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April 03, 2019

SC Rules that One-Sided Clauses in Builder-Buyer Agreements Constaitute Unfair Trade Practice


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The Supreme Court recently held in the Pioneer Urban Land and Infrastructure Ltd. versus Govindan Raghavan case that one-sided clauses in the Apartment Buyer’s Agreement constituted unfair trade practice and that the flat buyer could not be bound by such terms.

The National Consumer Dispute Redressal Commission (National Commission) order directing the Appellant builder to refund the stipulated amount deposited by the Respondent homebuyer along with interest towards compensation was challenged by the present appeal.

The Appellant builder had to apply for the Occupancy Certificate within 39 months from the date of excavation, with a 180-day grace period, as per the terms of the builder-buyer agreement. The builder however failed to apply for the Occupancy Certificate within the stipulated period, due to which, a Consumer Complaint was filed by the respondent before the National Commission, claiming deficiency of service.

In view of the facts and circumstances of the case, the clauses in the Agreement were held to be entirely one-sided, unfair and not binding on the respondent flat buyer by the National Commission. The builder was accordingly directed to refund the amount along with interest towards compensation.

The aggrieved Appellant builder approached the Supreme Court, alleging that the flat purchaser was not entitled to refund of the amount deposited as the respondent – flat purchaser had not terminated the Apartment Buyer’s Agreement in accordance with Clause 11.5 (ii) of the Agreement stipulating that the allottee must terminate the Agreement by giving a termination notice of 90 days to the developer.

In view of the precedents and facts in the case, the two-Judge Bench of the Supreme Court upheld the National Commission’s order and dismissed the appeal.

The following essential observations were made by the Bench in the case:

• While referring to its judgment in the Fortune Infrastructure & Anr. Versus Trevor D’Lima & Ors case, the Supreme Court held that a person cannot be made to wait indefinitely for possession of the flat allotted to him, and is entitled to seek refund of the amount paid by him, along with compensation.

• In light of the clauses of the impugned Agreement and the facts of the present case, the Supreme Court was of the view that the Respondent Flat Purchaser had made out a clear case of deficiency of service on the part of the Appellant builder. In terminating the Apartment buyer’s agreement by filing a consumer complaint, the Respondent Flat Purchaser was justified, and could not be compelled to accept possession whenever offered by the builder. Refund of the money deposited by him, along with appropriate compensation could be sought by the Respondent Purchaser.

• Reference was made to the Law Commission of India’s 199th Report on ‘Unfair (Procedural & Substantive) Terms in Contract’, where the Law Commission recommended that a legislation be enacted to counter such unfair terms in contracts. The Report provided the draft legislation saying, “A contract or a term thereof is substantively unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of the parties.”

• While referring to the Apartment buyer’s agreement in the present case, the Supreme Court observed that stark incongruities between the remedies available to both parties had been revealed by the Agreement.

• A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder, the Court held in the case.

Therefore, the apex Court held that the terms of the Apartment buyer’s agreement in the present case were wholly one-sided and unfair to the Respondent flat purchaser. It held that the Respondent could not be sought to be bound by the appellant builder such one-sided contractual terms.

Access the entire case here:

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