‘One-sided’ developer agreement overturned

The Supreme Court, while discussing the delays in the completion of real estate projects in Wg. Cdr. Arifur Rahman Khan and Aleya Sultana v Begur OMR Homes Pvt. Ltd, overturned an order of the National Consumer Disputes Redressal Commission (NCDRC) and held that flat buyers were entitled to “just” and “reasonable” compensation for gross delays by developers in handing over possession of homes.

The complaint before the NCDRC was instituted by 399 flat buyers who had booked residential flats at a project called Westend Heights in Bengaluru, which was to be developed by DLF Southern Homes (now known as Begur OMR Homes). The apartment buyer agreement (ABA) between the flat buyers and the developer indicated that the developer would “endeavour” (subject to timely payments by the flat buyers, and force majeure) to complete construction within a period of 36 months from the date of the agreement’s execution.

The developers failed to complete the construction within the time stipulated. Accordingly, the grievance was taken before the NCDRC, which dismissed the complaint, stating that there was no deficiency of service on the part of the developers, and the flat buyers were not entitled to compensation in excess of what was agreed upon.

On appeal to the Supreme Court, this approach of the NCDRC was disagreed upon and the court observed that there was a gross delay on the part of the developer in completing the construction. It further held that the delay constituted a deficiency in service by observing that this amounted to “a fault, shortcoming or inadequacy in the nature and manner of performance which has been undertaken to be performed in pursuance of the contract in relation to the service”.

The court further went on to discuss the one-sided nature of the ABA, and how the same was unliterally drafted by the developer to protect its interests. The court refused to uphold the contention of the developer, as per which the flat buyers’ claims for compensation/relief were bound by, and could not exceed, the agreed rates specified in the ABA. It was held that while, ordinarily, the courts should hold the parties to their contractual bargain, it could not be oblivious to the one-sided nature of the ABAs, which were drafted as standard form contracts where a flat buyer, having unequal bargaining power, has little option but to sign on the dotted line.

The court further corrected the NCDRC’s observations and held that the execution of the deed of conveyance (sale deed) between a developer and a flat buyer does not preclude a consumer claim being raised by the buyer for delayed possession. This was noted as the flat buyers were given an option by the developer to either retain their right to pursue their claims, which implied a delayed handing over of possession/title, or alternatively to forego their claims and receive title to their respective flats.

Thus, in a strongly worded judgment, the court chose not to strictly construe the terms of the ABA, and empathized with the flat buyers who had put their hard earned money into a real estate project and pursued their way to a reasonable compensation for delay by the developers.

The Dispute Digest has been compiled by Numen Law Offices, a multi-disciplinary law firm with offices in New Delhi and Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.