M/S. FORTUNE INFRASTRUCTURE (NOW KNOWN AS M/S. HICON INFRASTRUCTURE) & ANR. versus TREVOR D’LIMA & ORS. on 12 March 2018

[2018] 3 S.C.R. 273

M/S. FORTUNE INFRASTRUCTURE

(NOW KNOWN AS M/S. HICON INFRASTRUCTURE) & ANR.

v.

TREVOR D’LIMA & ORS.

(Civil Appeal Nos. 3533-3534 of 2017)

MARCH 12, 2018

[N. V. RAMANA AND S. ABDUL NAZEER, JJ.]

Consumer Protection Act, 1986 :

Complaint against developer of housing project – By thepurchaser of a flat in the project – Alleging deficiency in serviceand unfair trade practices for not having delivered the flat –National Consumer Disputes Redressal Commission allowed thecomplaint and directed the developers to refund the amount paidby the complainants and also to pay compensation and cost oflitigation – On appeal, held: Contractual damages are usuallyawarded to compensate an injured party to a breach of contractfor the loss of his bargain – This rule is more qualified when itcomes to real estate sector – Onus is on the seller to show his bonafides and best efforts in discharging the obligation – Mereunwillingness to carry out the duty could constitute bad faithsufficient for purchaser to claim damages – In the facts of the presentcase there is deficiency of service on part of the developer, whichentitles the complainant to damages/compensation – Generallydamages become due on the date when the breach of contract takesplace and assessed by the reference to the time of breach –However, the rule is flexible which needs to be assessed in the factsand circumstances of individual case – In the facts of the presentcase the damage need not be determined from the date of breach ofcontract – The compensation granted by the National Commissionhas surpassed the actual-loss based damages and has entered thedomain of gain-based remedy – Since the damages for thecontractual breach is compensatory, damages awarded should notbe excessive – Court needs to take a balanced approach so as toensure right compensation – Therefore compensation ofRs. 3,65,46,000/- granted by National Commission is reduced toRs. 2,27,20,000/- – Compensation.

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ADamages for commercial contracts – Under the Act –Determination of – Held: Under Consumer Protection Act damagesfor commercial contracts, need to be determined as per ContractAct – Contract Act, 1872 .

Partly allowing the appeals, the Court

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HELD : 1. The contractual damages are usually awarded tocompensate an injured party to a breach of contract for the lossof his bargain. This rule is more qualified when it comes to thereal estate sector. If the seller wants to limit their liability forbreach of contract under the aforesaid rule, they have to portrayCthat they have performed their obligation in a prudent manner.The onus is on the seller to show his best efforts and bona fidesin discharging the obligation. Even in the absence of fraud, mereunwillingness to carry out the duty could constitute bad faithsufficient for the purchaser to claim damages. [Paras 11 and12][280-F-H; 281-A]D

2. Whenever the builder has refused to perform thecontract without valid justification, the buyer is entitled forcompensation as he has been deprived of price escalation of theflat. Every breach of contract gives rise to an action for damages.Such amount of damages must be proved with reasonableEcertainty. [Para 19] [283-D]

3. Even under the Consumer Protection Act, 1986, thedamages for commercial contracts need to be determined as perthe Contract Act. [Para 16] [282-A]

4. In the facts and circumstances of the present case, thereFis deficiency of service on the part of the appellants, whichentitles the complainant to damages/compensation. Theappellants did not give any valid reasons as to why theytransferred the property to a third party, despite theircontractual obligation to the respondents (complainants). TheGobligation was on the appellants to show that he was unable totransfer the property to the respondent. Moreover, a personcannot be made to wait indefinitely for the possession of the flatsallotted to them and they are entitled to seek the refund of theamount paid by them, along with compensation. Although therewas no delivery period stipulated in the agreement, a reasonableH

time has to be taken into consideration. [Paras 14 and 15] [281-D-F]

5. The damages become due on the date when the breachof contract takes place, and are normally assessed by referenceto the time of breach. The aforesaid rule is based on the principlethat the injured party is presumed to be in knowledge of the breachas soon as it is committed and at that time he can take appropriatemeasures of mitigation to control the loss flowing from the breach.The courts may deviate from the aforesaid rule and fixappropriate date in facts and circumstance of a case if aforesaidpresumptions could not be established or it would not bereasonable to follow the rule. [Para 21] [283-F-H; 284-A]

