Offering Flat Possession To Homebuyers Without Occupancy Certificate Is Deficiency In Service: Supreme Court

The Supreme Court on Friday affirmed that developers cannot compel homebuyers to accept possession of flats without obtaining the requisite Occupancy Certificate (OC), ruling that such failure constitutes a “deficiency in service” under the Consumer Protection Act, 1986.

A bench of Justices B.V. Nagarathna and R. Mahadevan dismissed appeals filed by Parsvnath Developers Ltd challenging orders of the National Consumer Disputes Redressal Commission (NCDRC).

The dispute arose from consumer complaints filed by homebuyers in the “Parsvnath Exotica” project in Sector 53, Gurgaon. The buyers had executed Flat Buyer Agreements between 2007 and 2011 and paid nearly the entire sale consideration.

Under the agreements, possession was to be delivered within 36 months from commencement of construction, with a grace period of six months. As possession was not delivered within the stipulated period, the buyers approached the NCDRC.

By orders dated July 30, 2018 and November 21, 2019, the NCDRC directed the developer to complete construction, obtain the Occupancy Certificate, and hand over possession within specified timelines.

It also directed payment of compensation by way of simple interest at 8% per annum from specified cut-off dates till actual delivery of possession, payment of litigation costs of Rs. 25,000 in each case, and bearing of any increase in stamp duty occurring after stipulated dates. Certain directions regarding rebate and adjustments were also issued in individual cases.

Challenging these directions, the developer contended before the Supreme Court that the NCDRC had exceeded its jurisdiction by awarding compensation beyond the terms stipulated in the Flat Buyer Agreements.

Rejecting the contention, the Court held that the jurisdiction of consumer fora is statutory and cannot be curtailed by contractual terms operating to the detriment of consumers.

“The power of the consumer fora to grant just and reasonable compensation for deficiency in service is traceable to the statute and cannot be curtailed by contractual terms which operate to the detriment of the consumer. The award therefore represents a legitimate and permissible exercise of statutory jurisdiction,” the Court observed.

The bench noted that the delay in completion and handing over of possession was undisputed and that such failure amounted to deficiency in service.

“In the instant case, the delay in completion and handing over of possession is not disputed. Such failure constitutes deficiency in service. The NCDRC has examined the facts, assessed the extent of delay and its impact on the complainants, and determined compensation in the exercise of its powers conferred under the Act,” the Court said.

The court also referred to earlier precedents holding that failure to obtain an Occupancy Certificate before offering possession amounts to deficiency in service and that possession without such statutory approval cannot be forced upon buyers.

Affirming the NCDRC's orders, the Court directed the developer to obtain the requisite Occupancy Certificate and hand over possession in two of the appeals within six months, and to continue paying compensation as determined by the NCDRC until then.

In the third appeal, where possession had been taken on August 14, 2022, the court held that the buyers would be entitled to interest at 8% per annum from the agreed date of possession until that date, after adjusting amounts already paid.