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CASE NO.: Appeal (civil)  5462 of 2002

PETITIONER: Bangalore Development Authority

RESPONDENT: Syndicate Bank

DATE OF JUDGMENT: 17/05/2007

BENCH: P. K. Balasubramanyan & R. V. Raveendran

JUDGMENT: J U D G M E N T

R. V. RAVEENDRAN J.

       This appeal by Special Leave is filed against the order dated  11.04.2002, passed by the National Consumer Dispute Redressal  Commission (’Commission’ for short) in O.P.No. 21 of 1995.   

The Facts

2.      The Banglore Development Authority (Appellant herein, ’BDA’ for  short) introduced a "Self Financing Housing Scheme" for construction of  flats/houses in Banglore in the year 1982.   The said Scheme contemplated  construction of three types of flats/houses categorized as Higher Income  Group, Middle Income Group, and Low Income Group (’HIG’, ’MIG’, and  ’LIG’ for short).  Under the said scheme an applicant for allotment was  required to make an initial deposit of 15% of the cost of the unit and pay the  balance in eight quarterly instalments of 10% and the last instalment of 5%.   

3.      Syndicate Bank (’Respondent’ herein) made an application dated  17.7.1982 for allotment of 250 flats/houses under the said scheme, that is, 15  ’HIG’ Houses, 110 ’MIG’ units and 125 ’LIG’ units. BDA registered the  request for allotment of 15 HIG Houses, vide confirmation letter dated  20.8.1984. This appeal relates to delay in delivery of 11 HIG houses at  R.M.V. Extension, Bangalore.  

4.      BDA had initially fixed the tentative price of a HIG house as  Rs.2,85,000/-. The price was revised to Rs.4.75 lakhs per unit (Rs.5.5 lakhs  in respect of corner units). By letter dated 22.08.1985, BDA informed the  respondent about the revision of price of HIG Houses from Rs.2.85 lakhs to  4.75 lakhs per unit.  BDA also indicated the total amount due in respect of  15 HIG Houses and required the Respondent to pay the said amount in  installments as shown in the Annexure thereto.  BDA also informed the  Respondent that the units would be ready for occupation in December, 1986.  As respondent did not pay the instalments, BDA sent a letter dated  20.10.1986 demanding payment. By letter dated 27.5.1987, BDA informed  Respondent that 15 Houses (including three corner houses) had been allotted  to Respondent on 16.1.1987 and furnished the numbers of the houses  allotted.  

5.      A sum of Rs.98,85,210/- paid by the Respondent towards the cost of  LIG units became refundable to respondent, on account of surrender of  allotment of the 125 LIG units. The cost of 15 HIG houses was Rs.73.5  lakhs (that is, three corner units at the rate of Rs.5.5 lakhs each and 12 other  units  at the rate of Rs.4.75 lakhs each).  The respondent had paid a sum of  Rs.19,33,925/- in advance towards the cost of the 15 H.I.G. houses and the  balance due was Rs.54,16,075/-.  By letter dated 15.5.1989, BDA adjusted

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and appropriated the said sum of Rs.54,16,075/- (due in respect of 15 HIG  Houses) and a sum of Rs.21,66,250/- (due in respect of MIG Units), from  out of Rs.98,85,210/- paid towards LIG units, and refunded the balance of  Rs.23,02,885/- to the Respondent.  Thus it would be seen that the cost of  H.I.G. units was received by BDA only on 15.05.1989.