6. Where a party sustains loss by reason of a breach ofcontract, the damages are to be granted so as to place thesuffering party in the same position as if the contract had beenperformed. In light of the above, the damages other thanconsequential loss have to be measured at the time of the breach.However, the aforesaid rule is flexible which needs to be assessedin facts and circumstances of individual case. [Para 22] [284-C-D]

7. Where there is non-delivery of the flat/house, and thedeveloper has refused to provide alternative and equivalentaccommodation, and the buyer lacks means to purchase asubstitute from the market, then in such circumstances,damages would not be reasonable to be assessed on the breachdate. [Para 21] [284-A]

8. In the present case, the complainants (respondents) tried to execute the agreement and sought for conveyance of theproperty through the NCDRC. In these circumstances, even inthe first appeal, offers were being made on behalf of appellants toconvey alternative properties, which were refused as beinginsufficient. Therefore, in the facts and circumstances of thepresent case, the damage need not be determined from the dateof breach of contract. [Para 22] [284-E]

9. Appellants have produced circle rates of properties inthe vicinity of the disputed flats, which vary from Rs. 18,655 perSq. Ft. to Rs. 25,787/- per Sq. Ft. Whereas the respondents haveproduced executed sale deeds in the nearby vicinity, which was A

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ARs. 65,000 per Sq. ft., Rs. 69,342/- per Sq. ft., Rs. 75,000/- perSq. Ft. and Rs. 88,050/- per Sq. Ft.. NCDRC has taken theminimum available market price as the reference point forawarding compensation at the rate of Rs. 65,000/- per Sq. Ft.Excessive reliance on the aforesaid sale deed may not beappropriate as the present property is a redevelopment of anBearlier property. Usually the real estate rates for re-developedproperties are on the lower side instead of green-field projects.[Para 24] [284-G-H; 285-A]

10. Thus, the claim of the respondents (complainants) asgranted by the NCDRC seems to surpass the actual-loss basedCdamages and enter the domain of gain-based remedy. It wouldnot be appropriate to grant such damages. There is no disputeabout the fact that damages for the contractual breach isgenerally compensatory arising out of the breach. Therefore, thedamages awarded should not be excessive and a court/tribunal Dneeds to take a balanced approach so as to ensure rightcompensation. [Para 25] [285-B-C]

11. It would be appropriate, just and reasonable that themarket rate be fixed at Rs. 50,000/- per Sq. Ft. (Rupees FiftyThousand per square feet) as the reference rate for determination Eof market price prevailing in the vicinity of the disputed property.Hence, the estimated market price would be Rs.4,14,20,000/-instead of Rs.5,38,46,000/- as granted by the NCDRC. However,there is no reason to interfere in respect of the compensationgranted for the parking space. [Para 26] [285-D-E]

FGhaziabad Development Authority v. Balbir Singh(2004) 5 SCC 65 : [2004] 3 SCR 68 – relied on.

Johnson and Anr. v. Agnew [1979] 1 All ER 883 –referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3533-3534 of 2017.

From the Judgment and Order dated 08.09.2016 and final Orderdated 03.11.2016 of the National Consumer Disputes RedressalCommission, New Delhi in Consumer Complaint No. 636 of 2015 and inReview Application No.273 of 2016 in Consumer Complaint No.636 of2015 respectively.

Raju Ramachandran, Sachin Dutta, Sr. Advs, Rishi Agrawala,Ms. Swati Sinha, Ms. Manisha Ambwani (for E.C. Agrawala), Advsfor the Appellants.

Abir Phukan, Ms. Marilyn Khakha (for V. Shyamohan), Advsfor the Respondents.

The Judgment of the Court was delivered by

N. V. RAMANA, J. 1. These appeals are filed against theimpugned orders, dated 08.09.2016 and 03.11.2016, passed by the NationalConsumer Disputes Redressal Commission [hereinafter ‘NCDRC’ forbrevity], in Consumer Complaint No. 636 of 2015 and Review ApplicationNo. 273 of 2016 in the Consumer Complaint No. 636 of 2015.

