CHANDIGARH HOUSING BOARD versus M/S. PARASVANATH DEVELOPERS PVT. LTD. & ANR. on 17 December 2019

[2019] 15 S.C.R. 157

CHANDIGARH HOUSING BOARD

v.

M/S. PARASVANATH DEVELOPERS PVT. LTD. & ANR.

(Civil Appeal No. 10748 of 2016)

DECEMBER 17, 2019

[MOHAN M. SHANTANAGOUDAR ANDR. SUBHASH REDDY, JJ.]

Consumer Protection:

Failure to deliver flat to the consumer – By the Developer –Due to the dispute between the Housing Board and the Developerwhich was referred for Arbitration – In the Award Arbitrator fixedthe liability on the Developer and the Housing Board in respect ofrefund to the residential unit buyers in the ratio of 70:30 – NationalConsumer Commission directed refund of principal sum to thecomplainant @ 10% interest – It also directed payment of Rs. 1lakh towards mental harassment and further Rs. 1 lakh towardslitigation charges – In view of the award, ascertained the liabilityof Developer and Housing Board in the ratio of 70:30 – Appeal toSupreme Court by Housing Board questioning the liability fixedupon it in respect of litigation cost and for mental harassment andalso enhancement of interest rate to 10% – Held: In view of Clause9(c) of the Tripartite Agreement, liability to pay the cost towardslitigation and mental harassment cannot be fixed on Developer aloneas the cost does not qualify as compensation u/clause 9(c) – Theapportionment of the liability is well founded – The increase in theinterest rate was in exercise of discretionary power of the NationalCommission and is not liable to be interfered with.

Dismissing the appeal, the Court

HELD: 1.1 A close reading of Clause 9(c) of the TripartiteAgreement indicates two salient features– first, the liability topay compensation under this Clause can only be affixed on theDeveloper if it fails to fulfill the condition under Clause 9(a) andperform its obligations under the Development Agreement, i.e.if it does not hand over the possession of the flat to the buyerwithin a period of 36 months from the date of signing of the

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ADevelopment Agreement. The second feature of Clause 9(c) isthat it envisages a fixed compensation of Rs. 107.60 per sq metreper month to be paid to the flat buyer. [Para 10][165-F]

1.2 Clause 9(c) is not attracted in the present case at all.First, there has been no fulfilment of the condition under ClauseB9(a) for Clause 9(c) to come into operation. This is because theDeveloper never even began construction at the project site dueto the dispute with the Housing Board about the encumbranceson the allotted land. Thus, the question of finishing suchconstruction within the period mentioned under Clause 9(a) doesnot even arise. Consequently, Clause 9(c), which is concernedCwith the non-fulfilment of this obligation, is also not attracted.[Para 10.1][165-G-H; 166-A]

1.3 Thus, given that the breach of the DevelopmentAgreement is attributable to both, Housing Board and theDDeveloper, the failure to hand over possession of the flat to thebuyer cannot be said to be on account of the non-performance ofthe obligation of the Developer alone. Consequently, Clause 9(c)is not applicable to the present case. [Para 10.1][166-E]

1.4 The amount awarded by the National Commission inEthe impugned order, i.e. Rs. 1 lakh each towards mentalharassment and litigation costs, cannot be read as compensationcontemplated under Clause 9(c) of the Tripartite Agreement.Evidently, the litigation costs cannot be construed ascompensation. Even with respect to the award of Rs. 1 lakh formental harassment, such amount is in the nature of a general,Flump sum compensation, which falls short of qualifying ascompensation under Clause 9(c). This is especially because thereis no mention of the stipulated fixed rate of Rs.107.60 per sqmetre of the super area of the unit, per month in the impugnedorder. Thus, the liability of paying a total of Rs. 2 lakhs underGthose heads cannot be foisted on the Developer alone in termsof Clause 9(c). [Para 10.2][166-F-H]