6.      BDA delivered 4 HIG houses in December, 1989 and May, 1990. The  completion of construction and delivery of remaining 11 H.I.G. houses (in  RMV Extension, Bangalore) was delayed. By letters dated 29.11.1989,  17.01.1990, 9.7.1993 and 11.1.1994, the Respondent pointed out the delay in  delivery of the HIG houses and requested for early delivery of possession of  the houses. Respondent also demanded interest on the price paid, at the bank  rate from 01.01.1986 till date the delivery of the houses apart from  reimbursement of the losses incurred on account of the non-delivery. When  the officers of the respondent met the officers of BDA personally to enquire  about the 11 Houses, they were informed that the delay was on account of  the contractor (M/s. Khoday Engineering) raising a dispute and stopping the  work in respect of part of the project, and assured that possession will be  delivered immediately after completion. The Respondent issued a final  notice dated 11.07.1994 through counsel demanding performance within one  month. When BDA failed, the respondent filed a complaint before the  Commission under section 21 of Consumer Protection Act, 1986 (’Act’ for  short).

Claim, defence and the decision  

7.      The Respondent sought the following reliefs against BDA, in its  complaint :           a)      Completion and due delivery of the remaining 11 HIG houses; b)      Payment of Rs.1,98,40,930/73 by way of interest on the sum of  Rs.53 lakhs being the price of the said 11  houses from  01.01.1986 to 31.12.1994 (the interest claimed at the bank rate  varying from 16.5% to 24.25% P.A. compounded quarterly);

c)      Payment of Rs. 16.5 lakhs as reimbursement of the rent paid by  the Respondent for 11 houses at the rate of Rs.3,000/- per house  per month from 01.01.1987  to 31.12.1994 (Note : Though for  96 months the amount works out Rs.31,68,000/-, claim was  restricted to Rs.16.5 lakhs which is the rent for 11 houses for 50  months);

d)      Payment of Rs.25,00,000/- as compensation for mental agony  and harassment;

e)      Payment of future interest at 19.5% P.A. on Rs. 53,00,000/-  plus Rs.33,000/- per month by way of reimbursement of the  rent, from 01.01.1995 till delivery of possession

8.      BDA resisted the claim both on the question of maintainability, as  also merits. In brief, the contentions were :

a)      It was not a service provider nor a seller of goods and the  respondent was not a ’consumer’ and therefore the complaint  under the Act was not maintainable.  

b)      The contract did not stipulate any period for completion and  delivery. Being a building contract, time was not the essence of  the contract. The project related to construction of 558 HIG  Houses. 490 houses were completed during 1989. The  contractor - M/s. Khoday Engineering, raised a dispute and  delayed the work relating to the remaining 68 houses (including  11 houses to be delivered to the respondent). After making all

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possible efforts to persuade the contractor to take up and  complete the work, it rescinded the contract with the contractor  by Resolution dated 15.2.1995 and took steps to get the work  completed through an alternative agency. The delay was thus  for reasons wholly beyond its control and unintentional, and  there was no breach.  

c)      It would complete and deliver the 11 houses within a short time  at the agreed price, though price of the houses had risen by 10  times.  

d)      As it was executing the self financing housing scheme on ’no  profit no loss’ basis, it should not be burdened with any  financial liability for any delay.  

e)      Even if it was treated as a service provider and the complaint  was held to be maintainable, as there was no negligence or  deficiency in service on its part, it was not liable to pay any  interest or compensation.

9.      During the pendency of the complaint before the commission, BDA  delivered one HIG house on 21.1.1997 and remaining 10 HIG houses on  12.3.1997. The Respondent thus secured the main relief sought in the  complaint. What remained was the claim for interest and compensation.  Parties led evidence by way of affidavits.  Neither party sought leave to  cross-examine the witness (deponent) of the other party. The Commission by  order dated 11.04.2002 allowed the complaint. It held :

a)      BDA had promised to deliver the houses to the Respondent by  December, 1986.

b)      In spite of respondent having made full payment and making  repeated demands, 11 houses were not delivered till the  complaint was filed in 1995. Thus there was deficiency of  service  on the part of BDA.  

c)      BDA had not placed any material on record to show why the  houses could not be completed and delivered between 1985 to  1991. The complainant was in no way concerned with the  dispute between BDA and its contractor and the consequential  delay. Even though the 11 houses were delivered in 1997 after  the complaint, BDA was guilty of deficiency in rendering  service.

