Builder Can't Terminate Allotment For Non-Payment Without Executing Agreement For Sale: MahaREAT

The Maharashtra Real Estate Appellate Tribunal (MHREAT) on 7 September held that a builder cannot accept more than 10% of the consideration for a flat without first executing and registering an Agreement for Sale under Section 13 of the Real Estate (Regulation and Development) Act, 2016 (RERA Act).

A Bench comprising Chairperson Justice S.S. Shinde and Member Shrikant M. Deshpande further held that a builder cannot terminate a homebuyer's allotment for non-payment when the builder itself has failed to execute the Agreement for Sale and imposed a Rs. 10 lakh penalty on the builder for violating Section 13. The Tribunal held:

“The allotment letter and payment receipts demonstrate the existence of a valid and concluded contract between the parties. The Respondent having accepted substantial payment towards the flat, could not have failed to execute and register the Agreement for Sale.”

The homebuyer booked a flat in the builder's project, Alta Monte Signet, in 2014. He paid Rs. 1.008 crore towards the total consideration of Rs. 2.77 crore. Despite receiving more than 30% of the consideration, the builder failed to execute and register an Agreement for Sale.

Due to the delay and lack of clarity regarding completion of the project, the homebuyer sought a refund. The builder refunded Rs. 20 lakh but retained the balance amount. The homebuyer then filed a complaint before MahaRERA seeking a refund with interest.

During the earlier proceedings, the parties entered into consent terms under which the homebuyer agreed to continue with the project. The builder agreed to execute and register the Agreement for Sale within one year, while the homebuyer agreed to pay Rs. 6 lakh per month towards the remaining consideration from June 2020.

The builder, however, failed to execute the Agreement for Sale. It continued to demand further installments and eventually terminated the homebuyer's allotment on the ground of non-payment.

MahaRERA dismissed the subsequent complaint, holding that the parties had already settled the earlier complaint through the consent terms. It also held that the second complaint was barred by the principle of res judicata.

The Tribunal held that Section 13 of the RERA Act prohibits a builder from accepting more than 10% of the consideration without first executing and registering an Agreement for Sale. Since the builder had already accepted more than 30% of the consideration without executing the agreement, the Tribunal held that its subsequent demands for further payment were legally impermissible.

It consequently held that the builder could not legally demand further instalments before executing the Agreement for Sale. It therefore found the termination of the allotment on the ground of non-payment illegal and held that the allotment continued to bind the parties.

The Bench also rejected the builder's contention that the second complaint was barred by res judicata. It observed that the builder had failed to comply with the consent terms. Its failure to execute the Agreement for Sale and hand over possession gave the homebuyer a fresh cause of action. Further, it held that the builder's continued violation of Section 13 amounted to an unfair trade practice and warranted a penalty under Section 61 of the RERA Act.

Therefore, the Tribunal directed the builder to refund Rs. 80.77 lakh to the homebuyer. It also ordered the builder to pay interest on Rs. 1.008 crore at 2% above SBI's highest MCLR from the respective dates of payment until 24 July 2018.

For the period from 25 July 2018 until the date of the order, the Bench directed the builder to pay interest at the same rate on the balance amount of Rs. 80.77 lakh. It also imposed a Rs. 10 lakh penalty under Section 61 of the RERA Act for violation of Section 13. It directed the builder to pay Rs. 50,000 as costs to the homebuyer and bear its own costs.

Accordingly, the MHREAT allowed the homebuyer's appeal, set aside the MahaRERA order and granted the refund with interest, along with the penalty and costs.