2. A few facts which are necessary for the disposal of this matterare that the appellants, in the year 2011, launched a residential housingproject by name ‘Hicons Onyx’, renamed as Fortune Residency, whichwas a re-development of Mohammadi House. The respondents bookeda flat bearing no. 202, 2[nd] Floor in ‘A’ wing, admeasuring 828.40 Sq. Ft.with one unit of parking-space. The total consideration for the flat wasRs. 1,93,00,000/-. It is alleged by the appellants, that due to increase inthe cost beyond what was expected, they transferred the project toanother company being M/s. Zoy Shelcon Pvt. Ltd. It is to be noted thatthe respondents have paid a sale consideration of Rs. 1,87,00,000/-.

3. In 2015, aggrieved by the fact that appellants were not willingto deliver the flat to them, the respondents approached NCDRC througha consumer complaint, being CC No. 636 of 2015, with following prayers-

a. To hold and declare the Opposite Parties to be guilty ofdeficiency in service and unfair trade practices as per theprovisions of the Consumer Protection Act, 1986

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Ab. To direct the Opposite Parties 1 to 4 to comply with theirstatutory obligations and to execute and register the Agreementfor Sale with the complainants in respect of flat No. 202 on the2[nd] floor admeasuring 828.40 Sq. Ft. with one car parking in thebuilding known as Hicon Onyx and since re-named as Fortuneresidency situated at plot no. F/1116-A, Village Bandra, St.BMartins Road Bandra (West), Mumbai 400 050 (Maharashtra).

c. To direct the Opposite Parties no. 1 to 4 to complete theconstruction of the building known as ‘Hicons Onyx’ sincerenamed as ‘Fortune residency’ and to hand over to thecomplainants vacant and peaceful possession of the Flat No.C202 on the 2[nd] floor admeasuring 828.40 Sq. Ft. with one carparking in the building known as Hicons Onyx and sincerenamed as Fortune residency situated at plot no. F/1116-A,Village Bandra, St. Martins road Bandra (West), Mumbai 400050 (Maharashtra) on receiving the balance considerationDamount of Rs. 6,00,000/-from the complainants Alternatively In the event of the Opposite Parties no. 1 to 4 having created third party interests in favour of the Opposite Party no. 5, todirect the Opposite parties no. 1 to 4 to hand over to thecomplainants any other flat of the same size quality andspecifications with one car parking in the same building ‘HiconsOnyx’ since re-named as ‘Fortune Residency’ or any flat of thesame size, quality and specifications with one car parking in thesame locality of the present building Hicons Onyx or FortuneResidency.

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f.To direct the Opposite Parties No. 1 to 4 jointly and severallypay to the complainants Rs.5,00,000/- (Rupees Five lakhs only)Gtowards compensation for the inconvenience and mental agonysuffered by the complainants due to the enormous delay inconstruction of the building, negligence and deficiency inservice of the Opposite Parties No. 1 to 4.

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g. To direct the opposite Parties No. 1 to 4 jointly and severally topay to the complainants the sum of Rs. 1,00,000/- (Rupees OneLakh only) being the Legal and other incidental expensesincurred by the complainants.

h. For such other and further relief as this Hon’ble Commissionmay deem fit and proper in the nature and circumstances of theabove numbered complaint.

4. The NCDRC has allowed the complaint and directed theappellants: 1. To refund the amount of Rs. 1,87,00,000/- which they havereceived from the complainants, within six weeks from the day of theimpugned judgment; 2. The appellants were further directed to pay asum of Rs. 3,65,46,000/- as compensation and Rs. 10,000/- as cost oflitigation to the complainants within six weeks from the day of theimpugned judgment; 3. The aforesaid amount was ordered to be paid at10% per annum from the date of the order till the actual date ofpayment. It may be noted that even the review against the aforesaidorder was dismissed by the NCDRC vide order dated 03.11.2016.

5. Having dissatisfied with the impugned orders passed by theNCDRC, appellants approached this Court through these civil appeals.