In view of the said findings, following its decision in HUDA Vs. Darsh  Kumar [Revision Petition No. 1197/1998 dated 31.8.2001], it directed the  appellant to pay interest at 18% per annum on Rs.53,00,000/- (the  approximate price of 11 HIG Houses) commencing from the expiry of two  years after the deposit of last instalment of Rs.53 lakhs up to date of handing  over the possession.  The said order is challenged in this appeal.

The principles

10.     Where a Development Authority forms layouts and allots plots/flats  (or houses) by inviting applications, the following general principles  regulate the granting of relief to a consumer (applicant for allotment) who  complains of delay in delivery or non-delivery and seeks redressal under the  Consumer Protection Act, 1986 (’Act’ for short) -  [vide : Lucknow  Development Authority vs. M. K. Gupta - 1994 (1) SCC 243, Ghaziabad  Development Authority vs. Balbir Singh - 2004 (5) SCC 65, and Haryana

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Development Authority vs. Darsh Kumar - 2005 (9) SCC 449, as also  Ghaziabad Development Authority vs. Union of India - 2000 (6) SCC 113]:

(a)     Where the development authority having received the full price, does  not deliver possession of the allotted plot/flat/house within the time  stipulated or within a reasonable time, or where the allotment is cancelled or  possession is refused without any justifiable cause, the allottee is entitled for  refund of the amount paid, with reasonable interest thereon from the date of  payment to date of refund. In addition, the allottee may also be entitled to  compensation, as may be decided with reference to the facts of each case.  

(b)     Where no time is stipulated for performance of the contract (that is for  delivery), or where time is not the essence of the contract and the buyer does  not issue a notice making time the essence by fixing a reasonable time for  performance, if the buyer, instead of rescinding the contract on the ground of  non-performance, accepts the belated performance in terms of the contract,  there is no question of any breach or payment of damages under the general  law governing contracts. However, if some statute steps in and creates any   statutory obligations on the part of the development authority in the  contractual field, the matter will be governed by the provisions of that  statute.   

(c)     Where an alternative site is offered or delivered (at the agreed price)  in view of its inability to deliver the earlier allotted plot/flat/house, or where  the delay in delivering possession of the allotted plot/flat/house is for  justifiable reasons, ordinarily the allottee will not be entitled to any interest  or compensation. This is because the buyer has the benefit of appreciation in  value.

(d)     Though the relationship between Development Authority and an  applicant for allotment is that of a seller and buyer, and therefore governed  by law of contracts, (which does not recognise mental agony and suffering  as a head of damages for breach), compensation can be awarded to the  consumer under the head of mental agony and suffering, by applying the  principle of Administrative Law, where the seller being a statutory authority  acts negligently, arbitrarily or capriciously.

(e)     Where an alternative plot/flat/house is allotted and delivered, not at  the original agreed price, but by charging current market rate which is much  higher, the allottee will be entitled to interest at a reasonable rate on the  amount paid towards the earlier allotment, from the date of deposit to date of  delivery of the alternative plot/flat/house. In addition, he may be entitled to  compensation also, determined with reference to the facts of the case, if  there are no justifiable reasons for non-delivery of the first allotted  plot/flat/house.   

(f)     Where the plot/flat/house has been allotted at a tentative or  provisional price, subject to final determination of price on completion of  the project (that is acquisition proceedings and development activities), the  Development Authority will be entitled to revise or increase the price.  But  where the allotment is at a fixed price, and a higher price or extra payments  are illegally or unjustifiably demanded and collected, the allottee will be  entitled to refund of such excess with such interest, as may be determined  with reference to the facts of the case.  

(g)     Where full payment is made and possession is delivered, but title deed  is not executed without any justifiable cause, the allottee may be awarded  compensation, for harassment and mental agony, in addition to appropriate  direction for execution and delivery of title deed.  

(h)     Where the allotment relates to a flat/house and construction is  incomplete or not in accordance with the agreed specifications, when it is  delivered, the allottee will be entitled to compensation equivalent to the cost  of completing the building or rectifying the defects.           

