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Judgment
This appeal filed under section 19 of the Consumer Protection Act, 1986 (in short, ‘the Act’) challenges order dated 14.05.2019 of the State Consumer Dispute Redressal Commission, Haryana, Panchkula directing the appellant to refund the principal amount received from the respondent along with interest @ 12% per annum from the respective dates of deposit till the date of realization, along with Rs.50,000/- as compensation for deficiency in service and Rs.20,000/- towards litigation expenses. The appellant has prayed that this Commission:-
“a) pass an order for allowing the appeal of the Appellant and setting aside the order dated 14.05.2019 passed by the Hon’ble State Commission, Panchkula, Haryana in C.C. No.177 of 2018.
b) pass such other order or orders as this Hon’ble Commission may deem fit and proper in the interest of justice”.
The facts, in brief, are that on 10.07.2012, the respondents booked a 2BHK flat admeasuring 1350 sq.ft. super area for Rs.55,72,800/- excluding charges towards car parking and EDC/IDC charges as per a construction linked plan. A sum of Rs.3,00,000/- was awarded and an application form was signed by the respondents. As per clause 21 of this document, it was stated that time is of essence and a payment schedule prescribed. Since the respondents defaulted in making payments several reminders/demand notices were issued by the appellant including a final reminder/cancellation letter dated 20.09.2012 followed by demand notices dated 08.01.2013, 15.01.2013 and 12.03.2013. On 08.04.2013 an indemnity bond was submitted by one Mr. Rakesh Kumar on behalf of the respondents. On 01.06.2013, the respondents paid a further amount of Rs.3,83,535/- as per the demand notice dated 08.04.2013. However, in view of continued default and despite notices dated 15.10.2013, 22.05.2014 and 23.05.2013 to the changed address of the respondents, a cancellation letter was issued on 25.06.2014 by the appellant. Thereafter, another cancellation letter was issued on 03.11.2017 by the appellant, to which the respondents did not respond. A consumer complaint no.177 of 2018 was, therefore, filed before the State Commission.
This order dated 14.05.2019 of the State Commission is assailed on the grounds that the State Commission failed to appreciate that the respondents were habitually defaulting in making payments as per the payment schedule agreed and were therefore guilty of violating the terms of the contract.
It is contended by the appellant that the respondents failed to enter into a Builder Buyer Agreement (BBA) in the absence of which he could not avail a loan from a Bank. It is also contended that possession was promised within 36 months, from the date of execution of the BBA subject to timely payments and execution of BBA which the respondents failed to comply with. It is argued with the State Commission had erred in awarding interest @ 12 % per annum from the date of deposits till realization along with Rs.50,000/- towards deficiency in service and Rs. 20,000/- as litigation costs without appreciating that the respondents had not complied with the terms and conditions of the allotment and had been habitually defaulting in making of payments.
We have heard learned counsels for both the parties and perused the material on record carefully.
The State Commission has come to the findings that:-
“…4. It is not in dispute that the complainants had booked a two BHK residential unit with the opposite party. They had paid almost 45% of the total price of the unit. It is also not in dispute that the possession of the unit was to be handed over to the complainants within 36 months from the date of booking of the unit i.e. on or before the year 2015. But the possession has not been delivered so far despite the fact that the complainants had paid more than 45% of the agreed total price. Since, the opposite party did not complete the construction within the stipulated period, the complainants are justified in seeking refund of their deposited amount.
In view of the above, it is held that the opposite party is liable to refund the amount deposited by the complainants along with interest and compensation.
Resultantly, the complaint is allowed. The opposite party is directed to refund the amount deposited to the complainants along with interest @ 12 % per annum from the date of respective deposits till the date of realization; 50,000/- as compensation for rendering deficient service and Rs.20,000/- as litigation expenses. The entire amount be paid to the complainants within a period of 45 days from the date of receipt of the order or else it will carry interest @ 15 % per annum till realization”.
(Emphasis supplied)
The State Commission has concluded that despite payment of over 45% of the sale consideration possession had not been offered despite the passage of 36 months as stipulated in the allotment letter. It has therefore, directed refund with interest and compensation. The appellant’s contention is that the allotment itself stood cancelled on the ground of default in payments by the respondents and, therefore, they were not entitled to full refund with 12% interest per annum which is stated to be excessive since Rs.50,000/- has also been separately awarded for compensation towards deficiency in service. The respondents have countered the contentions of the appellant that the BBA was not executed between the parties and that it had defaulted in making timely payments to the appellants.