1.5 The Appellant’s reliance on the revocation deed ismisplaced, as para 4 of this deed clearly states that “the partieshave accepted the award” and chosen to act in accordance with H

the same. Thus, it cannot be argued that this revocation deeddisplaces the arbitration award dated 09.01.2015 and the directiontherein for the Developer and the Housing Board to paycompensation (if and when determined) in the ratio of 70:30. Inany case, this revocation deed may, at best, arguably settle therights and obligations or disputes between the parties in respectof the Development Agreement. Such settlement of rights andobligations cannot be extended in a manner that enables theDeveloper and the Housing Board to wriggle out of their liabilityunder the Tripartite Agreement with the Complainant. Thus, therevocation deed cannot be invoked by the Appellant to escapeits liability flowing from the Tripartite Agreement and thearbitration award. [Para 11][167-B-D]

1.6 Such division is well-founded as the sale proceeds fromthe flat buyers were apportioned in the same ratio of 70:30between the Developer and the Housing Board. This is supportedby the Escrow Agreement dated 01.06.2007 executed by theHousing Board and the Developer in pursuance of theDevelopment Agreement. Clause 4(b) of this Escrow Agreementprovides that 30% of the sale proceeds in respect of theresidential units would first be transferred to the Housing Boardand the remaining amount shall then be transferred to theDeveloper. In view of this, the amount directed to be paid by theNational Commission in the impugned order must be paid by theDeveloper and the Housing Board in the ratio of 70:30. [Para13][167-G-H; 168-A]

2.1 Clause 9(d) of the Tripartite Agreement requires theDeveloper and the Housing Board to refund the amountsreceived from the buyer with interest, if the Developer is unableto deliver the unit to the buyer due to non-approvals from thecompetent authorities. Here, under Clause 9(d), the parties areliable to refund the principal sum in the ratio of 70:30 as they hadreceived the sale proceeds in the same ratio. [Para 14][168-B-C]

2.2 The increase in the interest rate to 10% was made bythe National Commission in exercise of its discretionary power.It is possible that the National Commission chose to enhancethe interest rate in view of the fact that it had already imposed ABC

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Alesser compensation than the significantly higher compensationstipulated under Clause 9(c). National Commission was right indirecting the Developer and the Housing Board to pay theprincipal sum of Rs. 1,03,31,250/- at 10% p.a. to the Complainant.Further, it is found that the direction to pay Rs. 2 lakhs in totowards mental harassment and litigation costs in the ratio ofB70:30 between the Developer and the Housing Board is alsocorrect. [Para 14, 15][168-C-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10748of 2016.

CFrom the Judgment and Order dated 11.05.2016 of the NationalConsumer Disputes Redressal Commission at New Delhi in ComplaintNo. 19 of 2011.

Sachin Datta, Sudhir Makkar, Sr. Advs., Mrs. Rachana Joshi Issar,Ms. Prerana Chaturvedi, Jay Kishor Singh, Prabhakar Tiwari, Jay KishorDSingh, Ms. Rukhsana Choudhury, Advs. for the appearing parties.

The Judgment of the Court was delivered by MOHAN M. SHANTANAGOUDAR, J.

1. Delay condoned in filing appeal.

E2. This appeal arises out of the final order dated 11.05.2016 passedby the National Consumer Disputes Redressal Commission at New Delhi(hereinafter ‘National Commission’) in Consumer Complaint (C.C.) No.19 of 2011, vide which the Respondent No.1 and Appellant herein weredirected to pay Respondent No. 2 herein a principal sum ofRs. 1,03,31,250/- with interest @ 10% p.a., Rs.1,00,000 for mentalFharassment and agony, and Rs.1,00,000 towards litigation costs in theratio of 70:30.

3. The factual background to this appeal is as follows:

3. The factual background to this appeal is as follows:

3.1 The Appellant herein, Chandigarh Housing Board (hereinafterG‘CHB’) invited bids to implement an integrated project with residential,commercial, and other related infrastructure facilities at the Rajiv GandhiChandigarh Technological Park in Chandigarh. The bid sent byRespondent No. 1 herein, M/s. Parasvanath Developers Ltd.(hereinafter ‘Developer’) was accepted by CHB. Consequently, CHBand the Developer entered into a Development Agreement datedH

06.10.2006 for the grant of development rights in respect of landmeasuring 123 acres. The said land was allotted to the Developer byCHB for constructing residential units, who then advertised its projectfor the sale of flats and pent houses as “Parsvanath Pride Asia”.

