With both the Competition Commission of India (CCI) as well as the Consumer Forums adjudicating upon consumer issues, the major problem is that innocent buyers are confused about the forum that they should be approaching for redressal of the grievances. Here are some landmark judgements in real estate.
The real estate market for residential apartments is not regulated in India and buyers and investors in residential projects are suffering heavily at the hands of builders. Innocent buyers are made to sign on the dotted line of 'Flat Buyer Agreements' without getting a chance to negotiate the terms and conditions which invariably favour builders. The difficulties faced by customers are discussed below: The handing over of the possession of the apartments/flats is inordinately delayed by the builders.
The terms of the buyer's agreement are generally one sided and unfair for the buyer. Against a small compensation of around Rs. 5 per sq foot offered by the builders for delay in handing over the possession, if buyers delay in making payment of instalments they are made to pay penalties of 18% to 24% per annum. Besides, the builder also retains the option to terminate the contract and forfeit the earnest money paid if the buyer defaults in the payment.
The builders often make changes and alterations in the plans of residential complexes without taking prior approval from buyers.
Many times the construction on the site and the project starts much before grant of government approvals. The builder, may not even have proper title before he invites applications for allotment. This could later result in cancellation of the entire project and heavy losses for the buyers.
The builders often keep for themselves the ownership rights of the common areas and common facilities. They also hold on to the right of giving on lease/sale the rights in these areas to third parties. In such situations, the buyers once again feel cheated because, the brochures and promotional offers had promised them many facilities such as pools, parks, health clubs and sports complexes etc. Subsequently, instead of getting proportionate rights, these facilities often end up being managed/ owned by third parties. Without informing consumers/buyers, the builders change the specifications of the material being used in construction. No exit options are generally given to buyers. Even if an exit option is given in case there are repeated delays on the part of the builder, it is given at a very late stage.
All the above points have been taken serious note of by the Consumer Courts as well as the Competition Commission of India. The unfair trade practices and deficiencies in the service of builders will certainly result in action against them.
Compelling buyers to agree to unfair and one sided terms under "Buyer Agreements" has been struck down as anti-competitive in the case of many builders, including market leaders like DLF Ltd.
Recently, the Competition Commission of India has levied hefty penalties on DLF Limited for abusing its dominance due to unfair conditions in the buyer agreement.
The courts have been granting varied reliefs to the apartment buyers in many cases In a landmark judgement of Supreme Court in 1993 (Lucknow Development Authority Vs. M.K. Gupta, 1994AIRSC787), the Hon'ble Apex Court had brought 'Housing Construction' within the purview of the expression 'service' in terms of Consumer Protection Act, 1986 and observed that the delay caused in handing over the possession of the property to the consumer is denial of 'service'. Since then, Consumer Courts have started taking cognizance of various deficiencies in 'services' caused by the builders in the construction of housing projects.
In cases of delay in handing over the possession, initially the consumer forums were invariably granting interest @18% to the consumers following the lead case decided by NCDRC (Haryana Urban Development Authority Vs. Darsh Kumar (2004) 3 Comp LJI 80) In this case, the Commission held that in respect of the deficiency of service by development authorities like HUDA, GDA etc., interest must be awarded at the rate of 18% per annum and the escalation in the cost of construction should also be taken into consideration while deciding the amount of compensation.
In 2004, the laid down practice of awarding 18% interest was done away with the landmark Supreme Court judgement. (Ghaziabad Development Authority Vs. Balbir Singh AIR 2004). Thereafter, the rules for grant of compensation have changed and decisions are taken on a case to case basis. The Courts now hold a view that the compensation payable to the consumer should have correlation with the injury suffered. The Supreme Court has held that Consumer Forums could grant damages/compensation for mental agony/harassment where it found any misfeasance in public office.
In the "Tarun Kumar Case", where a flat had not been handed over for nearly 10 years after the promised date of delivery, the interest was made payable at 17% which was the rate of interest charged by the Bank for the loan obtained by the apartment buyer. (Tarun Kumar Ghai v. Malibu Estate Pvt. Ltd. and Ors. I (2008)CPJ309(NC).
In many cases, damages are granted by consumer forums for not handing over flats at preferential locations, besides it has also been held that where the flat cannot be delivered at the chosen preferential location, the builder must refund the entire amount of the deposit, with interest.
Where the builders have duped the buyers into making them believe that possession of a superior quality flat would be delivered but have handed over alternate flats of inferior quality, the National Commission has granted interest to the tune 12% or more on the amount deposited along with costs, because this amounts to breach of a fiduciary promise (Pushpa Builders v. Shree Om Gupta and Anr., NCDRC decided on 11.02.2010).
Another question that was dealt with by the National Commission in the Pushpa builders case was whether the interest granted as compensation for delay in delivery of possession of the flats would be payable from the promised date of delivery or from the date of deposit of the full money. The Hon'ble Commission held that the compensation was to be made from the date of deposit, which is more favourable to the buyers as the date of deposit often precedes the promised date of delivery.
In a case where the builder had not delivered various services such as potable drinking water arrangements, inferior quality of material used in the terrace flooring, boundary walls, and main gates etc., as compared to the promised specification, the court had ordered individual compensation for each of these components. (Atul Vihar Kalyan Samiti v. Dubey Constructions Co. and Ors. I(2004)CPJ107(NC)
Several builders, who violate sanctioned plans, seek to do away with the impending proceeding for violation by payment of a compounding fee to the authorities. However, this cannot absolve the liability of the builder towards the flat buyers who have to continue to live with the defects in construction. In (P. Mohan Bhat Vs. M.R. Jaishanker, Md and Ors. 2009(2)UC1050) it has been held that Buyers need to be compensated.
With both the Competition Commission of India (CCI) as well as the Consumer Forums adjudicating upon these issues, the major problem is that innocent buyers are confused about the forum that they should be approaching for redressal of the grievances. It is for this reason that they require expert legal advice for enabling them to approach the right forum and handle the matter with competency. In a very recent case of Raheja Builders (Ms. Neelam Sood and Anr. v. M/s Raheja Developers Pvt. Ltd., CCI, order dated 21.12.2011) which was taken to the Competition Commission of India, the Commission had refused to grant any relief to the buyer, in light of the fact that the builder was not a dominant player in the market.
According to the Competition Commission of India statistics approximately 200 complaints have been received recently by it against major players in the real estate market. In the light of so many cases of unfair practices coming up before different forums, the National Real Estate Development Council is planning to come up with a draft National agreement which will be in the form of a Model Builder- Buyer Agreement that the industry may have to follow. This is aimed at doing away with the unjust and biased clauses in builder contracts.
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