Homebuyer's Right To Compensation For Delayed Flat Delivery : Supreme Court Explains Principles
In a recent judgment in Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors., the Supreme Court clarified that while developers must refund the principal amount with interest to aggrieved homebuyers in cases of delay or non-delivery, they cannot be held liable for paying interest on the personal loans taken by buyers to finance their homes.In the decision, the Court...
In a recent judgment in Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors., the Supreme Court clarified that while developers must refund the principal amount with interest to aggrieved homebuyers in cases of delay or non-delivery, they cannot be held liable for paying interest on the personal loans taken by buyers to finance their homes.
In the decision, the Court also revisited Bangalore Development Authority v. Syndicate Bank [(2007) 6 SCC 711], where it had laid down a comprehensive set of principles governing the rights of allottees when faced with delays or non-delivery of plots, flats, or houses by development authorities.
Drawing from earlier landmark decisions like Lucknow Development Authority v. M.K. Gupta (1994) 1 SCC 243, Ghaziabad Development Authority v. Balbir Singh (2004) 5 SCC 65, Haryana Development Authority v. Darsh Kumar (2005) 9 SCC 449, and Ghaziabad Development Authority v. Union of India (2000) 6 SCC 113, the Supreme Court set out clear principles for deciding when an allottee is entitled to relief under the Consumer Protection Act, 1986, and what form that relief should take.
The principles laid down are as follows:
a) Refund with Interest
(a). Where the development authority having received the full price, does not deliver possession of the allotted plot/flat/house within the time stipulated or within a reasonable time, or where the allotment is cancelled or possession is refused without any justifiable cause, the allottee is entitled for refund of the amount paid, with reasonable interest thereon from the date of payment to date of refund. In addition, the allottee may also be entitled to compensation, as may be decided with reference to the facts of each case.
If the development authority fails to deliver possession after receiving full payment, or refuses possession without a valid reason, the allottee is entitled to a refund of the amount paid plus reasonable interest from the date of payment until refund. Additional compensation may also be awarded depending on the facts of the case.
b)Acceptance of Late Performance
(b) Where no time is stipulated for performance of the contract (that is for delivery), or where time is not the essence of the contract and the buyer does not issue a notice making time the essence by fixing a reasonable time for performance, if the buyer, instead of rescinding the contract on the ground of non-performance, accepts the belated performance in terms of the contract, there is no question of any breach or payment of damages under the general law governing contracts. However, if some statute steps in and creates any statutory obligations on the part of the development authority in the contractual field, the matter will be governed by the provisions of that statute.
If no time is specified for delivery or if time is not the essence, and the buyer accepts late delivery instead of canceling the contract, then there's no breach or damages under general contract law. However, if a statute imposes specific obligations, then statutory provisions apply.
c)Alternative Site or Justifiable Delay
(c) Where an alternative site is offered or delivered (at the agreed price) in view of its inability to deliver the earlier allotted plot/flat/house, or where the delay in delivering possession of the allotted plot/flat/house is for justifiable reasons, ordinarily the allottee will not be entitled to any interest or compensation. This is because the buyer has the benefit of appreciation in value.
If the authority offers or delivers an alternative plot at the agreed price, or if delay is justifiable, the allottee generally cannot claim interest or compensation, since property values may have appreciated in the meantime.
d)Mental Agony and Suffering
(d) Though the relationship between Development Authority and an applicant for allotment is that of a seller and buyer, and therefore governed by law of contracts, (which does not recognise mental agony and suffering as a head of damages for breach), compensation can be awarded to the consumer under the head of mental agony and suffering, by applying the principle of Administrative Law, where the seller being a statutory authority acts negligently, arbitrarily or capriciously.
Even though contract law doesn't usually recognize damages for mental agony, the Court held that compensation can be awarded under the administrative law principle if the authority acts negligently, arbitrarily, or capriciously.
e)Alternative Allotment at Higher Price
(e) Where an alternative plot/flat/house is allotted and delivered, not at the original agreed price, but by charging current market rate which is much higher, the allottee will be entitled to interest at a reasonable rate on the amount paid towards the earlier allotment, from the date of deposit to date of delivery of the alternative plot/flat/house. In addition, he may be entitled to compensation also, determined with reference to the facts of the case, if there are no justifiable reasons for non-delivery of the first allotted plot/flat/house.
If an alternative plot is given at a current market rate (much higher than the original price), the allottee is entitled to interest on the earlier payment from deposit to delivery of the alternative plot, plus possible compensation if the original delay was unjustified.
f) Price Revision and Excess Charges
(f) Where the plot/flat/house has been allotted at a tentative or provisional price, subject to final determination of price on completion of the project (that is acquisition proceedings and development activities), the Development Authority will be entitled to revise or increase the price. But where the allotment is at a fixed price, and a higher price or extra payments are illegally or unjustifiably demanded and collected, the allottee will be entitled to refund of such excess with such interest, as may be determined with reference to the facts of the case.
If the initial price was provisional (subject to revision after development), the authority can increase the price. But if the price was fixed and the authority unjustifiably demanded extra money, the allottee can claim a refund of the excess plus interest.
g) Delay in Execution of Title Deed
(g) Where full payment is made and possession is delivered, but title deed is not executed without any justifiable cause, the allottee may be awarded compensation, for harassment and mental agony, in addition to appropriate direction for execution and delivery of title deed.
If full payment is made and possession is given but the authority delays execution of the title deed without cause, the allottee can get compensation for harassment and mental agony along with a direction to execute the deed.
h) Defective Construction
(h) Where the allotment relates to a flat/house and construction is incomplete or not in accordance with the agreed specifications, when it is delivered, the allottee will be entitled to compensation equivalent to the cost of completing the building or rectifying the defects.
If a flat or house is delivered with incomplete construction or deviations from agreed specifications, the allottee is entitled to compensation equal to the cost of completing or rectifying the work.
i) Quantum of Compensation
(i) The quantum of compensation to be awarded, if it is to be awarded, will depend on the facts of each case, nature of harassment, the period of harassment and the nature of arbitrary or capricious or negligent action of the authority which led to such harassment.
The amount of compensation depends on the facts of each case, including the type and period of harassment and the authority's conduct.
j) Factors Courts Should Consider
(j) While deciding whether the allottee is entitled to any relief and in moulding the relief, the following among other relevant factors should be considered :
(i) whether the layout is developed on 'no profit no loss' basis, or with commercial or profit motive;
(ii) whether there is any assurance or commitment in regard to date of delivery of possession;
(iii) whether there were any justifiable reasons for the delay or failure to deliver possession;
(iv) whether the complainant has alleged and proved that there has been any negligence, shortcoming or inadequacy on the part of the developing authority or its officials in the performance of the functions or obligations in regard to delivery; and
(v) whether the allottee has been subjected to avoidable harassment and mental agony.
When deciding whether to grant relief to an allottee, courts should consider whether the project was meant to make a profit or just recover costs, whether there was any promise about when the property would be delivered, whether there were valid reasons for the delay, whether the development authority or its officials were negligent or failed to do their job properly, and whether the buyer suffered harassment or mental agony because of the delay.
Thus, these principles elaborated the rights of allottees when faced with delays or non-delivery of plots, flats, or houses by development authorities. This decision emphasized the importance of safeguarding the property rights of individuals and ensuring that development authorities fulfill their obligations fairly and responsibly.
Also from the judgment - Developer Not Liable To Pay Homebuyer's Bank Loan Interest For Delay In Flat Delivery : Supreme Court
Case Title: Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors.
Citation: 2025 LiveLaw (SC) 677