Builders execute agreements in which they have a clause that either absolves them of the liability to pay interest, or stipulates payment of measly interest if they delay the project. Is such a clause binding?
Case Study: Dr Ambuj Choudhary had booked a flat in aproject called Omaxe Parkwoodsin Himachal Pradesh which was being constructed by Omaxe Builders. The flat’s basic price was Rs 16,94,550, and possession was to be given in 18 months. Choudhary paid Rs 3 lakh as booking deposit in 2006.
The builder delayed commencement of construction as necessary approvals had not been obtained from the authorities. In March 2009, a formal agreement was executed for sale of the flat. Choudhary paid Rs 16,57,322 instalments from time to time and obtained a housing loan from IDBI Bank. But construction did not begin.Choudhary wrote many letters and had a legal notice sent, but the builder ignored the communications.
Aggrieved, he filed a complaint before the Chandigarh State Commission, alleging that the builder had made false promises through misleading advertisements. He sought refund of the amount paid by him with18% interest, rent for alternative accommodation, etc.
The complaint was contested by Omaxe which questioned the maintainability of the complaint before the State Commission at Chandigarh.The builder blamed Choudhary for failing to make timely pa yment of instalments. It was contented that construction was in full swing and possession would be given in due course.
The State Commission considered the evidence and ordered the builder to refund the amount received for the flat with 6% interest. And, for the delay, monthly compensation at the rate of Rs5 per sqft of super built-up area was also awarded as per terms of agreement.Further, compensation of Rs 1 lakh and litigation costs of Rs 20,000 were also awarded. This order was challenged in appeal, where the builder wanted the order to be set aside while Choudhary wanted the interest rate enhanced to 18%.
The National Commission observed that for availing a housing loan, a tripartite agreement was executed between Choudhary , the builder and the bank. Since this agreement was executed in Chandigarh, a part of the cause of action had arisen there. The builder also had a regional office at Chandigarh. So the National Commission concluded that the State Commission at Chandigarh would have territorial jurisdic tion.
On merits, the National Commission noted that the builder had not explained how the booking was accepted without being in a position to deliver possession within the promised time frame. The Commission ruled that a builder had no right to accept payment from flat purchasers without being certain about handing over possession. The Commission concluded that acceptance of money in the absence of a clear schedule in place for construction and handing over possession would constitute a deficiency in service. It rejected the builder’s contention that Choudhary was to be blamed for not paying instalments in time, observing that a flat purchaser cannot be faulted when the builder has delayed construction.
The National Commission observed that interest at 6% was payable if delay was due to circumstances beyond the builder’s control. As there was no such evidence, the flat buyer would be entitled to a higher interest rate.
By its order of February 13, 2017 delivered by Dr BC Gupta, the National Commission upheld the order passed in Choudhary’s favour and dismissed the builder’s appeal. The Commission also held that Choudhary would be entitled to get his refund with 18% interest.