6. At the threshold it was brought to our notice that on 08.09.2016,when the matter was argued, on most of the other dates the appellantsremained unrepresented before NCDRC. Further the counselsrepresenting the appellants stated that their counsel appointed for theforum below did not file necessary pleadings except for a proformareply. Keeping in view of the above, they argued that this case should beremanded back to the NCDRC for fresh consideration. However, oncareful consideration of facts of this case, we are of the opinion that aremand may not be required at this stage. To put a quietus to thelitigation, the controversy can be adjudicated by this Court.

7. Learned counsel for the appellants, primarily submitted thatthe present appellants have transferred the project to a differentcompany thereby they should be discharged from any liability for nothanding over the disputed property to the answering respondents(Complainants). He further argued that, the present circle rate of thedisputed property is pegged at approximately half the price awarded bythe NCDRC. Lastly, he urged before this Court to consider the A

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Adownward trends shown in the real estate market which mandates alesser compensation, compared to the one awarded by the NCDRC.

8. Per Contra, the learned counsel appearing on behalf of theanswering respondents (Complainants) fully supported the reasoning ofthe NCDRC in coming to a conclusion that, the appellants hereinBprovided deficient service by delaying the handing over of the flat to thecomplainants. In all fairness, learned counsel for answering respondentshave admitted that prices as contemplated under the impugned order ofNCDRC are not reflective of the true market rates for similar flatsavailable in the near vicinity of the disputed flats.

C9. It would not be out of context to mention that during thehearing of this case, many attempts were made by both parties toamicably settle the issue concerning the quantum of compensation whichcould not fructify. Further we requested Shri. Raju Ramachandran,learned senior advocate, to use his good office to persuade parties tosettle the matter. Such an endeavour also could not impress upon theDparties and therefore this court was called upon to adjudicate the matter.

10. Having heard learned counsels on either side and perusing thematerials available on record, the issue that fall for consideration iswhether there is deficiency of service on the part of the appellants? Ifso, what is just and reasonable compensation?E

11. It is now well established that the contractual damages areusually awarded to compensate an injured party to a breach of contractfor the loss of his bargain. In the case of Johnson and Anr. V. Agnew,[1979] 1 All ER 883, the aforesaid case has clearly held as under- The general principle for the assessment of damages isFcompensatory, i.e. that the innocent party is to be placed, so faras money can do so, in the same position as if the contract hadbeen performed.

12. The aforesaid proposition remains to hold the field and hasbeen applied consistently. This rule is more qualified when it comes toGthe real estate sector. If the seller wants to limit their liability for breachof contract under the aforesaid rule, they have to portray that they haveperformed their obligation in a prudent manner. It may be noted that theonus is on the seller to show his best efforts and bona fides indischarging the obligation. It may be noted that even in the absence of H

fraud, mere unwillingness to carry out the duty could constitute bad faithsufficient for the purchaser to claim damages.

13. To decide whether the respondent ought to be awardedcompensation because of deficiency of service, it is important toconsider the meaning of deficiency as provided under Section 2(1)(g) ofthe Consumer Protection Act, 1986.

(g) “deficiency” means any fault, imperfection, shortcoming orinadequacy in the quality, nature and manner of performance which isrequired to be maintained by or under any law for the time being in forceor has been undertaken to be performed by a person in pursuance of acontract or otherwise in relation to any service; In light of the above definition, we have to examine whether thereis any deficiency in service, which entitles the complainant to damages/compensation.

14. In the present case, the appellants did not give any validreasons as to why they transferred the property to a third party, despitetheir contractual obligation to the respondents (complainants). Theobligation was on the appellants to show that he was unable to transferthe property to the respondent.

15. Moreover, a person cannot be made to wait indefinitely forthe possession of the flats allotted to them and they are entitled to seekthe refund of the amount paid by them, along with compensation.Although we are aware of the fact that when there was no deliveryperiod stipulated in the agreement, a reasonable time has to be takeninto consideration. In the facts and circumstances of this case, a timeperiod of 3 years would have been reasonable for completion of thecontract i.e., the possession was required to be given by last quarter of2014. Further there is no dispute as to the fact that until now there is noredevelopment of the property. Hence, in view of the above discussion,which draw us to an irresistible conclusion that there is deficiency ofservice on the part of the appellants and accordingly the issue isanswered. When once this Court comes to the conclusion that, there isdeficiency of services, then the question is what compensation therespondents/complainants is entitled to ?

