A landowner who signs a memorandum of understanding (MoU) with a builder to develop apartments on his land is a consumer, and can demand compensation under the Consumer Protection Act if the developer fails to complete the work in time, the Supreme Court has held.
The ruling provides relief to owners of small plots who often enter into collaborative agreements with builders to re-develop their properties. The understanding usually involves distribution of flats between the owner and the real-estate firm. In case of a dispute, the parties have to approach the trial court – where the proceedings may run for years on end.
A bench headed by Justice Dipak Misra delivered the judgment on a petition filed by Bunga Daniel Babu, a resident of Hyderabad.
In July 2004, Babu had signed an agreement with a firm for constructing a multi-storey building comprising five floors, elevator facilities and parking space. While 60% of the apartments were supposed to go to the builder, the owner could keep the remaining 40%. Under the agreement, the construction had to be completed within 19 months from the date of approval by the municipal corporation – failing which the developer had to pay Rs 2,000 for each apartment every month.
According to the petitioner, the builder delayed handing over the apartments by three years but did not pay the stipulated compensation. To claim the money, he dragged the builder to the district consumer forum and attempted to invoke the Consumer Protection Act.
Although the district forum declared Babu a consumer under the law, the state and national consumer panels did not agree. Both said the landowner had entered into a commercial contract with the builder, and the transaction wasn’t meant for something of personal use. “The MoU that the parties entered into does not even remotely indicate that it is a joint venture,” the bench said, sending the case back to the state commission for a decision on how much compensation Babu was entitled to.