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(i)     The quantum of compensation to be awarded, if it is to be awarded,  will depend on the facts of each case, nature of harassment, the period of  harassment and the nature of arbitrary or capricious or negligent action of  the authority which led to such harassment.  

(j)     While deciding whether the allottee is entitled to any relief and in  moulding the relief, the following among other relevant factors should be  considered : (i) whether the layout is developed on ’no profit no loss’ basis,  or with commercial or profit motive; (ii) whether there is any assurance or  commitment in regard to date of delivery of possession; (iii) whether there  were any justifiable reasons for the delay or failure to deliver possession;  (iv) whether the complainant has alleged and proved that there has been any  negligence, shortcoming or inadequacy on the part of the developing  authority or its officials in the performance of the functions or obligations in  regard to delivery; and (v) whether the allottee has been subjected to  avoidable harassment and mental agony.    Whether Respondent is entitled to interest?

11.     At the outset, we may notice that there is some vagueness in the order  of the Commission, in regard to the period for which interest is awarded.  The Commission has awarded interest at the rate of 18% per annum  commencing from the expiry of two years after the deposit of ’last  instalment’ of Rs.53 lakhs. The sum of Rs.53 lakhs was not paid in  instalments as assumed by the Commission. BDA recovered Rs.54,16,075/-  due towards the cost of 15 HIG Houses by adjustment and appropriation  from the amount which had became refundable to the Respondent on  account of surrender of allotment in regard to LIG units. Such adjustment  was made on 15.5.1989 and for all purposes, that is the date of payment of  price of the HIG Houses. As the houses were delivered in January/March,  1997, the direction issued by the Commission would mean that BDA had to  pay interest at the rate of 18% per annum from 15.5.1991 to January/March,  1997 which works out to about Rs.55 lakhs. Because of the vagueness in the  direction regarding date of commencement of interest, the Respondent  contended that interest should be calculated from the expiry of two years  from the date of payment of last instalment, which was in December, 1985  (which was in respect of LIG units). Respondent contends that if interest is  so calculated the amount due as interest would be Rs.87.89 lakhs. Be that as  it may.  12.     The Commission has neither referred to the relevant facts nor drawn  proper inferences. There is no basis for the finding that BDA had agreed to  deliver the houses by December, 1986 or the finding that no reason was  shown for the delay in delivery. The allotment of 15 HIG Houses identified  by House numbers was only by resolution dated 16.1.1987 and  communicated to Respondent on 27.5.1987. The payment was only on  15.5.1989. Delivery could not, therefore, obviously be by the end of  December, 1986. If reasonable period for construction is to be reckoned as  two years (as assumed by the Commission), then the question of delay  would  arise only after 15.5.1991. The Commission also assumed that mere  delay automatically meant deficiency in service and in all such cases, the  allottee will be entitled to interest at 18% per annum from the date of  payment till date of delivery by relying on its decision in HUDA vs. Darsh  Kumar. The decision of the Commission in HUDA vs. Darsh Kumar was  held to be unsustainable by this Court, on appeal in HUDA vs. Darsh Kumar  [2005 (9) SCC 449]. This Court held that there cannot be uniform award of  interest at 18% per annum in all cases and that in cases of complaints of  deficiency in service by a development authority relating to allotment of  plots/flats, the principles laid down in Balbir Singh (Supra) should be  applied. Therefore, the decision of the Commission under appeal, based on  its earlier decision in Darsh Kumar, cannot be sustained.  

13.     As already noticed, where the grievance is one of delay in delivery of  possession, and the Development Authority delivers the house during the  pendency of the complaint at the agreed price, and such delivery is accepted  by the allottee-complainant, the question of awarding any interest on the

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price paid by him from the date of deposit to date of delivery of possession,  does not arise. The allottee who had the benefit of appreciation of price of  the house, is not entitled to interest on the price paid. In this case, the 11  houses were delivered in 1997 at the agreed prices (Rs. 5.5 lacs per corner  HIG House and Rs.4.75 lacs per other HIG Houses).  In view of it, the order  of the Commission awarding interest at 18% per annum on the price of the  houses is unsustainable and liable to be set aside.  

