A real estate developer is liable to compensate homebuyers for higher taxes and other charges that the latter are compelled to pay in absence of an occupation certificate (OC), the Supreme Court has held in a ruling that furthers the latter’s interest under the consumer protection law.
A bench, headed by justice Dhananjaya Y Chandrachud, said that a homebuyer shall come under the definition of “consumer” under the consumer protection law since failure of a builder to obtain occupation certificate is to be held as a “deficiency in service” under the legislation.
The bench, which also included justices A S Bopanna, rejected the argument that no obligation can be fastened on a developer since it does not receive municipal taxes or electricity charges as a service provider, and underlined that the higher charges are direct consequences of the builder’s lapses.
The bench was hearing a case filed by Samruddhi Co-operative Housing Society Ltd of Mumbai, which moved the national consumer commission in 2016 for refund of excess taxes and charges to the tune of ₹2.6 crore paid to municipal authorities due to the failure of the developer, Mumbai Mahalaxmi Construction Pvt Ltd, to obtain an occupation certificate for the flats.
Members of the society booked units in 1993 and were given possession of their units in 1997 but the builder failed to obtain an occupation certificate from the municipal authorities, forcing homebuyers pay a 25% higher amount on account of the property tax and an additional 50% towards the water charges to the authorities for want of the document.
{{/usCountry}}Members of the society booked units in 1993 and were given possession of their units in 1997 but the builder failed to obtain an occupation certificate from the municipal authorities, forcing homebuyers pay a 25% higher amount on account of the property tax and an additional 50% towards the water charges to the authorities for want of the document.
{{/usCountry}}The national consumer commission, however, did not appreciate the homebuyers’ plea, holding that the complaint was not maintainable since it was filed belatedly and that the housing society could not be considered as a “consumer” under the Consumer Protection Act because they wanted recovery of charges paid to the municipal authorities from the developer.
Aggrieved, the homebuyers moved the Supreme Court in 2019. Representing the society, advocate Sunil Fernandes contended that the complaint cannot be thrown out on the grounds of limitation because it was in instance of a continuing wrong where the developer’s failure compelled the homebuyers to keep paying higher charges.
Fernandes further pointed out that the builder has not obtained the occupation certificate even 24 years after giving possession and was also in breach of a 2014 order of the state consumer commission that gave the developer four months to obtain the certificate and also pay ₹1 lakh for settling water charges.
The developer, on its part, sought dismissal of the homebuyers’ claims, arguing that the cause of action arose in 1997 but the complaint was filed 18 years later. It further cited provisions of the Maharashtra Ownership of Flats Act (MOFA) that states it is the liability of the flat purchasers to pay municipal taxes and water and electricity charges.
But the bench underscored that owing to the failure of the developer to obtain the certificate, there has been a direct impact on the members of the society in terms of the payment of higher taxes and water charges to the municipal authority.
“This continuous failure to obtain an occupancy certificate is a breach of the obligations imposed on the respondent under the MOFA and amounts to a continuing wrong. The appellants (homebuyers) therefore, are entitled to damages arising out of this continuing wrong and their complaint is not barred by limitation,” it held.
Setting aside the national consumer commission’s order, the top court held that the builder was responsible for transferring the title to the flats to the society along with the occupancy certificate.
“The failure of the respondent to obtain the occupation certificate is a deficiency in service for which the respondent (builder) is liable. Thus, the members of the appellant society are well within their rights as ‘consumers’ to pray for compensation as a recompense for the consequent liability (such as payment of higher taxes and water charges by the owners) arising from the lack of an occupancy certificate,” said the bench.
The court held that the homebuyers’ complaint is maintainable under the Act, asking the commission to hear the case on merit and decide it within three months.
The decision is unlikely to affect the buyers in Haryana because, as per the rules stipulated by town and country planning department, a developer can’t make offer of possession of property to buyers without obtaining an occupation certificate.
DTCP officials said that payment of taxes to the municipality or other civic agencies does not arise because the conveyance deed can’t be registered till the Occupation Certificate is issued. They also said that urban development rules were different in different states so this Supreme Court ruling had to be seen and interpreted in that context. A developer is liable to pay penalty to buyers in case of delay in completion of projects. In November last year, the Haryana Real Estate Regulatory Authority (HRERA) had directed developer of a residential group housing project in Sector 102 to pay compensation to 38 homebuyers for delay in offering possession of apartments.
Officials familiar with the matter in Noida said there are at least 30,000 housing units in around 30 different projects, which are occupied by homebuyers without the developer obtaining the occupancy certificate. The developers need to clear financial dues before becoming eligible for OC.
“The developers are not clearing dues and not obtaining OC because they are not bothered if the apartment owners get adequate facilities or not. Homebuyers are made to suffer in these buildings, which are without OC and common facilities such as lift, fire safety, park, parking and other such services are affected,” said Abhishek Kumar president of Noida Extension flat owners’ welfare association.
The Western UP president of the Confederation of Real Estate Developers’ Association of India, Prashant Kumar Tiwari, said: “The Mumbai case is a unique case of its kind and it has no relation or impact on Noida buildings or buyers since Noida is an Industrial township.”
Developers said that the OC for some buildings in Noida is delayed due to policy decisions at the level of the state government. We demanded waiver of unjustified interest on group housing land. But the government did not take a decision to settle dues. Then the issue went to Supreme Court that is yet to give final verdict on interest issue and without settlement of interest issue obtaining OC is not possible.