Regulators must check unethical clauses in consumer agreements
Builders are notorious for drawing up unjust and inequitable contracts that are highly skewed against the consumer; contracts that put homebuyers at a great disadvantage, extinguish some of their rights and cause them undue hardship, while granting unwarranted advantages to the builder.
Last week , the Supreme Court strongly censured such contracts and held them unenforceable, thereby strengthening the hands of consumers in general and home buyers in particular. Describing the contractual terms of the agreement between the builder and the consumer in this case as “one sided, unfair and unreasonable”, a bench of Justices U U Lalit and Indu Malhotra said: “A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder”.
The Supreme Court held that incorporation of such one-sided clauses in an agreement is an ‘unfair trade practice’ as per Section 2 (r) of the Consumer Protection Act, 1986.
This view of the Apex Court widens the scope of ‘ unfair trade practice’ under the CP Act and opens the door for consumers to challenge unfair terms in contracts, as an unfair trade practice..
Since the Consumer Protection Act also gives the consumer the right to be protected against unfair trade practices and empowers the consumer courts to award compensation and even punitive damages for any loss or injury caused on account of such practices, the Supreme Court’s interpretation of an unfair contract as an unfair trade practice also gives consumers in general and homebuyers in particular, the right to seek damages for unfair terms in contracts too.
The April 2 order of the Supreme Court was in response to two appeals filed by the builder -- Pioneer Urban Land & Infrastructure Ltd -- challenging the decision of the National Consumer Disputes Redressal Commission (in two cases) holding certain terms of the agreement drawn up by the builder to be patently one-sided and unfair and therefore not binding on the consumer. The Commission had, therefore, directed the builder, who had failed to hand over possession of the flat within the stipulated time, to refund the entire amount paid by the consumers along with 10.7 per cent interest.
This was contested by the builder on the grounds that the refund as well as the rate of interest contravened the terms of the agreement and, therefore, needs to be set aside. However, on examination of the agreement, the Supreme court found “stark incongruities between the remedies available to both the parties”.
For example, while the buyer had to pay 18% interest on delayed payments, the builder had to pay only 6 or 9% on delayed handing over of the flat. On cancellation of the agreement, the consumer got no interest on the money paid by him, if the builder paid within the notice period of 90 days.
The Supreme Court order should prompt the state regulators in the real estate sector to draw up clear guidelines on what constitutes an unfair and an unequal clause in an agreement and direct all builders to keep out such clauses.
Any term that is discriminatory or prejudicial to consumer interest should automatically become void and invite stringent regulatory action. There are enough provisions in the Real Estate (Regulation and Development) Act and Rules to do so. The Union ministry of Housing and Urban Affairs could actually prepare these guidelines, so as to ensure uniformity in all the States.
The exercise should of course not be restricted only to the real estate sector.
All the regulators in the country , including banking, insurance, health, transport and telecom, should also come up with stringent norms for preventing exploitative clauses in consumer agreements.