3.2 Respondent No. 2 herein (hereinafter ‘the Complainant’)applied for the allotment of a five-bedroom apartment in this project andpaid a sum of Rs.1,03,31,250/- towards the total tentative price ofRs. 3,93,25,000/-. Later, a tripartite flat buyer agreement (hereinafter‘Tripartite Agreement’) was executed between the Developer, CHB,and the Complainant on 23.04.2008. Clause 9(a) of this agreement statedthat the construction of the flat was likely to be completed within aperiod of 36 months from the signing of the Development Agreementbetween CHB and the Developer, i.e., 06.10.2006.

3.3 Having received no intimation from the Developer about thestatus of the project, between September-October 2009, the Complainantinquired and found that construction had not been commenced at theproject site. Consequently, he sought a refund of the deposit amount ofRs.1,03,31,250 with interest at 20% p.a. When the refund was not made,the Complainant approached the National Commission on 24.02.2011. Itis crucial to note here that similar complaints were filed by other flatbuyers before the State Commission and the National Commission.

3.4 Before the National Commission, it was the case of theDeveloper that the construction could not be carried out in time, as CHBhad failed to hand over the possession of unencumbered land to it forraising the construction. On the contrary, CHB argued that disputes onlyexisted for land earmarked for commercial activities, and there was nodispute with respect to the 123 acres of land handed over to theDeveloper for the construction of residential units. Therefore, it wascontended by CHB that the Developer was liable to satisfy the claim ofthe flat buyer and the complaint was bad as against CHB for misjoinderof party. Notably, the dispute between the Developer and the CHB withrespect to the Development Agreement was referred to arbitration.

3.5 Pending the arbitration proceedings, the National Commissionpassed an order in a similar matter on 05.03.2013, noting that the flatbuyers could not be deprived of their legitimate claims due to an inter sedispute between CHB and the Developer. Observing that the Developerhad failed to construct the residential units and hand over possession in A

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Atime, the National Commission passed an interim order directing theDeveloper to pay compensation to the flat buyer in terms of Clause 9(c)of the Tripartite Agreement at Rs. 107.60 per sq metre, subject to thefinal outcome of the arbitration proceedings. Further, in terms of Clause9(d) of the Tripartite Agreement, the Developer and CHB were directedto pay interest at the uniform rate of 9% p.a. on the amount to be refundedBto the flat buyers in the ratio of 70:30.

3.6 Finally, on 09.01.2015, the learned arbitrator passed an awardin the arbitration proceedings between CHB and the Developer. Theaward specifically noted that since the flat buyers were not party to thearbitration, the award would only bind CHB and the Developer, and theCentitlement of the residential flat buyers would have to be decided basedon the facts of each case in independent proceedings. However, withrespect to the liability to refund the advances collected from the residentialunit buyers, the learned arbitrator found that the non-completion of theproject was a result of breaches committed by both, the Developer andDCHB. Therefore, he directed that any amount payable on account ofrefund of price, interest, or compensation (if and when finally determinedby the National Commission or the Supreme Court) would be borne bythe Developer and CHB in the ratio of 70:30.

3.7 Meanwhile, an order was passed by a 3-judge Bench of thisECourt on 21.04.2015 in an SLP filed against the order of the NationalCommission dated 05.03.2013 and other connected matters. Dismissingthe SLP, the Court took note of the arbitration award dated 09.01.2015and observed that Clause 9(c) of the Tripartite Agreement, whichstipulates the payment of compensation, would only be applicable asagainst the Developer if it is not in a position to offer a flat to the buyerFafter the expiry of 36 months as stated in Clause 9(a) of the TripartiteAgreement.

3.8 Finally, vide the impugned order dated 11.05.2016, the NationalCommission disposed of the consumer complaint filed by RespondentNo. 2 herein. Taking into account the observations in the final arbitralGaward attributing responsibility of breach of the Development Agreementto the Developer and CHB, as well as the fact that the Developer hadreceived the deposit sum from the Complainant long ago and had benefitedfrom it, the National Commission directed CHB and the Developer topay the principal sum of Rs. 1,03,31,250/- to the Complainant at 10%Hp.a. from the date of deposit till realization. Further, Rs. 1 lakh was awarded for mental harassment and another Rs. 1 lakh was awardedtowards litigation charges. Both of these were directed to be borne bythe Developer and CHB in the ratio of 70:30. The instant appeal hasbeen preferred by CHB against this order, contesting the liability fixedupon it with respect to the payment for litigation costs and mentalharassment, as well as the enhancement in interest rate.

