Good News! Now, builder can’t force his clauses on home buyers, rules Supreme Court

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Updated: April 4, 2019 3:02:53 PM

The Supreme Court has held that terms of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line.

builder buyer contract, builder buyer agreement, Terms of builder buyer contract not binding, clauses one sided, supreme court, Pioneer Urban Land & Infrastructure Ltd Vs Govindan Raghavan, real estate, The Supreme Court has held that incorporation of one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986.

Home buyers who purchase flats or apartments from builders have very little choice but to accept the standard agreement for sale drafted by the developers. It is quite possible that various clauses relating to the rate of interest, right to cancel agreement, time limit for refund on account of cancellation etc may not be equitable, i.e. developers may have superior rights as compared to those of the buyers. In fact, many such cases have already to come to light.

There is, however, good news for home buyers. The Supreme Court, while delivering its judgement on 2nd April 2019, in the case of Pioneer Urban Land & Infrastructure Ltd Vs Govindan Raghavan, has held that terms of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder. It further held that incorporation of one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the builder.

In the matter before the Supreme Court, the buyer of the apartment on account of the developer not having applied for the occupancy certificate much after the promised date of delivery, asked for refund of the amount paid along with interest and compensation. They buyer also filed a consumer complaint to seek relief.

“The National Commission after considering the facts asked the developer to refund the money along with interest @10.7% which was greater than the rate of interest prescribed in the agreement after considering the cost of borrowing of the loan and rate prescribed under the Haryana Real Estate (Regulation and Development) Rules, 2017. It also held that although the developer obtained the Occupancy certificate during the pendency of the complaint before the court, owing to the delay being more than 2 years and also since the buyer had already bought another flat, the developer could not thrust upon the buyer the possession of the flat,” says Sandeep Shah, Partner, N.A Shah Associates LLP.

The Supreme Court also noted the recommendation of The Law Commission of India in its 199th Report, relating to the issue of ‘Unfair (Procedural & Substantive) Terms in Contract’ which had recommended that a legislation be enacted to counter such unfair terms in contracts. In the draft legislation provided in the Report, it was stated that: “A contract or a term thereof is substantively unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of the parties.”

The Supreme Court analyzed the agreement and compared the options available to the builder and to the buyer in matter of right of cancellation/ termination, rate of interest and when the amount should be refunded. The Court noted that there were stark incongruities between the remedies available to both the parties and it had no hesitation in holding that agreement was one-sided and the buyer was made to sign on the dotted lines!

“It is also interesting to note that though the agreement was not under the RERA regime, the rate of interest applied is that under RERA and the rate of interest mentioned in the contractual agreement was ignored. The order of the Hon’ble Supreme Court will bring relief to many home buyers who otherwise are forced to take the delivery of apartments much after the promised due date and may even help them in a situation where alternative flats are available at much cheaper prices or with better amenities,” informs Shah.

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