Homebuyers Can't Claim 8% Interest Where Agreement Provides Delay Compensation: NCLT Kolkata

The Kolkata Bench of the National Company Law Tribunal (NCLT) has dismissed a plea by homebuyers seeking addition of 8% interest on the amounts paid by them to a developer, holding that such interest cannot be granted where the agreement already provides compensation for delay.

“Thus, it can be said that the RP is right in not including the statutory interest of 8% pa as per Regulation 16A(7) of the CIRP Regulations, when the contractual terms provide for compensation for not giving the possession to the allottee within the scheduled date," the tribunal said.

A coram of Judicial Member Bidisha Banerjee and Technical Member Siddharth Mishra was hearing an application filed by Abhijit Ghosh, authorised representative of 243 homebuyers of the Hiland Greens Phase II project, against Ashish Chhawchharia, resolution professional of Riverbank Developers Private Limited.

The insolvency process had been initiated by Canara Bank. The homebuyers said their total claims of around Rs 878 crore were reduced to about Rs 364 crore, admitted, with nearly Rs 531 crore not admitted. They said this was mainly because the resolution professional did not include 8% interest under Regulation 16A(7) of the CIRP Regulations.

The homebuyers argued that they were entitled to this 8% interest on every instalment paid by them from the date of payment, as it reflects the time value of money. They said this interest is a statutory entitlement under the insolvency framework and is separate from compensation for delay under the agreement.

The resolution professional opposed the claim, pointing out that the agreements already provided for delay compensation at ₹12.50 per sq ft per month. According to him, this already reflects the time value of money. The 8% interest under the regulations, he said, is only a notional addition meant for cases where such a component is not provided in the contract.

Agreeing with this, the tribunal said that interest is one form of compensation for the use of money, while compensation is a wider concept that can include such elements.

“It can be said that 'compensation' is a wider term than 'interest' and while interest is to compensate the time value of money, the word compensation has wider connotations and it may include amongst other things, the time value of money,” the triunal observed.

Referring to the Insolvency Code and the Insolvency Law Committee report, the tribunal said the 8% provision was introduced to give homebuyer transactions the character of a borrowing where agreements do not otherwise account for time value of money.

It emphasised that the regulation itself gives priority to contractual terms. “The wordings of Regulation 16A(7) of the CIRP Regulations are very clear which states that interest @ 8% pa will be paid 'unless a different rate has been agreed to between the parties.'”

In this case, the tribunal found that such a mechanism already existed. “Here, in the present case, a different rate has been agreed to between the parties to include the time value of money, and thus if the interest @ 8 % pa has been allowed to over and above the compensation paid, it will amount to double counting of the same interest.”

Relying on Supreme Court rulings, including GMADA v Anupam Garg, which referred to DLF Homes Panchkula, the Bench reiterated that once parties have agreed on how delay will be compensated, additional amounts for the same default cannot be granted without strong reasons.

The tribunal concluded, “It can be concluded that awarding both interest and compensation where no loss is shown other than for time value of money will amounts to double counting of the same interest component and will amount to unjust enrichment.”

It also noted that other issues raised by the homebuyers, including pre-payment interest, valuation reports, and consideration of decrees, had become infructuous.

The application was dismissed.