Supreme Court Modifies Compensation Formula in Real Estate Delay Case

The Supreme Court of India, in its judgment dated July 22, 2024, partially allowed the appeal filed by Kaushik Narsinhbhai Patel & Ors. against M/s. S.J.R. Prime Corporation Private Limited, modifying the compensation formula for delayed possession of flats in the ‘Fiesta Homes’ project in Bengaluru. The Court upheld the National Consumer Disputes Redressal Commission (NCDRC)’s ruling on the delay but revised the method for calculating compensation.

Background of the Case

The case stemmed from a consumer complaint filed by 46 homebuyers who alleged that S.J.R. Prime Corporation failed to deliver possession of their flats on time and did not provide the promised amenities. The buyers booked their flats based on the builder’s representations and entered into a Construction Agreement dated March 31, 2012. As per Clause 6.1 of the agreement, the possession was to be handed over by March 2014, with a six-month grace period.

However, there was a four-year delay, and possession was handed over only in 2018. The buyers claimed:

Compensation at 18% per annum for the delay.
Refund of illegally charged car parking fees.
Refund of excess legal fees.
Refund of additional charges for electricity and water connections.
Construction of promised amenities like a Green Jogging Track and Convenience Store.

Proceedings Before the NCDRC

The NCDRC, in its order dated September 15, 2022, ruled in favor of the homebuyers on certain aspects:

Confirmed that there was a delay in handing over possession.
Directed the builder to pay 6% per annum interest on the deposited amount from the due date of possession till the date of offer.
Ordered the developer to construct the promised Green Jogging Track and Convenience Store within two months.

However, the NCDRC rejected the claims for:

Higher compensation of 18% per annum.
Refund of car parking charges, citing a precedent in R.V. Prasannakumaar & Ors. v. Mantri Castles Pvt. Ltd.
Refund of legal fees, as the buyers did not provide sufficient evidence.

Appeal Before the Supreme Court

The homebuyers challenged the NCDRC’s order, arguing that:

The method used to calculate the due date for possession was incorrect.
The compensation should have been calculated from March 2014, as per the agreement, rather than from six months after the 11th installment payment.
The builder used written submissions before the NCDRC to introduce new arguments, despite having forfeited its right to file a written statement.

Supreme Court’s Observations

1. Violation of the Written Statement Order

The Supreme Court criticized the builder for introducing new arguments through written submissions despite having forfeited its right to file a written statement:

“The conduct of the respondent-builder in filing written submissions containing fresh arguments was in direct violation of the Supreme Court’s earlier ruling declaring that the right to file a written statement was forfeited.”

2. Modification of Compensation Calculation

The Court found that the NCDRC erred in setting the due date for possession based on installment payments instead of the contractually agreed date. It held:

“The due date for possession must be determined in accordance with Clause 6.1 of the Construction Agreement, i.e., March 2014, with a six-month grace period.”

Accordingly, the Court modified the compensation formula:

The 6% per annum interest will be calculated from September 2014 instead of the date of the 11th installment.
The interest will continue until the date the builder offered possession.

3. Confirmation of NCDRC’s Other Findings

The Supreme Court upheld the NCDRC’s rulings on:

Car parking charges: The issue was already settled in previous case law.
Legal fee refund: The homebuyers failed to provide documentary evidence.
Construction of amenities: The builder was directed to complete the Green Jogging Track and Convenience Store.

Final Judgment

The appeal was partially allowed, modifying the compensation calculation.
The builder was ordered to pay 6% interest from September 2014 until possession was offered.
The NCDRC’s order regarding car parking fees, legal fee refunds, and construction of amenities was upheld.
The builder’s written submissions were disregarded due to procedural violations.

Key Takeaways

Developers must honor contractually agreed possession dates: The Supreme Court emphasized that compensation must be calculated based on the agreement.
Written statement forfeiture must be respected: The Court ruled that a party cannot introduce new defenses through written submissions if it has forfeited its right to file a written statement.
Consumer rights in delayed real estate projects: The judgment reinforces the legal protections available to homebuyers.
Fair compensation method: The Court followed the precedent set in R.V. Prasannakumaar, ensuring consistency in compensation for delay cases.

Conclusion

The Supreme Court’s ruling provides significant relief to homebuyers facing possession delays, ensuring that builders are held accountable for contractual commitments. By modifying the compensation formula, the Court reaffirmed that developers must adhere to agreed timelines and that homebuyers must be compensated fairly for delays.

Petitioner Name: Kaushik Narsinhbhai Patel & Ors..
Respondent Name: M/s. S.J.R. Prime Corporation Private Limited.
Judgment By: Justice C.T. Ravikumar, Justice Sanjay Kumar.
Place Of Incident: Bengaluru, Karnataka.
Judgment Date: 21-07-2024.

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