Mere Renting Of Residential Flat Does Not Take Away Buyer's Consumer Rights: Supreme Court

The Supreme Court of India has clarified that the mere act of leasing or renting out a residential flat does not by itself take a homebuyer outside the protection of consumer law.

The Court ruled that a buyer can be excluded from the definition of “consumer” only if it is established that the dominant purpose of purchasing the flat was commercial in nature.

The ruling arose from a dispute relating to a residential project in Gurugram.

A Bench of Justices Prashant Kumar Mishra and N.V. Anjaria observed that even the purchase of immovable property, including multiple residential units, cannot ipso facto attract the exclusion clause under consumer law unless it is proved that the dominant purpose behind the purchase was commercial.

"The mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity. The question of what constitutes 'commercial purpose' is a question of fact to be decided in the circumstances of each case based on the purpose to which the goods/properties were purchased. It must be emphasized that the mere act of purchasing immovable property, even multiple units, cannot ipso facto attract the exclusion clause of Section 2(1)(d) of the 1986 Act unless and until it is proved that the dominant purpose behind such purchase was commercial in nature", the bench held.

The homebuyers had booked a residential flat in 2005 in “The Villas” project in Gurugram developed by MGF Developers. A flat buyer's agreement executed in 2006 stipulated that possession would be handed over within 36 months, by September 2009. The buyers alleged that the developer unilaterally changed the layout plan, raised repeated additional demands, and delayed the project. They eventually took possession of the flat in January 2015 under protest.

In 2016, a lease deed was executed in respect of the flat. In 2017, alleging delay, deficiency in service, and unfair trade practice, the buyers approached the National Consumer Disputes Redressal Commission seeking compensation and interest. The NCDRC dismissed the complaint on the ground that the flat had been leased out and was therefore purchased for a commercial purpose.

Setting aside the NCDRC's order, the Supreme Court held that subsequent leasing of the flat cannot determine the buyer's intention at the time of purchase. The Court held that the determinative question is whether the dominant intention behind purchasing the flat was to facilitate profit generation through commercial activity and whether there exists a close and direct nexus between the purchase and such activity.

The Court further held that once a buyer establishes that services were availed for consideration, the burden lies on the builder to prove that the transaction falls within the exclusion clause of “commercial purpose”. In this case, the Court noted that the flat was booked in 2005–06, while the lease deed was executed nearly a decade later in 2016, and that the developer had failed to place any cogent material on record to establish commercial intent at the time of purchase.

Observing that the consumer could not be denied buyer status merely because it was leased out later, the top court set aside the NCDRC order. 

For Appellant(s): Advocate-on-Record Krishnamohan K.; Advocate Priya; Advocate Dania Nayyar; Advocate Prerna Jain Kala.

For Respondent(s): Senior Advocate Diya Kapoor; Advocate Yudister Singh; Advocate Akhil Sachar; Advocate Siddhartha Iyer; Advocate-on-Record Aman Gupta; Advocate Srishti Ghoshal; Advocate Tonmoy Talukdar; Advocate Payal Rani; Advocate-on-Record Sonakshi Malhan.