Homebuyers can't seek reimbursement of home loan interest from developer for delay in completion of project: SC
A bench comprising Justices Sanjay Karol and Prasanna B Varale observed that there cannot be multiple heads under which damages or interest are awarded beyond what is contractually agreed between the homebuyer and the developer. The Court, referring to earlier judgments, emphasized that unless there are exceptional reasons, a builder or authority such as Greater Mohali Development Authority (GMADA) cannot be directed to reimburse the interest paid by the homebuyer on a housing loan.
The case involves homebuyer Anupam Garg, who had booked a flat in 2011 under the 'Purab Premium Apartments' housing scheme launched by GMADA (Greater Mohali Area Development Authority) in Sector 88, Mohali. Garg secured an application for a 2-BHK + Servant Room (Type II) apartment by paying ₹5.5 lakh as earnest money—10% of the total consideration of ₹55 lakh.
The allotment was conducted through a draw of lots on March 19, 2012, in which Garg was successful. A Letter of Intent (LOI) was issued to him on May 21, 2012, outlining the flat's price, payment schedule, potential plans, ownership terms, and possession timelines. The LOI promised possession by May 2015 and specified a refund with 8% interest in case of delay.
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However, due to slow progress, the buyer sought a refund in 2016. When GMADA refused, he approached the Punjab State Consumer Commission. In 2018, the commission directed GMADA to refund the amount with 8% interest, ₹60,000 for mental harassment, ₹30,000 in litigation costs, and reimbursement of home loan interest paid by the buyer. The National Consumer Disputes Redressal Commission (NCDRC) upheld this order in 2019.
Challenging the ruling, GMADA approached the Supreme Court, which partially overturned the earlier decisions.
'There cannot be multiple heads for awarding damages or interest beyond what is contractually agreed upon,' the bench, comprising Justices Sanjay Karol and Prasanna B Varale, observed. Citing its earlier decision in Bangalore Development Authority v. Syndicate Bank, the court reiterated that in the absence of exceptional reasons, developers or authorities like GMADA are not liable to reimburse home loan interest paid by buyers.
'A perusal of the judgment and orders of the Commissions does not reveal any exceptional or strong reasons for the interest on the loan taken by the respondents to be paid by GMADA. That apart, whether the buyers of the flat do so by utilizing their savings, taking a loan for such purpose or securing the required finances by any other permissible means, is not a consideration that the developer of the project is required to keep in mind. For, so far as they are concerned, such a consideration is irrelevant,' the order noted.
'The one who is buying a flat is a consumer, and the one who is building it is a service provider. That is the only relationship between the parties. If there is a deficiency or delay in service, the consumer is entitled to be compensated for the same. Repayment of the entire principal amount along with 8% interest thereon, as stipulated in the contract, alongside the clarification that there shall be no other liability on the authority, sufficiently meets this requirement,' it noted.
The court partially allowed GMADA's appeal, striking down the component related to reimbursement of home loan interest while upholding the rest of the relief granted by the consumer commissions. As a result, GMADA will not be required to deposit any additional amount, and the funds already held by the State Commission will be disbursed to the buyers.
'The Hon'ble Supreme Court has observed that the compensation payable to property buyers arises only on the principal sale consideration which had been paid by the buyer. Their observations were based on the case before them, and was therefore based on the time lost by the buyers,' said Yudhist Narain Singh, Senior Partner, YNS and Associates.
"However, the court has observed that in certain exceptional circumstances the interest on a loan paid to a financial institution may also be granted as compensation. Ordinarily, these cases may include those where it is held beyond an iota of doubt, that the property buyer was mislead into buying immovable property, and where the collusion or wrongdoing of a financial institution is clear," he added.
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