16. Before we come to the aspect of quantum of compensation,it would be appropriate to look at the settled legal position concerning A

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Athe same. At the outset, we may note that even under the ConsumerProtection Act, 1986, the damages for commercial contracts need to bedetermined as per the Indian Contract Act.

17. It would be pertinent to note that in common law, claim fordamages is the rule and specific performance is an exception, while inBcivil law front, specific performance has traditionally been a primeremedy for the breach of contract.[1]

18. This Court in Ghaziabad Development Authority v. BalbirSingh, (2004) 5 SCC 65, has observed that there is no fixed formula forfixing damages in the following manner-C8.

8. However, the power and duty to award compensation does notmean that irrespective of facts of the case compensation can beawarded in all matters at a uniform rate of 18% per annum. Asseen above, what is being awarded is compensation i.e. arecompense for the loss or injury. It therefore necessarilyDhas to be based on a finding of loss or injury and has tocorrelate with the amount of loss or injury.Thus, the Forumor the Commission must determine that there has been deficiencyin service and/or misfeasance in public office which has resultedin loss or injury. No hard-and-fast rule can be laid down, however,a few examples would be where an allotment is made, price isEreceived/paid but possession is not given within the period set outin the brochure. The Commission/Forum would then need todetermine the loss. Loss could be determined on basis of loss ofrent which could have been earned if possession was given andthe premises let out or if the consumer has had to stay in rentedFpremises then on basis of rent actually paid by him. Along withrecompensing the loss the Commission/Forum may alsocompensate for harassment/injury, both mental and physical.Similarly, compensation can be given if after allotment ismade there has been cancellation of scheme without anyjustifiable cause.

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9. That compensation cannot be uniformand can best beillustrated by considering cases where possession is being directedto be delivered and cases where only monies are directed to bereturned. In cases where possession is being directed to be H1Apparent from the study of French Civil Code (FCC) and German Civil Code(BGB).

delivered the compensation for harassment will necessarily haveto be less because in a way that party is being compensated byincrease in the value of the property he is getting. But in caseswhere monies are being simply returned then the party issuffering a loss inasmuch as he had deposited the money inthe hope of getting a flat/plot. He is being deprived of thatflat/plot. He has been deprived of the benefit of escalationof the price of that flat/plot. Therefore, the compensationin such cases would necessarily have to be higher.…Weclarify that the above are mere examples. They are notexhaustive. The above shows that compensation cannot bethe same in all cases irrespective of the type of loss orinjury suffered by the consumer.

(emphasis supplied)

19. It must be noted that the law is well settled in this regard.Whenever the builder has refused to perform the contract without validjustification, the buyer is entitled for compensation as he has beendeprived of price escalation of the flat. Every breach of contract givesrise to an action for damages. Such amount of damages must be provedwith reasonable certainty.

20. Before we assess the damages, another important issue to bedelved upon is the reckoning date for the purpose of the assessing thedamages. Whether should it be from the date on which the breach tookplace or should it be from the date of judgment?

21. Learned counsel for the appellants, with some vehemence,argued that the rates of the property have considerably slumped due todownfall in the real-estate market. Such submissions are to be tested asper the established principles of law. As per the settled law, the damagesbecome due on the date when the breach of contract takes place, andare normally assessed by the reference to the time of breach. Theaforesaid rule is based on the principle that the injured party is presumedto be in knowledge of the breach as soon as it is committed and at thattime he can take appropriate measures of mitigation to control the lossflowing from the breach. The courts may deviate from the aforesaidrule and fix appropriate date in facts and circumstance of a case ifaforesaid presumptions could not be established or it would not be AB

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Areasonable to follow the rule. It may be noted that where there is non-delivery of the flat/house, and the developer has refused to providealternative and equivalent accommodation, and the buyer lacks meansto purchase a substitute from the market, then in such circumstances,damages would not be reasonable to be assessed on the breach date.