4. Heard learned Counsel for the parties.

5. Learned Counsel for the Appellant (CHB) submitted that theimpugned order is liable to be set aside as it wrongly saddles CHB withthe liability to pay the Complainant 30% of the amount due towardsmental harassment and litigation costs. It is argued that such amount isin the nature of compensation and must therefore be borne by theDeveloper as Clause 9(c) of the Tripartite Agreement provides that theDeveloper shall be liable to pay compensation to the flat buyer at Rs.107.60 per sq metres in case of non-delivery of possession of theresidential units in time. Further, alluding to a revocation deed dated04.02.2015 entered into by CHB and the Developer after the arbitralaward, learned Counsel argued that all third party liabilities have nowbeen taken over by the Developer and can thus not be affixed on CHB.As far as the liability to return the principal amount is concerned, it wassubmitted that 30% of the principal sum has already been paid by CHBas per Clause 9(d) of the Tripartite Agreement. However, as regardsthe interest rate payable on the same, it was contended that the NationalCommission erred in enhancing the rate from 9% p.a. to 10% p.a. withoutgiving any reasons for the same.

6. Per contra, learned Senior Counsel for Respondent No. 1emphasized that the finding of the arbitrator that both the Developerand CHB are guilty of breach, and are therefore liable to make refundof price, interest, or compensation in the ratio of 70:30, should be givenutmost importance. This is because the order of the National Commissiondated 05.03.2013 passed in a similar matter, made the direction as to thepayment of compensation under Clause 9(c) subject to the outcome ofthe arbitration proceedings. Similarly, the interim order of this Court dated21.04.2015 affirms the findings in the arbitration award as to theinterpretation of Clause 9(c) of the Tripartite Agreement. Thus, it wasargued that in all these orders, the inter se apportionment of liability hasbeen relegated in terms of the arbitration award, and therefore, the ratioof 70:30 stipulated therein should be given effect. Further, learned Senior A

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ACounsel argued that Clause 9(c) was not made applicable to the instantcase, as this clause deals with compensation payable upon non-performance of obligations, which is different from the nature ofcompensation awarded in the impugned order.

7. In addition to this, learned Senior Counsel representing theBComplainant (Respondent No. 2) argued that the amount awarded tothe Complainant vide the impugned order is only in the nature of a general,lump sum amount and is not the compensation contemplated under Clause9(c) of the Tripartite Agreement. In any case, he submitted that an interse dispute between CHB and the Developer as to the apportionment ofliability should not come in the way of the Complainant’s right to receiveCcompensation.

8. Upon perusing the record and hearing the arguments advancedby the parties, two issues arise for our consideration in this appeal:

(a) whether the National Commission was right in directing theDpayment of amount towards mental harassment and litigationcosts in the ratio of 70:30, or whether such amount falls withinthe purview of compensation under Clause 9(c) of the TripartiteAgreement so as to be paid solely by the Developer.

(b) whether the interest rate awarded on the principal sum wasErightly increased from 9% p.a. to 10% p.a.9. As regards the first issue, it would be useful to refer to therelevant portions of the Tripartite Agreement executed between theComplainant, CHB, and the Developer on 23.04.2008:

“9. (a) Construction of the residential units is likely to be completedFwithin a period of thirty six (36 months) of the signing of theDevelopment Agreement on 06.10.2006 between the Developerand CHB and/or as may be extended terms of the DevelopmentAgreement shall be subject to force majeure and circumstancesbeyond the control of the developer, and any restrain restrictionsfrom any Courts/Authorities. The delay in grant of developmentGclearances beyond 12 months of the signing of the DevelopmentAgreement shall not be counted towards the said portion of 36months.

…(c) In case possession of the built up area is not offered to thebuyer within a period of 36 months or extended period as stipulatedH

in sub-clause (a) above, the buyer shall be entitled to receive fromthe developer compensation @ Rs.107.60 per Sq. Mtrs. (Rs. 10/- per Sq. Ft.) of the super area of the unit per month and to noother compensation of any kind. In case the buyer fails to clearhis account and take possession of the unit within 30 days ofoffer, the buyer shall be liable to pay to the developer holdingcharges @ Rs. 107.60 per Sq Mtrs. (Rs. 10/- per Sq. Ft.) of thesuper area of the unit per month in addition to the liability to payinterest to the sellers and other consequences of default in payment.

