Landowner who signs MOU with builder is consumer, can demand compensation

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Jul 22, 2016 20:14 IST
(Representative image) A landowner who signs a memorandum of understanding with a builder to develop flats on his land is a consumer, the Supreme Court held on Friday. (Parveen Kumar/HT File Photo)

A landowner who signs a memorandum of understanding with a builder to develop flats on his land is a consumer and can demand compensation from the latter in case the developer fails to fulfil his promise to complete construction in time, the Supreme Court held on Friday.

The ruling gives relief to property-owners of small plots who often enter into a collaboration agreement with builders to redevelop their old property. Usually the understanding 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 proceedings can take years to end.

A bench headed by Justice Dipak Misra gave the judgement on a petition filed by a Hyderabad-based resident – Bunga Daniel Babu - who signed an agreement with a firm in July 2004 for constructing a multi-storied building comprising of five floors, with elevator facility and parking space.

The apartments were to be distributed in a manner that 40 per cent went to the owner and 60 per cent to the builder. Under the agreement the construction was to be completed within 19 months from the date of approval of the plans by the Municipal Corporation. In case of non-compliance, the developer was to pay Rs 2000 every month for each flat.

According to the petitioner the builder delayed the handing over of the flats by three years. To claim compensation for the loss the petitioner incurred, Babu dragged the builder to the district consumer forum under the Consumer Protection Act.

Though the district forum declared Bunga a consumer under the law, the State and National consumer panels held it otherwise. Both said Bunga had entered into a commercial contract with the builder and the transaction was not for his personal use.

“The MOU that was entered into between the parties even remotely does not indicate that it is a joint venture,” the bench said, remitting the case back to the State Commission to decide how much compensation is Baig entitled to.

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