Whether respondent is entitled to any compensation?

14.     This leads us to the next question as to whether the Respondent is  entitled to any compensation, to make good the loss caused to him on  account of the delay in delivery. The loss is the rental income which the  houses would have fetched if they had been delivered earlier from the agreed  due date to date of actual delivery of possession. Alternatively, it is the rent  paid by the Respondent for the houses taken on lease due to non-availability  of the allotted houses. The Respondent contends that it is entitled to  reimbursement of the rents paid by it in respect of 11 houses, on account of  the delay on the part of BDA in delivering the houses. It was submitted that  even if a reasonable time of two years is provided for construction from the  deemed date of payment (15.5.1989), BDA would be liable to compensate  the Respondent for the rent paid by it for 11 houses from 15.5.1991 till  January/March, 1997. Respondent alleged that it had to pay a rent of  Rs.3000/- per house or Rs.33000/- for 11 Houses, per month, due to the non- delivery of 11 HIG Houses. The Respondent submitted that the  compensation payable would therefore be around Rs.23 lakhs; and that as it  had restricted its claim to Rs.16,50,000/- in the complaint under this head,  the said amount may be awarded as compensation.  

15.     The Respondent did not produce any document to show that it paid  Rs.3,000/- per month per house for similar houses between 1991 and 1997.  Nor did it produce any evidence to show that Rs.3000/- was the prevailing  rent for similar houses. It is not the case of the Respondent that   documentary evidence for payment of rent was not available. Where  documentary evidence was available, but not produced, obviously a mere  statement in the affidavit cannot be the basis for award of damages.  

16.     The more serious issue is whether the facts and circumstances warrant  a finding of negligence and deficiency in service on the part of BDA  necessitating award of compensation. The brochure relating to the BDA  scheme did not mention any specific date for delivery of possession of the  houses. No agreement was entered into between the parties stipulating any  time for performance or delivery of houses. The only document on which  reliance     is     placed      by      the      respondent        is     a     letter     dated 22.8.1985 wherein BDA makes a reference to the expected date of  completion of construction while intimating the revised cost of the HIG  houses on account of escalation etc. The said letter stated that the total cost  of 15 HIG houses would be Rs.7125000/- and after adjustment of  Rs.1068750/-, the balance of Rs.6036250/- was payable in seven bi-monthly  instalments from November, 1985 to December, 1986, (the first six  instalments being Rs.862327/- and the last instalment being Rs.862288/-). It  also incidentally stated that the houses would be ready for occupation in  December, 1986. The instalments were not paid and respondent itself was  the defaulter. Nevertheless, BDA allotted 15 houses as per intimation dated  27.5.1987. In a self financing scheme, the instalments paid by the allottees  are used for construction. If an allottee does not pay the instalments, he  cannot obviously expect completion of construction. In this case, the  payment was received by BDA (without charging any interest) by way of  adjustment on 15.5.1989. Even if the reasonable period for construction is  taken as two years, BDA had to explain the ’delay’ only from 15.5.1991 and  not from 1985 as assumed by the Commission. BDA delivered four houses  in time, that is in 1989 and 1990. It did not deliver the remaining 11 houses,  as its contractor delayed execution of the work. It may be mentioned that the  project contemplated construction of 558 HIG houses and the work got stuck  only in regard to 68 houses (including the 11 houses to be delivered to the

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Respondent). When the respondent wrote letters in 1989, 1990, 1993 and  1994 and also got in touch with BDA officers, seeking possession, BDA  explained that the delay was on account of its contractor (M/s Khoday  Engineering) stopping work and raising a dispute. BDA took necessary  steps, and even sought government intervention, to persuade the contractor  to proceed with the work. Having failed in its effort, it ultimately cancelled  the contract with the contractor and got the work completed through an  alternative agency and immediately after completion, delivered the houses in  January/March, 1997.  