B22. We have already noted that the appellants were to performthe contract within a reasonable period of three years from the date ofthe agreement i.e., by the last quarter of 2014. Aggrieved by the delay inhanding over the possession, the respondents (complainants) approachedthe NCDRC for conveyance and in alternative prayed for damages. Itis now settled that where a party sustains loss by reason of a breach ofCcontract, the damages are to be granted so as to place the sufferingparty in the same position as if the contract had been performed. In lightof the above, the damages other than consequential loss have to bemeasured at the time of the breach. However, the aforesaid rule isflexible which needs to be assessed in facts and circumstances ofDindividual case. In this case at hand the respondents tried to execute theagreement and sought for conveyance of the property through theNCDRC. In these circumstances we may note that, even in the firstappeal, offers were being made on behalf of appellants to conveyalternative properties, which were refused as being insufficient.Therefore, in facts and circumstances of this case, the damage need notEbe determined from the date of breach of contract.

23. Even though the appellants raised a factual issue concerningthe non-payment of part-consideration, we do not think it is necessary togo into this aspect, as the NCDRC has given a categorical finding thatRs. 1,87,00,000/- has been paid by the respondents (complainants).F

24. Appellants have produced circle rates of properties in thevicinity of the disputed flats. These rates vary from Rs. 18,655 per Sq.Ft. to Rs. 25,787/- per Sq. Ft. Whereas the respondents have producedexecuted sale deeds in the nearby vicinity, which was Rs. 65,000per Sq.ft., Rs. 69,342/- per Sq. ft., Rs. 75,000/- per Sq. Ft. and Rs. 88,050/- perGSq. Ft. NCDRC has taken the minimum available market price as thereference point for awarding compensation at the rate of Rs. 65,000/-per Sq. Ft.We are of the opinion that excessive reliance on the aforesaidsale deed may not be appropriate as the present property is aredevelopment of an earlier property. Our attention has been drawn to H

the fact that usually the real estate rates for re-developed properties areon the lower side instead of green-field projects.

25. In light of the above, we consider that the claim of therespondents (complainants) as granted by the NCDRC seems tosurpass the actual-loss based damages and enter the domain ofgain-based remedy. Although we do not recognize any a prioprilimitations on such claim, but we do not think that it would be appropriateto grant such damages in the case at hand. There is no dispute about thefact that damages for the contractual breach is generally compensatoryarising out of the breach. Therefore, the damages awarded should notbe excessive and a court/tribunal needs to take a balanced approach soas to ensure right compensation.

26. Taking into consideration of factual aspects involved in thematter and on consideration of the submissions of the counsels on eitherside, we deem it appropriate, just and reasonable that the market rate befixed at Rs.50,000/- per Sq. Ft. (Rupees Fifty Thousand per square feet)as the reference rate for determination of market price prevailing in thevicinity of the disputed property. Hence, the estimated market price wouldbe Rs.4,14,20,000/- instead of Rs.5,38,46,000/- as granted by theNCDRC. However, we do not see any reason to interfere in respect ofthe compensation granted for the parking space.

27. Therefore, the appellants are directed as under-

a. To refund the amount of Rs. 1,87,00,000/- which they havereceived from the complainants.

b. To pay a sum of Rs. 2,27,20,000/- as compensation to thecomplainants.

c. To pay a sum of Rs. 20,00,000/- as compensation for one unit ofparking lot.

d. The appellants shall also pay Rs. 10,000/- as the cost oflitigation to the complainants.

e. The aforesaid amount is required to be paid within six weeksfrom the day of this order. If the payment in terms of this orderis not made within the time stipulated herein, it shall carryinterest of 9% per annum from the date of this order.

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A28. It is to be noted that this Court vide order dated 23.02.2017,while issuing notice, directed the appellants to deposit Rs. 2,50,00,000/-before NCDRC as a condition precedent for hearing this case. Later itwas represented to us that the appellants as on 31.05.2017, haddeposited the aforesaid amountbefore NCDRC. In view of the above,we allow the respondents (complainants) to withdraw the aforesaidBamount with accrued interest, if any and the same be adjusted to theappellants’ liability as indicated above.

29. In light of the above discussions, we allow the appeals in partto the extent indicated above. There shall be no order as to the costs.

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Kalpana K. Tripathy

Appeals partly allowed.

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