Buyers and builders to pay the same penalty in case of project delays

Buyers and builders to pay the same penalty in case of project delays

In a major development in recent times, the NCDRC (National Consumer Disputes Redressal Commission) has issued its ruling via the bench of Justice R K Agrawal and member M Shreesha. It has stated that while homebuyers have to fork out 18% per annum by way of interest in case of any delay in payment of instalments, builders were previously paying only 1.5-2% in case of any project delays. As a result, the NCDRC has ruled that this is an unfair practice in the trade which should not be implemented anymore.

The NCDRC has firmly ruled that these provisions cannot be entertained in buyer-builder agreements while also stating that such agreements are not fair and reasonable by all means. The apex consumer commission also stated that real estate firms and developers cannot be given the license to tie homebuyers to contractual regulations which are one-sided and safeguard only the interest of the realty company in question at the expense of homebuyers.

What the NCDRC ruling establishes and other key aspects

  • The NCDRC has stated that there should be more parity in the interest rate that is paid by homebuyers and builders alike for not adhering to the agreement terms.
  • The apex consumer commission has also issued its suggestion that builders should be paying the same interest rate for delaying projects as the rate they seek from homebuyers in case of any payment delays.
  • The order was passed by the NCDRC on the plea submitted by a homebuyer who had previously booked an apartment at the Winter Hills 77 project at Gurgaon in the year 2012. This project is being built by Umang Realtech Private Limited. The buyer was promised that possession would be given by December in the year 2015 and paid approximately Rs. 83 lakh via instalments.
  • However, the builder failed to deliver the project even after four years from the date promised. The buyer thus asked for refund of the money with 18% interest per annum since this was the rate at which he had paid the penalty to the developer for a delay in payment from his side.
  • The company, however, stated that its liability for compensation stood at Rs. 5 per square foot for the delay based on the agreement.
  • This was however rejected by the NCDRC and the body stated that it is a fact that 18% per annum was charged by the builder for payment delays on part of the buyer and hence there is no rational logic in providing just a measly Rs. 5 per square foot which is roughly 1.4% per annum.
  • The company has been directed by the NCDRC to refund the money to the buyer with interest of 12% after accounting for the reduction of interest rates by banks in the last few years.
  • Compensation of Rs. 1 lakh will also have to be paid to the buyer by the company as per the NCDRC directive.

Homebuyers can claim refunds for possession delays

In another major decision that was passed previously, the NCDRC has ruled that homebuyers can claim refunds in case of possession delays. A time period has been quantified by the apex consumer body which is 1 year for delayed real estate projects. Beyond this time period, investors can ask for a refund from developers. The Supreme Court and other forums have already stated that homebuyers cannot wait for an indefinite time period although it was previously not stated as to when the refund can be claimed by the homebuyer in case of a delay in possession.

The NCDRC has already stated that buyers can seek refunds from their developers in case possession is delayed by a year beyond the date which is promised by the builder. The allottees will have the right to seek refunds in this respect, as mandated by the NCDRC bench spearheaded by Prem Narain. There was a plea submitted by Shalabh Nigam who purchased a luxury residential apartment in the Greenopolis project at Gurgaon which is being built by Orris Infrastructure and 3C Company. Nigam bought the apartment in the year 2012, paying Rs. 90 lakh as compared to the overall cost of Rs. 1 crore.

The agreement stated that possession would take place in a period of 36 months with a grace period of 6 months from the allotment date. When the developers did not complete the project, the commission was approached by Nigam who sought either a refund or timely possession. The commission asked the builder to finish construction and deliver the apartment to Nigam as per the agreement by the end of September this year post getting the occupancy certificate. The builder was also asked to pay 6% per year as compensation on the total deposit for the period that was delayed. In case of non-delivery of the apartment within the period prescribed by the commission, Nigam will be eligible for a refund of his entire amount paid with interest of 10%.

The builder had stated that the buyer had stopped paying instalments and in case of any refund, 10% of the amount as earnest money will be forfeited as per the agreement. However, this was rejected by the commission which stated that instalments were paid right till the 7th stage of construction and payments were stopped since there was no construction progress. These new rulings of the NCDRC are sure to boost the overall confidence of homebuyers by a great extent.