17.     We find that both parties - BDA as also the Respondent proceeded on  the basis that time was not the essence of the contract. In a contract  involving construction, time is not the essence of the contract unless  specified. Even when the respondent wrote the letters dated 29.11.1989,  17.1.1990, 9.7.1993 and 11.1.1994, it did not make time for performance the  essence of contract, nor fix any reasonable time for performance. The  Respondent did not also choose to terminate the contract, obviously in view  of the manifold increase in the value of the Houses. For the first time, by  notice dated 11.7.1994, it purported to make the time the essence, but  demanded delivery within an unreasonable period of one month and filed the  complaint on 4.2.1995. Thus, it cannot be said that the Respondent made  time the essence of contract, in a manner recognized in law. We also find  that the development authority was constructing these houses under a self- financing scheme on ’No-Profit No-Loss basis’ by using the  instalments/amounts paid by the allottees. The houses were delivered in  1997 at a price agreed in 1986.  By 1997, the value had gone up many times  (more than 10 times according to BDA). The Respondent had the benefit of  such rise in value. The respondent also failed to prove any negligence on the  part of BDA. In this factual background, we find it difficult to hold that there  was ’deficiency in service’ on the part of BDA entitling the respondent for  any compensation by way of interest or otherwise. Consequently, the  respondent is not entitled to any compensation.  

18.     We may also note that the respondent had also written letters dated  27.12.2005 and 25.1.2006 during the pendency of these appeals stating that  if the sale deeds were executed in respect of these 11 houses, it will  withdraw its claim against BDA. The sale deeds were not executed and the  matter is kept pending in view of the pendency of the dispute.   

Conclusion

19.     Before concluding, it is necessary to refer to one more contention  urged by BDA. It contended that when a person enters into a contract for  purchasing a house (land with building), from a Development Authority, the  allottee does not ’hire or avail of a service’ and is not a ’consumer’ under the  Act. It is contended that where the contract is for sale of a house (land with  building) as contrasted from a contract for construction of a house by a  contractor with the site-owner, the seller is not a service provider, and the  purchaser is not a consumer; and sale of land with a building constructed by  a development authority, involves neither sale of goods, nor hiring/availing  of any services. BDA had specifically raised this contention before the  Commission as a preliminary objection regarding maintainability of the  complaint. It appears that this contention was not pressed before the  Commission nor raised as a specific ground in the special leave petition, in  view of the decision of this Court in Lucknow Development Authority vs. M.  K. Gupta (Supra). In that case, a two-Judge Bench of this Court held that  where a development authority undertakes to construct buildings or allot  houses or building sites either as amenity or as benefit, it amounts to  rendering of a service and will be covered by the expression ’service made  available to potential users’  referred to in section 2(o) of the Act. But this  Court did not examine or deal with the question whether a contract for sale  of a house premises, (that is site with a constructed house), as contrasted  from a contract of construction  amounted to ’providing a service of any  description to a potential user including housing construction’. Be that as it  may. Though there appears to be some logic in the contention of BDA, we

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do not propose to decide the issue, as we are allowing this appeal on other  grounds, and as this contention was not specifically pressed before the  Commission. We leave this question open for decision in an appropriate  case.

20.     In view of the above, we allow this appeal and set aside the order  dated 11.4.2002 of the National Consumer Disputes Redressal Commission.  As the main prayer for completion and delivery of the houses was complied  with during the pendency of the complaint, and as we have held that  respondent is not entitled to interest or compensation, the complaint is  disposed of with a direction to BDA to complete the process of execution  and registration of sale deed/s in respect of the houses without claiming any  extra cost,  within  three  months  from  today.  The  cost  of  stamp duty and  

registration in respect of such sale deeds will be borne by the respondent.  Parties to bear their respective costs.