Court’s Decision
The Supreme Court allowed the appeals filed by Greater Mohali Area Development Authority (GMADA), holding that GMADA was not liable to reimburse the interest paid by the complainants on home loans availed to fund flats in GMADA’s delayed housing project. While upholding the award of refund with 8% interest, as well as compensation for mental harassment and litigation costs, the Court held:
“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.”
Accordingly, the Court set aside that part of the NCDRC and State Commission’s orders which had directed GMADA to pay the interest on the housing loans taken by the complainants.
Facts
In 2011, GMADA launched a residential housing scheme titled “Purab Premium Apartments” in Sector 88, Mohali. One of the complainants applied for a 2-BHK+Servant Room flat and paid ₹5.5 lakhs as earnest money. Following a successful draw of lots on 19 March 2012, a Letter of Intent (LOI) was issued on 21 May 2012 detailing the payment schedule and terms of possession. The project was to be completed within 36 months i.e., by 21 May 2015.
However, as of May 2015, no significant development was evident at the site. The complainant chose to withdraw from the scheme and sought refund with interest as per the LOI. GMADA later issued an allotment-cum-possession letter in June 2016, but by then, the complainant had already approached the consumer forum alleging unilateral changes to the project and delay in possession.
Issues
- Whether GMADA was liable to refund the amount deposited with 8% interest for delay in possession of the flat.
- Whether GMADA could also be directed to reimburse the interest paid by the complainants on the housing loans taken to fund the flats.
Petitioner’s Arguments
GMADA contended that it was not legally liable to compensate the homebuyers for the interest they paid on the housing loans. It argued that its liability was limited to refunding the deposited amount along with 8% interest, as contractually agreed, and that imposing additional financial burdens without contractual or statutory basis was unjustified.
Respondent’s Arguments
The complainants argued that the Consumer Commissions were empowered to award compensation beyond the terms of the agreement to ensure complete justice. Since the delay in possession forced them to continue paying loan interest, GMADA should be made to reimburse the same as part of compensatory relief.
Analysis of the Law
The Court referred to its earlier ruling in Bangalore Development Authority v. Syndicate Bank, (2007) 6 SCC 711, which held that in the event of non-delivery of possession, an allottee is entitled to a refund with reasonable interest and, in appropriate cases, compensation. However, this entitlement must be just, reasoned, and fact-specific.
Additionally, in GDA v. Balbir Singh, (2004) 5 SCC 65, it was observed that compensation must be commensurate with the nature and extent of deficiency in service and cannot be uniform across cases. Compensation could take various forms including loss of rent, mental harassment, or inconvenience but must be based on objective findings.
The Court also relied upon DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda, (2020) 16 SCC 318, wherein it was emphasized that:
“There cannot be multiple heads to grant of damages and interest when the parties have agreed for payment of damages… exceptional and strong reasons [must exist] for… compensation at more than the agreed rate.”
Precedent Analysis
- Bangalore Development Authority v. Syndicate Bank, (2007) 6 SCC 711
– Laid down principles for refund and reasonable interest where there is a delay or cancellation in delivery of housing. - GDA v. Balbir Singh, (2004) 5 SCC 65
– Clarified that compensation must be awarded for proven deficiency, mental harassment, or pecuniary loss, but not arbitrarily. - DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda, (2020) 16 SCC 318
– Held that forums under the Consumer Protection Act cannot apply a thumb rule for awarding interest; compensation should not be under multiple overlapping heads unless justified. - Irrigation Department v. G.C. Roy, (1992) 1 SCC 508
– Emphasized the principle that deprivation of legitimate dues must be compensated reasonably, though not under duplicate heads.
The Court distinguished the case of GMADA v. Priyanka Nayyar, which was relied upon by the Commissions. There, ₹2 lakhs were granted as compensation because the complainant had paid higher loan interest—but not as reimbursement for loan interest. The Court held that reliance on this precedent to award actual loan interest repayment was misplaced.
Court’s Reasoning
The Supreme Court held that while consumer forums are empowered to grant compensation, such power must be exercised judiciously. In this case:
- The complainants were already compensated through refund with 8% interest, mental harassment costs, and litigation expenses.
- There was no justifiable basis for additionally directing GMADA to pay interest incurred by the homebuyers on their housing loans.
- Whether the complainants used savings or loans was immaterial to GMADA’s obligations under the housing scheme.
- Interest on housing loans falls under the private contractual relationship between the complainants and their banks and cannot be shifted to the developer unless specifically agreed or supported by strong exceptional reasons.
Conclusion
The Supreme Court allowed the appeal and set aside the direction to GMADA to pay the interest on housing loans. It upheld the rest of the order including refund with 8% interest, ₹60,000 as compensation for harassment, and ₹30,000 as litigation costs, along with dismissal of any further claim for reimbursement of loan interest.
The amount already deposited with the State Commission, excluding loan interest, was directed to be disbursed to the respondents.
Implications
This judgment draws a crucial boundary on the power of Consumer Commissions to award additional compensation. It reaffirms that developers cannot be burdened with liabilities unrelated to their contractual obligations, such as interest on personal loans of buyers, unless explicitly warranted by the facts or contract. It also guides future compensation awards to be rooted in actual deficiency and not generalized hardship.
