Supreme Court Orders 12% Interest on Delayed Refund in Delhi Housing Project Case

The Supreme Court of India, in its judgment dated July 29, 2024, ruled in favor of homebuyers who had booked flats in the ‘Parsvnath Paramount’ project in New Delhi. The Court partially allowed the appeal filed by Vidya & Others, modifying the compensation awarded by the National Consumer Disputes Redressal Commission (NCDRC) to increase the interest rate from 9% per annum to 12% per annum. The Court held that the developer, M/s Parsvnath Developers Ltd., was responsible for the excessive delay and must refund the full amount with higher interest.

Background of the Case

The case originated from a consumer complaint filed by homebuyers who had booked flats in the ‘Parsvnath Paramount’ project, located near Subhash Nagar Metro Station, New Delhi. The project was launched in 2008, and buyers were promised possession within 30 months from the commencement of construction, with an additional six-month grace period. The buyers opted for a Construction Linked Payment Plan and paid nearly 95% of the total price by December 2013.

However, the developer failed to deliver possession within the promised timeframe, and by 2015, the construction had stalled. Frustrated by repeated delays and lack of response from the developer, the homebuyers filed a case before the NCDRC in 2016, seeking a refund with interest and compensation.

Findings of the NCDRC

The NCDRC, in its order dated September 29, 2022, ruled in favor of the complainants, directing the developer to:

Refund the full amount deposited by the homebuyers.
Pay interest at 9% per annum from the respective dates of deposit until the date of refund.
Complete the refund within two months.
Pay Rs. 1 lakh as litigation costs.

Dissatisfied with the interest rate, the homebuyers appealed to the Supreme Court, arguing that the developer should be held to the same standard as consumers when facing payment delays.

Arguments by the Homebuyers

The homebuyers, represented by counsel Sanjay Jain, contended that:

The agreement was heavily skewed in favor of the developer.
In case of delay by buyers, the agreement allowed the developer to charge 24% interest per annum.
However, in case of project delays, the agreement unfairly limited the developer’s liability to only 12% interest per annum.
Given the prolonged delay and financial burden on buyers, the NCDRC’s 9% interest was inadequate.
The interest rate should be raised to match the developer’s own penalty clauses.

Arguments by the Developer

The developer, represented by senior counsel Jayant Muth Raj, countered that:

The delays were due to unforeseen circumstances, including recession in the real estate sector.
Sanctioning of plans by the Delhi Development Authority (DDA) took longer than expected.
The delay fell under the force majeure clause, which excused the developer from liability.
The NCDRC’s 9% interest was fair and reasonable.

Supreme Court’s Observations

1. Rejecting the Force Majeure Argument

The Supreme Court dismissed the developer’s claim that delays were beyond its control. The Court cited its earlier ruling in DLF Home Developers Ltd. v. Capital Greens Flat Buyers Association (2021), stating:

“Delay in obtaining statutory approvals does not constitute force majeure. A builder cannot escape liability for project delays by citing administrative hurdles.”

2. The Principle of Parity in Interest Rates

The Court found that the contract imposed an unfair burden on buyers while favoring the developer. It held:

“There is no justification for allowing the builder to charge 24% interest from homebuyers for late payments while compensating them with only 9% for project delays.”

The Court increased the interest rate to 12% per annum, aligning it with the penalty imposed on the developer under Clause 7(b) of the agreement.

3. Severe Hardship for Homebuyers

The Court noted that:

Homebuyers had paid 95% of the flat price over a decade ago.
They were deprived of their homes for over 15 years.
They had to continue paying rent and home loan EMIs while waiting for possession.

The Court ruled that the buyers had suffered undue financial and emotional hardship and deserved higher compensation.

Final Judgment

The appeal was partially allowed.
The developer must refund the full amount deposited by homebuyers.
The interest rate was raised from 9% per annum to 12% per annum.
The refund, along with revised interest, must be completed within three months.
The developer must also pay Rs. 1 lakh in litigation costs.

Key Takeaways

Builders Cannot Use Force Majeure to Avoid Liability: The Supreme Court reaffirmed that project delays caused by regulatory approvals do not qualify as force majeure.
Unfair Interest Rate Clauses Must Be Rectified: The Court ensured that homebuyers were not unfairly penalized with lower compensation compared to the developer’s penalty clauses.
Compensation Must Reflect Financial Burden on Buyers: The ruling acknowledged the dual burden of rent and EMIs faced by buyers.
Courts Will Hold Developers Accountable: The judgment sends a strong message that developers cannot delay projects indefinitely without financial consequences.

Conclusion

The Supreme Court’s decision provides relief to homebuyers who have suffered due to prolonged project delays. By increasing the interest rate to 12%, the ruling ensures a more balanced compensation mechanism and reinforces the principle that developers must be held accountable for delays.

Petitioner Name: Vidya & Others.
Respondent Name: M/s Parsvnath Developers Ltd..
Judgment By: Justice B.R. Gavai, Justice Sandeep Mehta.
Place Of Incident: New Delhi.
Judgment Date: 28-07-2024.

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