Real Estate

‘Inordinate delay’ in real estate projects means delay by over a year of delivery date: NCDRC

Representative image.

In a victory of sorts for homebuyers, the National Consumer Dispute Redressal Commission (NCDRC) has for the first time defined what constitutes “inordinate delay” and held that consumers can seek refund if the possession is delayed by over one year beyond the date of delivery promised by the builder.

NCDRC has also held that buyers can seek refund even if RERA has taken over the project.

The order is expected to have wider ramifications on several projects that have been delayed for over a decade, say legal experts.

The consumer court passed the order on a plea by Shalabh Nigam, who bought a flat in 2012 in the Greenopolis project located in Gurugram, being constructed by Orris Infrastructure and 3C company.

Nigam paid up Rs 90 lakh against the total cost of around Rs 1 crore. Under the agreement, the flat was to be handed over within 36 months, with a grace period of six months, from the date of allotment. After the builder failed to complete the project, the buyer approached NCDRC, seeking direction for either refund or time-bound possession of the flat.

If the developer is unable to give timely possession of the real estate project, “it is now clearly established that the allottees have the right to ask for refund if the possession is inordinately delayed and particularly beyond one year,” says the order.

Nigam had to receive the possession of the flat in February 2016. The builder took recourse to the force majeure conditions for the delay and claimed that there were restrictions with regard to the use of ground water.

The order notes that the project has been delayed by more than two years, and the buyer has the right to seek a refund even when the external development charges and the internal development charges have not been paid by the developers to the authorities, and even the development agreement is not as per the provisions of law. “In such circumstances, there should be no question of forfeiting any earnest money as the sole responsibility,” the order notes.

According to Aditya Parolia who is representing Nigam in this case, the issue of inordinate delay was not defined by any court until now. A project was said to be inordinately delayed even if it was delayed by two years or for that matter for seven years. The court has for the first time defined what constitutes inordinate delay.

“Consumers whose projects have been delayed for over one year are now entitled for a refund. Earlier, buyers whose projects were delayed by a few months were also coming forward to claim refund. The order has also made it clear that even if the builder were to give possession, he is liable to pay a refund if a consumer so desires and in case possession is not given on time, the buyer is entitled to delay penalty by default,” he said.

“This order may have wider ramifications on cases pending in other legal fora too as consumers can no longer be denied refund if the project has been delayed by over a year or for that matter construction has not moved forward for years,” he added.

In this case, since the homebuyer expressed his desire to take possession of the unit, the commission directed the developer to complete the construction and hand over the completed flat as per the agreement by September 2019 after obtaining the occupancy certificate.

The commission also ordered that the developer would pay a compensation to the buyer at the rate of 6 percent per annum per year on the total amount deposited by the buyer from the due date of possession until the actual date of possession.

In case the flat is not delivered within the deadline which in this case is September 30, 2019, the builder would have to refund the entire amount with 10 percent interest, says the order. If the buyer does not seek refund at that point in time, he will still be entitled to it at the rate of 6 percent per annum until the possession is handed over, as per the order.

The builder contended that the buyer had discontinued paying instalments. If a refund is ordered, there will be a forfeit of 10 percent of the amount as the earnest money, as per the agreed clause. But, the commission rejected the contention, saying that the buyer had paid instalments up to the seventh stage, and the payment was stopped only after there had been no progress in the construction work.

The order notes that the compensation to the buyer cannot be paid as per the builder-buyer agreement as it is one-sided. “It can hardly be disputed that a term of this nature is wholly one sided, unfair and unreasonable.”

It notes that, while the builder charges compound interest at the rate of 18 per cent per annum in the event of the delay on the part of the buyer in making payment to him, he himself seeks to pay less than 3 percent per annum of the capital investment if he does not honour his part of the contract by defaulting in giving timely possession of the flat to the buyer.

The order notes that such terms in the Buyer’s Agreement encourage developers to divert funds collected for one project to another project, thereby financing “a new project at the cost of the buyers of the existing project and that too at a very low cost of finance.”

The compensation which the builder has to pay to the buyers in such cases cannot be restricted to the compensation stipulated in the wholly one-sided buyers’ agreement and has to be based upon the loss suffered by the consumer on account of the deficiency in the services rendered to him.

It notes that buyers, after paying the booking amount to developers, have no option but to sign on the dotted line since the failure to execute the agreement, unilaterally drafted by the builder, is likely to result in the booking amount being forfeited by the builder.

“Therefore, executing an agreement containing such a term is nothing, but a consent given under coercion and cannot be said to be the result of the exercise of a free consent on the part of the flat buyer. Moreover, a term to pay such a paltry compensation to the flat buyer in the event of default on the part of the builder, while making him pay exorbitant interest in the event of default or delay on his part is an absolutely unfair term,” it notes.

It should be noted here that some buyer-builder agreements signed before RERA was implemented offered penalty at the rate of Rs 5 per sq ft or Rs 10 per sq ft, which is a little over 1 percent per annum. Under RERA, developers are entitled to pay 2 percent more than the SBI’s one-year MCLR, which comes to around 10 percent. The NCDRC order directs a developer to pay the penalty at the rate of 6 percent to buyers for the delayed period.

[“source=moneycontrol”]