(d) If as a result of any Rules or directions of the Government orif any competent authority delays, withholds, denies the grant ofnecessary approvals for the Project, or if due to any force majeureconditions, the developer is unable to deliver the unit to the buyer,the developer and CHB shall be liable to refund to the buyer theamounts received from the buyer with interest at the SBI termdeposit rate as applicable on the date of refund.”

From the above, it is evident that the Developer and CHB agreedto complete the construction of the residential units within a period of 36months from the date of signing of the Development Agreement on06.10.2006. In the event that such construction was not done, Clause9(c) would come into operation and the Developer would become liableto compensate the buyer at Rs. 107.60 per sq metre of the super area ofthe unit, per month.

10. A close reading of Clause 9(c) of the Tripartite Agreementindicates two salient features– first, the liability to pay compensationunder this Clause can only be affixed on the Developer if it fails to fulfillthe condition under Clause 9(a) and perform its obligations under theDevelopment Agreement, i.e. if it does not hand over the possession ofthe flat to the buyer within a period of 36 months from the date of signingof the Development Agreement. The second feature of Clause 9(c) isthat it envisages a fixed compensation of Rs. 107.60 per sq metre permonth to be paid to the flat buyer.

10.1 When the facts of the instant case are examined in light ofthese observations, it becomes clear that Clause 9(c) is not attracted inthe present case at all. First, there has been no fulfilment of the conditionunder Clause 9(a) for Clause 9(c) to come into operation. This is becausethe Developer never even began construction at the project site due tothe dispute with CHB about the encumbrances on the allotted land. Thus,

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Athe question of finishing such construction within the period mentionedunder Clause 9(a) does not even arise. Consequently, Clause 9(c), whichis concerned with the non-fulfilment of this obligation, is also not attracted.It is notable that the arbitrator has also arrived at a finding to this effectin his award dated 09.01.2015 as follows:

B“296. Consequently, if any amount is payable on account of refundof price, interest, or compensation (if and when finally determined),respondent is liable to bear and pay 30% thereof, the balance of70% being payable by the claimant (PDL). Article 14.2.5 no doubtmakes the developer solely and exclusively responsible to-residential unit buyers, but that is only in regard to nonperformanceCof its obligations. The said provision does not make claimantresponsible for the breaches committed by the respondent, norabsolve the respondent from liability for the consequences of its-defaults/breaches, which contributed to the nonperformance ofthe obligations by the developer towards the residential unit”buyers.D

(emphasis supplied)

Thus, given that the breach of the Development Agreement isattributable to both, CHB and the Developer, the failure to hand overpossession of the flat to the buyer cannot be said to be on account of theEnon-performance of the obligation of the Developer alone. Consequently,Clause 9(c) is not applicable to the present case. This reading of Clause9(c) has also been affirmed by this Court in its order dated 21.04.2015,and for the reasons mentioned supra, we do not deem it fit to interferewith the same.

10.2 Secondly, we find that the amount awarded by the NationalFCommission in the impugned order, i.e. Rs. 1 lakh each towards mentalharassment and litigation costs, cannot be read as compensationcontemplated under Clause 9(c) of the Tripartite Agreement. Evidently,the litigation costs cannot be construed as compensation. Even withrespect to the award of Rs. 1 lakh for mental harassment, we find thatGsuch amount is in the nature of a general, lump sum compensation, whichfalls short of qualifying as compensation under Clause 9(c). This isespecially because there is no mention of the stipulated fixed rate ofRs.107.60 per sq metre of the super area of the unit, per month in theimpugned order. Thus, the liability of paying a total of Rs. 2 lakhs underthose heads cannot be foisted on the Developer alone in terms of ClauseH9(c).

10.3 Hence, the contention of the learned Counsel for the Appellantthat the impugned order is liable to be set aside on the ground that theamount towards mental harassment and litigation costs is in the natureof compensation that is solely payable by the Developer in terms ofClause 9(c) of the Tripartite Agreement, cannot be accepted.

