India’s Supreme Court ruling on lopsided builder-buyer agreement to go a long way in protecting the latter’s rights
In a landmark judgement on April 2, India’s Supreme Court upheld the primacy of homebuyers over the developers. After suffering for years at the hands of builders, the Indian home buyer may be beginning to get the rights that home buyers take for granted in most advanced democratic countries. The apex court ruled that a lopsided agreement between the two, in favour of the builder, will not be binding on the home buyer if he does not have an option, but to sign on the dotted line, while buying a property.
The judgement is categorical in holding the Gurgaon-based developer – Pioneer Urban Land Infrastructure – accountable for its actions, on two counts: for incorporating one-sided clauses in the agreement and for not delivering the house in time.
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The Supreme Court should be complemented for the alacrity it has shown to decide the case. More so, it has instilled some amount of confidence in the home buyers, who run from pillar to posts to either get their refunds or the property, in question.
This case is a fine example of how the builders take the home buyers for a ride. One of the conditions put in the agreement was the liability put on the home buyer on missing the payment deadline. Every delayed payment invited an 18 percent per annum interest. However, the home buyer was entitled only for a 9 percent interest if the builder did not deliver in time.
In this particular case, the clause was not only unjust, but also penal for the home buyer. The home buyer had taken a bank loan at a 10 percent per annum rate of interest. The builder-buyer agreement entitled him an interest rate which was lower (9 percent) than what he would pay to the bank, which meant that he would pay from his pocket for the fault of the developer. Essentially, the agreement dealt a double blow to the buyer.
Another telling and brazen clause was the disproportionate power in the hands of the builder regarding the termination of the agreement. The builder was entitled to terminate the agreement if any instalment remained in arrears for more than 30 days.
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Meanwhile, if the builder failed to deliver possession of the apartment within the stipulated period, the home buyer could serve him a termination notice only after twelve months from the completion of the grace period. The agreement allowed the builder a grace period of six months. The builder also got an additional 90-day notice period to refund the actual instalment after adjusting the taxes paid, interest and penalty on delayed payments. This effectively means that a 21-month period for the builder versus a 30-day period for the home buyer was what the agreement spelled out.
Even the manner in which the clauses in the agreement awarded rights to the homebuyer and developer to terminate the contract were in stark contrast. The agreement would automatically stand cancelled if the flat buyer failed to rectify the default within 30 days of the termination notice served to him by the developer. On the contrary, the home buyer was given a definite time period to exercise his right of termination, failing which the home buyer was not entitled to terminate the agreement and would be bound by the provisions of agreement.
The two-judge bench comprising Justice Uday Umesh Lalit and Justice Indu Malhotra, acknowledged that the clauses were “one sided and “unfair” and directed the builder to refund the entire amount along with the interest of 10.7 percent.
This is not a one-off case and the real estate market is replete with such examples. The developers have always enjoyed a dominant position over the poor flat buyers and they often leave no-stone-unturned to abuse that position.
Through the judgement, the court had addressed multiple malpractices in the real estate business. The verdict will also set many precedents for other cases of similar nature.
The observations made in the judgement, give one, a sense of what the court would consider “unfair” and one sided. This will deter developers from making one sided contracts fearing judicial scrutiny. It will also give confidence to the home buyers that even if they sign a one-sided contract, they would be protected by the laws of the land.
The judgement also lays down rules for compensation for the home buyer, while an agreement is made between a builder and a buyer in a sense that the home buyer will not be subjected to a rate of interest lower than what he is paying to the banks for servicing the loans.
This judgement also achieves another important goal. It will protect the rights of the home buyers who wish to terminate the agreement if there is any “deficiency in services” on the part of the builder. In the instant case, the court found that the developer was deficient in delivering the services to the buyer.
It also held that a home buyer cannot be made to wait indefinitely, ruling that the home buyer was justified to buy another property and seek refunds.
The courts have been giving judgements from time-to-time to uphold the rights of the home buyers. For instance, in Fortune Infrastructure & Anr versus Trevor D’Lima & Others, the apex court ruling underscored the importance of timeliness of possession of flat to a home buyer and his right for compensation. In another judgement, Lucknow Development Authority versus M.K. Gupta, the court held that an inordinate delay amounted to deficiency of service. With last week’s judgement the court has covered one more aspect related to the one-sidedness of the contracts while strengthening the previous ones.