New Delhi: The Supreme Court of India has dismissed appeals filed by flat buyers seeking to hold landowners jointly and severally liable along with a developer for payment of delay compensation arising from failure to deliver possession of flats within the agreed time.
A bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that where the obligation to construct and deliver flats rests entirely with the developer under a Joint Development Agreement, and where the developer has indemnified the landowners against acts of commission or omission in construction, the landowners cannot be held liable for deficiency in service on account of delay in construction.
The appeals arose from a real estate project in which the landowners entered into a Joint Development Agreement with the developer on 24 February 2012 and simultaneously executed a General Power of Attorney in favour of the developer. On 21 February 2013, the developer obtained the sanctioned plan and a construction licence. Thereafter, from 29 July 2013 onwards, the developer executed Memoranda of Sale Agreements with the flat buyers, under which possession of the flats was agreed to be handed over within thirty-six months. The initial period for handing over possession expired on 24 August 2016, and a further grace period of six months lapsed on 24 February 2017.
The project remained incomplete even thereafter. On 5 June 2017, the appellants issued a notice seeking redressal for the delay in handing over possession, and on 18 August 2017 they filed a consumer complaint before the National Consumer Disputes Redressal Commission alleging deficiency in service and unfair trade practices.
By its final order dated 19 October 2023, the National Commission found deficiency in service on account of a delay of more than six years in handing over possession of the flats. The developer was directed to complete construction, obtain an occupancy certificate if not already obtained, and hand over possession within three months from the date of the order.
The developer was also directed to pay interest at 6% per annum on the amounts deposited by the appellants from the due date of possession as per their respective agreements until the date of offer of possession, within six weeks, failing which the delay interest was to carry further interest at 9% per annum. The landowners were not held liable for the delay in this order, as the obligation to complete construction was found to rest solely with the developer.
The appellants thereafter filed a review petition seeking to hold the landowners jointly and severally liable and to enhance the delay compensation to Rs. 5 per square feet per month as provided in the agreement, along with interest at 6% per annum on the deposits made by them. The Commission, by an order passed in chamber on 15 December 2023, partly allowed the Review Petition and held the landowners jointly and severally liable for completion of construction and for payment of delay compensation. However, the relief of awarding delay compensation at Rs. 5 per square feet along with 6% interest was declined.
The landowners challenged this order before the Supreme Court, which by an order dated 3 May 2024 set aside the order dated 15 December 2023 on the ground that it had been passed without affording any opportunity of hearing to the landowners, and directed the Commission to dispose of the Review Petition after hearing all parties within six weeks.
Upon reconsideration, the Commission, by its order dated 30 July 2024, held that in view of the Joint Development Agreement and the Sale Agreements, the landowners could not be held jointly and severally liable for deficiency in service. However, the landowners and the developer were directed to transfer title to the properties and proceed with the execution of sale deeds in favour of the appellants. Aggrieved by the finding that the landowners were not jointly and severally liable for payment of delay compensation, the flat buyers filed the present appeals before the Supreme Court.
Before the Supreme Court, the appellants argued that the landowners had executed a General Power of Attorney in favour of the developer, thereby creating a relationship of principal and agent, and that the principal must be held liable for the deficient acts of the agent. It was also contended that various clauses of the Sale Agreement imposed joint and several responsibility on the landowners and the developer for deficiency in service. The landowners, on the other hand, contended that under the Joint Development Agreement, the liability for construction and delivery of flats vested entirely with the developer, and that the landowners were fully indemnified by the developer against any such liability. It was further contended that no relationship of principal and agent existed between the landowners and the developer in the context of construction, that the landowners were not signatories to the Sale Agreements, and that the delay in delivery was not caused by any act or omission on the part of the landowners.
The Supreme Court examined the relevant clauses of the Joint Development Agreement and the General Power of Attorney. Clause 7.1 of the JDA confirmed that the landowners would indemnify the developer against liabilities arising from defects in title or delays caused by the landowners. Clause 7.4 provided that in the event of any breach between the developer and the prospective purchasers, the landowners would not be liable for any consequences thereof, and that the developer would indemnify the landowners. Clauses 2 and 3 of the GPA authorized the developer to enter into sale agreements, execute conveyances, receive consideration, and complete registration formalities in respect of the developer’s share, being 64% of the undivided share of land and the constructed area.
On a conjoint reading of the JDA and the GPA, the Court held that in respect of flats falling in the developer’s share, the right to enter into sale agreements, undertake construction, receive consideration, transfer possession, and convey title vested entirely with the developer. It was not the case of the appellants that the delay in construction was on account of any act or omission on the part of the landowners.
The Court held that the clauses relied upon by the appellants did not indicate that the landowners were under any obligation to raise construction, and that the developer had indemnified the landowners against acts of commission or omission in construction.
The Commission had therefore rightly fastened the liability for delay compensation on the developer alone. The Court further held that the landowners were undoubtedly jointly responsible with the developer for ensuring the transfer of title to the appellants, and that the Commission had correctly directed both the landowners and the developer to transfer title and execute sale deeds in favour of the appellants.
The decisions cited on behalf of the appellants were found to be of no assistance, as they either supported the position of the landowners or did not adjudicate the precise question of joint and several liability in the relevant context.
The Supreme Court accordingly found no merit in the appeals and dismissed them.
Case Title: Sriganesh Chandrasekaran & Others v. M/s Unishire Homes LLP & Others
