Consumer fora can interfere with one-sided builder-buyer agreements: Supreme Court

The Supreme Court on Monday ruled that Consumer Fora have the authority to intervene in builder-buyer agreements if they are one-sided, as such terms constitute an unfair trade practice under the Consumer Protection Act, 2019. However, the court clarified that developers cannot be subjected to penal interest if the buyer cancels the allotment due to market fluctuations. [Godrej Project Development Ltd v. Anil Karlekar]..A Bench of Justices BR Gavai and SVN Bhatti relied upon its 1986 judgment in Central Inland Water Transport Corporation Limited and Another v. Brojo Nath Ganguly to hold that:“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.”.The case originated from an apartment booking made by homebuyers in January 2014 for the "Godrej Summit" project at Sector 104, Gurgaon. An agreement was subsequently signed, mandating that if the buyer cancels, Godrej would be entitled to 20% of the Basic Sale Price (BSP) of the property. The construction was completed in June 2017, and Godrej obtained the occupation certificate before offering possession on June 28, 2017. However, the complainants opted to cancel the allotment and requested a full refund.Following their cancellation request, the homebuyers sent a legal notice seeking return of their money and later filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC) seeking a full refund with 18% interest per annum. The NCDRC ruled in their favour, allowing only a 10% deduction from the BSP and directing the refund with 6% simple interest per annum. Godrej’s review application against this ruling was dismissed in December 2022..Dissatisfied, Godrej moved the Supreme Court in 2023 challenging the NCDRC’s order. The Court, while issuing notice, granted a stay on the NCDRC order, provided the the company refunds the amount after deducting 20% as an earnest money deposit, along with 6% interest per annum from the date of cancellation. .Before the Supreme Court, the developer contended that the buyers canceled the booking due to market recession, not due to any fault on its part. Further, the NCDRC’s reduction of the forfeiture amount was unjustified. It relied on contractual terms that permitted forfeiture of the earnest money deposit.On the other hand, the buyers argued that the forfeiture clause was one-sided and unfair, heavily favouring the developer. They cited precedents and the Real Estate (Regulation and Development) Act, 2016, which supports limiting forfeiture to 10% of the BSP..The Court found that the agreement between the parties was heavily tilted in favour of the developer, with disproportionate penalties for the buyer and minimal obligations for the developer. It upheld the NCDRC’s decision to limit the forfeiture to 10% of the BSP, calling it reasonable and consistent with previous rulings.“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. .Referring to a series of judgments, the Court noted that if the contractual terms are ‘ex-facie’ one-sided, unfair and unreasonable, it would constitute an unfair trade practice under the Consumer Protection Act, 1986. It also noted that the 2019 Act specifically provides for a definition of 'unfair contract'."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 Court removed the 6% interest on the refunded amount, noting that the cancellation was initiated by the buyers due to market conditions and not due to any default by the developer. It observed that the buyers likely used the funds for other purposes, such as purchasing another property at a lower price."Though we are not inclined to interfere with the direction of the NCDRC for refund of the amount in excess of 10% of the BSP, we however find that the NCDRC was not justified in awarding interest on the amount to be refunded," the Court said..It thus directed Godrej to refund the remaining amount in six weeks from the date of the judgment..Godrej was represented by Senior Advocate Dhruv Mehta with Advocates Kapil Madan, Saurabh Gauba, Akshit Narula, Shailendra Pratap Singh, Randhir Kumar Ojha and Surabhi Kapur. The respondents were represented by Advocates Ashwarya Sinha and Aditya Malhotra..[Read Judgment]