SUPREME COURT RULING |INVALIDITY OF ONE-SIDED CLAUSES IN BUILDER-BUYER AGREEMENTS
The Supreme Court of India recently held in the case of Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan that one sided clauses in favour of the builder in an apartment buyer agreement constitute an unfair trade practice making such terms unenforceable against the buyer/purchaser.
This update briefly overview of the facts of this case that led to the matter being decided by the Supreme Court:
- The Builder in the captioned matter was a developing a residential
project in Gurugram. The Flat Purchaser purchased a flat in the project
and entered into an Apartment Buyer`s Agreement (Agreement) with the Builder.
- As per the Agreement, the Builder was to apply and obtain an occupation certificate (OC)
within 39 months from the date of excavation with a grace period of 180
days and accordingly handover the possession to the flat purchasers.
The Builder failed to offer possession to the flat purchaser in the
stipulated time and therefore the flat purchaser filed a consumer
complaint before the National Consumer Disputes Redressal Commission (National Commission) for termination of the Agreement on the ground of deficiency of service.
- During the pendency of the case, the Builder received the OC
and offered possession to the Flat Purchaser who refused to accept
possession on the ground that there was inordinate delay on the part of
the Builder.
- The National Commission held that the flat purchaser could not
be compelled to take possession at such a belated stage. Further, the
grounds urged by the builder for delay were not justified and clauses in
the agreement were held to be wholly one sided, unfair and not binding
on the flat purchaser. The National Commission ordered the builder to
refund the amounts paid by the flat purchaser along with interest.
- Thereafter, the Builder challenged the order of the National Commission before the Supreme Court on the ground that the buyer was not entitled to refund of the amount deposited, since the Agreement was not terminated by the Respondent Buyer in accordance with Clause 11.5 (ii) of the Agreement, which stipulates that the allottee has to terminate the Agreement by giving a termination notice of 90 (ninety) days to the Builder.
- The Hon’ble Supreme Court upheld the order of the National
Commission and opined that there is a prima facie case of deficiency of
service and the flat purchaser was justified in terminating the
Agreement. Since there was an inordinate delay in grant of possession to
the Flat Purchaser, he is entitled to terminate his Agreement and is
entitled to a refund of amounts paid along with interest.
- Further on perusal of the Agreement the Hon’ble Supreme Court
observed that there were stark incongruities between the remedies
available to both the parties:
- The interest clause in the Agreement provided that the builder could charge the flat purchaser interest at the rate of 18% for delayed payment. But in case of delays on the part of the builder in handing over the possession there was no remedy and only upon cancellation of the Agreement was the flat purchaser entitled to interest of a mere 9%.
- The builder could terminate the Agreement if there was any delay on part of the flat purchaser in payment of instalments towards the purchase of the flat. But the flat purchaser had to wait for a period of 12 months after the end of grace period, before serving termination notice of 90 days on the builder, and even thereafter, the Builder got 90 days to refund only the instalments paid by flat purchaser.
- On default by the builder, if the flat purchaser failed to exercise his right of termination within the time limit provided in the Agreement, then he was not entitled to terminate the Agreement. But in case the flat purchaser failed to rectify his default within 30 days of the termination notice, then the Agreement automatically stood cancelled. IN such a case the builder had the right to forfeit the entire amount of earnest money towards liquidated damages.
- The Hon’ble Supreme Court thus held in the case that aforesaid terms of the contract would not bind the flat purchaser.
- In conclusion the Supreme Court held that the terms of the Agreement in the present case were wholly one-sided and unfair to the Flat Purchaser and that the Builder could not seek to bind the Respondent with such one-sided contractual terms. The contractual terms of the Agreement were declared ex-facie one-sided, unfair, and unreasonable and therefore non-binding on the Respondent.
MHCO Comments: This judgement of the Supreme Court is a
relief to flat purchasers who are often forced to sign one-sided
contracts by builders / developers. This judgment would have serious
ramifications on the clauses inserted in a builder-buyer agreement.
Builders would no longer be able to take shelter under contracts that
are drafted to safeguard only their interests.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance.
