is.
“No doubt that the aforesaid definition would be applicable after the Consumer Protection Act, 2019 came into effect, however, even prior to that while considering the term ‘unfair trade practice’, this Court has found that such one-sided Agreements, as in the present case, would be covered by the definition of term ‘unfair trade practice’.”
However, the Supreme Court removed the 6% interest on the refunded amount. It said that the buyers canceled the booking because of market conditions, not because of any delay or mistake by Godrej. The court also noted that the buyers may have used the money for something else, such as buying another property at a lower price.
In the final order, the Supreme Court directed Godrej to refund the remaining amount within six weeks from the date of the judgment.
The legal team representing Godrej included Senior Advocate Dhruv Mehta, along with Advocates Kapil Madan, Saurabh Gauba, Akshit Narula, Shailendra Pratap Singh, Randhir Kumar Ojha, and Surabhi Kapur.
The homebuyers were represented by Advocates Ashwarya Sinha and Aditya Malhotra.
CASE TITLE:
Godrej Project Development Ltd v. Anil Karlekar.
Click Here to Read Previous Reports on Consumer Protection Act
FOLLOW US ON YOUTUBE FOR MORE LEGAL UPDATES