The letter of cancellation dated 25.06.2014 stated to have been issued by the appellant to the respondent has not been denied by the respondent. It has also not been denied that the BBA was not executed. On the other hand, the appellant has made a strong case that it had issued several reminders to the respondents, which was admittedly not received by the respondents, in view of the change of his address. The respondent subsequently accepted notice and made payments following personal interaction with the appellant. It would, therefore, be unjust to hold the respondent as having been a willful defaulter.
The order of the State Commission awarded 12% interest along with Rs.50,000/- towards compensation. However, the rationale for this cannot be countenanced. The Hon’ble Supreme Court has held in DLF Homes Panchkula Pvt. Ltd. vs. D.S. Dhanda & Ors., in Civil Appeal no.4190-491 of 2019, decided on 10.05.2019, that multiple compensations for a singular deficiency in service is not justified. The Hon’ble Apex Court has also held in Experion Developers Pvt. Ltd. Vs. Sushma Ashok Shiroor, in Civil Appeal No.6044 of 2019, decided on 07.04.2022 that compensation by way of interest has to be both compensatory and restitutionary and that 9% rate of interest is just reasonable compensation.
As regards the deduction of earnest money, several judgment of the Hon’ble Supreme Court and this Commission have held that an amount exceeding 10% of the basic price cannot be forfeited by the seller. It has also been held that only the amount which was paid at the time of concluding the contract can be said to be the earnest money. Reliance was placed by the Respondent on the order of this Commission in Ramesh Malhotra & Anr. Vs. Emaar MGF Land Ltd. & Anr. (CC No.438 of 2019) dated 29.06.2020 wherein it was held that “if an allottee seeks to cancel the agreement, the developer is only entitled to deduct the initial amount which was paid as booking amount which is Rs.7 lakhs in the present case and the rest of the amount has to be refunded with interest” and the said ratio is stated to be entirely applicable to the present case.
This Commission in Siddhartha Loiwal Vs. M/s Vatika Ltd. in CC 1344 of 2017 dated 15.03.2023 held as under:-
“Therefore the complainant has committed breach of the contract and his earnest money and brokerage amount are liable to be forfeited. Supreme Court, in Maula Bux Vs. Union of India, (1970) 1 SCR 928 and Sirdar K.B. Ram Chandra Raj Urs Vs. Sarah C. Urs, (2015) 4 SCC 136, held that forfeiture of the amount in case of breach of contract must be reasonable and if forfeiture is in the nature of penalty, then provisions of Section-74 of Contract Act, 1872 are attracted and the party so forfeiting must prove actual damage. After cancellation of allotment, the flat remains with the developer as such there is hardly any actual damage. This Commission in CC/438/2019 Ramesh Malhotra Vs. EMAAR MGF Land Ltd. (decided on 29.06.2020), CC/3328/2017 Mrs. Prerana Banerjee Vs. Puri Construction Ltd. (decided on 07.02.2022) and CC/730/2017 Mr. Saurav Sanyal Vs. M/s. IREO Grace Pvt. Ltd. (decided on 13.04.2022) held that 10% of basic sale price is reasonable amount to be forfeited as "earnest money".
[ Emphasis supplied ]
Though in the BBA 'Earnest Money' has been defined as 25% of total sale consideration, in view of the judgments of the Hon’ble Supreme Court in Maula Bux (supra) and of this Commission, it would be appropriate that the 'Earnest Money' not exceed 10% of the Basic Sale Price. As such, it is appropriate that 10% of Basic Sale Price is considered to be a reasonable amount to be forfeited in the name of ‘Earnest Money’. The inclusion of 25% as ‘Earnest Money’ in the BBA is clearly an unfair trade practice on the part of the Opposite Party as held by the Hon’ble Supreme Court in Maula Bux Vs. Union of India, (1970) 1 SCR 928 and Kailash Nath Associates Vs. Delhi Development Authority, (2015) 4 SCC 136 that forfeiture of earnest money must be reasonable otherwise provisions of Section 74 of Contract Act, 1872 would be attracted. This Commission in Ramesh Malhotra (supra) and Mrs. Prerana Banejee Vs. Puri Construction Ltd., CC/3328/2017 decided on 07.02.2022 held that forfeiture of 10% of basic sale price as the earnest money would be reasonable.
In view of the foregoing reasons, the appeal is allowed in part. The order of the State Commission directing refund of the principal amount towards the sale consideration of flat in question is upheld subject to the following:
a) the repayment of the principal will be with interest @ 9% per annum from the respective dates of deposits till the date of realization;
b) the compensation of Rs.50,000/- is set aside;
c) The appellant will be entitled to deduct 10% of the basic sale consideration as earnest money;
d) This order shall be complied within eight weeks, failing which the amount shall be repaid with interest @ 12% per annum;
e) Litigation expenses of Rs.50,000/- shall also be paid.
All pending IAs, if any, stand disposed of with this order.