Author Name:   basjadonandassociates

Consumerism or sheer greed is the new talk of the domestic Diaspora living in the fear of what do we call as economic persecution. This phrase may be unheard off but the same has taken the test of the time as the ramifications are such that has percolated to the societal ethos of our middle-class real estate consumer and the intensity is such that it is soon going to drain out the patience and the economic worth of our so-called middle class.

Economic Persecution Viz -A- Viz Pauperism of a Consumer in a Real Estate Market

Consumerism or sheer greed is the new talk of the domestic Diaspora living in the fear of what do we call as economic persecution. This phrase may be unheard off but the same has taken the test of the time as the ramifications are such that has percolated to the societal ethos of our middle-class real estate consumer and the intensity is such that it is soon going to drain out the patience and the economic worth of our so-called middle class.

The provision of section 2(1)(d)(ii) of the Consumer protection Act, 1986 was ambiguous as to whether a consumer of the residential flat was covered under the ambit of the definition of services as notified in the following provision?

Section 2(1)(d)(ii)“[hires or avails of] any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who [hires or avails of] the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person [but does not include a person who avails of such services for any commercial purpose];”

However, the ambiguity as to the inclusion of the consumer was laid to rest by the Hon’ble supreme court in the case of Lucknow Development Authority versus M.K.Gupta, a landmark judgment of 1993 and has been categorized as a legal watershed as this judgment has given plethora of hope to the buyers by amending Section 2(1)(o) of the consumer protection act, 1986 and adding the phrase “Housing Construction” to be included within the meaning of services.

“Section 2(1)(o)“service” means service of any description which is made available to potential [users and includes, but not limited to, the provision of] facilities in connection with banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, [housing construction,] entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;””.

State Development Authorities & the Builders to be fed with the same spoon:

It was held by the Hon’ble Supreme court of India that framing of housing scheme by the Development Authorities comes within the ambit of the services rendered by the authority. The excerpts of the Hon’ble Supreme court’s Judgment in the case of Lucknow Development Authority vs M.K. Gupta is reproduced here as under:-

“When a statutory authority develops land or allots a site or constructs a house for the benefit of common man it is as much service as by a builder or contractor. The one is contractual service and other statutory service.”

“When a statutory authority undertakes to develop land and frame housing scheme, it, while performing statutory duty renders service to the society in general and individual in particular.”

Thus, there is no denying of the fact that the buyer of the flat is a “Consumer” and the Development Authorities and the builders renders “Service” as per section 2(1)(d)(ii) r/w Section 2(1)(o) of the Consumer Protection Act, 1986 respectively.

Defect in Service:

It has been often found that the builders or the authorities have often sought refuge of the phrase” as is where is basis” which is generally enshrined in the sale agreement and once the said agreement is signed by the concerned parties, this adverse ramifications of this phrase is imposed on the buyer negating the effect of the following provision.

“Section 2(1)(g) deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service”

It was held by the Hon’ble Supreme court of India that any defect in the construction activity would amount to deficiency in service. The excerpts of the Judgment of the Hon’ble Supreme court in the case of the Lucknow Development Authority Versus M.K. Gupta is reproduced herein below:-

“Any defect in construction activity would be denial of comfort and service to a consumer.”

“A flat with a leaking roof, or cracking wall or substandard floor is denial of service.”

“If the service is defective or it is not what was represented then it would be unfair trade practice as defined in the Act. Any defect in construction activity would be denial of comfort and service to a consumer. When possession of property is not delivered within stipulated period the delay so caused is denial of service”.

Thus, the enshrinement of the Phrase “Housing construction” by the Hon’ble Supreme Court has made a very exhaustive attempt to inculcate the various facets of the real estate market.

It is also to be understood that the ‘phrase as is where is basis’ shall be applicable only to the habitable and safe or secured residential units as has been manifested afore.

Dual Policy of Penalty on Default:

A mere perusal of the builder- buyer agreement would suggest that in case of default on payment by the buyer, the builder generally charges either 18% or 15% interest rate for the delayed payment but a careful reading of the agreement would also reveal that there is no provision by virtue of which a builder may be penalized if the builder violates the terms of the agreement. The most violated provision being the provision under which the builder agrees to hand over the possession of the concerned flat or a residential accommodation.

It has been held by the Hon’ble Supreme Court of India that the rate of interest for the default shall remain the same for both the parties. This law was laid down by the Apex court in the case of Manjul Srivastava versus Govt. of U.P. & Ors., excerpt of which is reproduced here as under:-

“…. it would be clear that in the event, the appellant could not deposit the entire amount after the allotment is made within certain time, 18% interest shall be levied on the appellant. It is an admitted position that the appellant deposited the entire amount as directed by the GDA in the year 1989 and the order of cancellation of reservation of a plot in favour of the appellant was made after more than seven years and, therefore, we must hold that the respondent was liable to pay interest not at the rate of 5% but at the rate of 18%. In the facts of the present case, since the GDA had utilized the entire amount of the appellant for their own purpose till they had refunded the amount to the appellant.

This legal proposition was held by the Hon’ble Supreme Court in the case of PUDA Vs. Mrs. Shabnam Virk II, excerpts of which is reproduced herein below:-

“No sensible person will volunteer to accept compensation constituting about 2-3% of his investment in case of delay on the part of the contractor, when he is made to pay 18% compound interest if there is delay on his part in making payment”.

“It can hardly be disputed that a term of this nature is wholly one sided, unfair and unreasonable. The builder charges compound interest @ 18% per annum in the event of the delay on the part of the buyer in making payment to him but seeks to pay less than 3% per annum of the capital investment, in case he does not honour his part of the contract by defaulting in giving timely possession of the flat to the buyer. Such a practice, in my view, constitutes unfair trade practice within the meaning of Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practice for the purpose of selling the product of the builder.

“As noted earlier, the cost of the borrowing for individual home buyers is about 10% per annum though it had gone upto 11.5% in last few years. In my view, if the opposite party, pays simple interest @ 12% per annum to the complainants, that would not only take care of the additional financial burden on them but also give some monetary compensation to them for their sufferings on account of the delay in handing over possession of the flat purchased by them.

Loss of prospective income by the Buyer:

It was held by the Hon’ble National Consumer Disputes Redressal Commission in the case of Ramesh Kumar Versus Prasanna Bhandary that the Complainant therein was entitled to the loss of rent which could have been accrued if the flat would have been given in possession to the Complainant as per the Agreement.

Curing Social Evil & Red-Tapism:

The compensation which may be granted for the deficiency of services on the part of the Development Authority would be exorbitant so that it may have the impact of curing social evil. The same was held in the case of Lucknow Development Authority Versus M.K. Gupta, excerpt of which are reproduced herein below:-

“The award of compensation for harassment by public authorities not only compensates the individual, satisfies him personally but helps in curing social evil. It may result in improving the work culture and help in changing the outlook”.

Lastly, this article has deliberately not included the tenets of the new ‘The Real Estate (Regulation and Development) Act, 2016’ as the same has not been interpreted by the Indian Courts but certainly the aforementioned Act is a shot in the arm for the consumer and many incongruencies which could not have been avoided by the Consumer protection Act, 1986 may be laid to rest by the ramifications of this Act of 2016.

An Author is a Managing Partner
in B.A,S. JADON & ASSOCIATES
(Advocates a Legal Consultants)

Follow the Procedure Below To Submit Your Articles

Submit your Article by using our online form Click here
Note* we only accept Original Articles, we will not accept Articles Already Published in other websites.
For Further Details Contact: editor@legalserviceindia.com

File Your Copyright - Right Now!