11. We also find that the Appellant’s reliance on the revocationdeed dated 04.02.2015 is misplaced, as para 4 of this deed clearly statesthat “the parties have accepted the award” and chosen to act inaccordance with the same. Thus, it cannot be argued that this revocationdeed displaces the arbitration award dated 09.01.2015 and the directiontherein for the Developer and CHB to pay compensation (if and whendetermined) in the ratio of 70:30. In any case, this revocation deed may,at best, arguably settle the rights and obligations or disputes between theparties in respect of the Development Agreement dated 06.10.2006. Inour considered opinion, such settlement of rights and obligations cannotbe extended in a manner that enables the Developer and CHB to wriggleout of their liability under the Tripartite Agreement with the Complainant.Thus, we find that the revocation deed dated 04.02.2015 cannot be invokedby the Appellant to escape its liability flowing from the TripartiteAgreement and the arbitration award dated 09.01.2015.

12. We also note that the finding in the arbitration award dated09.01.2015 as to the apportionment of liability between the Developerand CHB to pay the principal sum and general compensation, must begiven effect. To this extent, we find merit in the argument raised by thelearned Senior Counsel for Respondent No. 1 that the prior NationalCommission order dated 05.03.2013 and the subsequent order of thisCourt dated 21.04.2015 both relegate the inter se apportionment of liabilitybetween the Developer and CHB to the arbitration award. Thus, thesplit of 70:30 under the arbitration award must be given effect, havingattained finality.

13. In any case, we find that such division is well-founded as thesale proceeds from the flat buyers were apportioned in the same ratio of70:30 between the Developer and CHB. This is supported by the EscrowAgreement dated 01.06.2007 executed by CHB and the Developer inpursuance of the Development Agreement dated 06.10.2006. Clause4(b) of this Escrow Agreement provides that 30% of the sale proceedsin respect of the residential units would first be transferred to CHB, andthe remaining amount shall then be transferred to the Developer. Inview of this, we find that the amount directed to be paid by the National A

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ACommission in the impugned order must be paid by the Developer andCHB in the ratio of 70:30.

14. With respect to the second issue concerning the enhancementof interest rate, Clause 9(d) of the Tripartite Agreement is relevant. Asmentioned supra, this Clause requires the Developer and CHB to refundBthe amounts received from the buyer with interest if the Developer isunable to deliver the unit to the buyer due to non-approvals from thecompetent authorities. Here, under Clause 9(d), the parties are liable torefund the principal sum in the ratio of 70:30 as they had received thesale proceeds in the same ratio. It has been brought to our notice thatCHB has already paid 30% of the principal sum at 9% interest p.a. inCaccordance with the directions of the National Commission in order dated05.03.2013 passed in a similar matter. Notably, the interest rate wasrevised to 10% p.a. in the impugned order and has been challenged bythe Appellant. We do not find any reason to interfere with the same, asthe increase was made by the National Commission in exercise of itsdiscretionary power. It is possible that the National Commission choseDto enhance the interest rate in view of the fact that it had already imposedlesser compensation than the significantly higher compensation stipulatedunder Clause 9(c). Thus, the contention of the Appellant on this front isliable to be dismissed.

15. In view of the foregoing observations, we find that the NationalECommission was right in directing the Developer and CHB to pay theprincipal sum of Rs. 1,03,31,250/- at 10% p.a. to the Complainant herein.Further, it is found that the direction to pay Rs. 2 lakhs in toto towardsmental harassment and litigation costs in the ratio of 70:30 between theDeveloper and CHB, is also correct.FAccordingly, the instant appeal deserves to be dismissed. We notethat the Appellant herein (CHB) has already paid its share of the principalsum along with interest at 9% p.a. Further, in pursuance of the order ofthis Court dated 04.12.2019, the Developer has also deposited the amountawarded by the National Commission with interest at 10% p.a.. In viewof our findings, we now direct CHB to pay the remaining amount, i.e.G30% of the total Rs. 2 lakhs awarded by the National Commission to theComplainant towards mental harassment and litigation charges, as wellas an additional interest of 1% p.a. on its share of the principal sum. Thisamount shall be paid within a period of eight weeks from the date of thisorder. The instant appeal stands dismissed accordingly.H