On April 2, 2019, the Supreme Court passed a judgment in the matter of Pioneer Urban Land & Infrastructure Limited v. Govindan Raghavan (C.A. No. 12238 of 2018), wherein the Court held that the incorporation of one-sided clauses in an Agreement constitutes the unfair trade practices within the meaning of Section 2(r) of the Consumer Protection Act, 1986, and such clauses cannot bind a party.
Brief facts
The respondent-flat purchaser entered into an apartment buyer’s agreement with the appellant-builder for purchase of an apartment, for which the builder obtained the occupancy certificate for a residential complex almost 2 (two) years after the date stipulated in the said apartment. Consequently, the builder failed to hand over possession as per the timeline stipulated in the said agreement.
A complaint was filed by the flat purchaser before the National Commission under the Consumer Protection Act, 1986 for deficiency of service. The National Commission held that the flat purchaser could not be compelled to take possession of the apartment at such a belated stage. It also held that the clauses of said agreement were wholly one-sided, unfair and unreasonable and not binding on the flat purchaser.
Decision
The Supreme Court upheld the decision of the National Commission and held that this was a clear case of deficiency of service. It further directed the builder to refund the entire amount deposited by the flat purchaser.
The Supreme Court cited the following clauses to be incongruous:
1. Upon delay in payment of instalment by the flat purchaser, the builder was entitled to interest at the rate of 18% (eighteen percent) p.a. Further, if payment of instalment remained in arrear for more than 30 (thirty) days, the builder was entitled to cancel the allotment and terminate the agreement.
On the other hand, upon failure to deliver possession by the builder within the stipulated time, the flat purchaser could, after 12 (twelve) months after the end of the grace period, serve termination notice of 90 (ninety) days. After expiry of such period, the builder would be liable to refund, within 90 (ninety) days, only the actual instalment paid by the flat purchaser, after adjusting the taxes paid, interest and penalty on delayed payments. In case of any delay thereafter, the builder would be liable to pay interest at the rate of only 9% (nine percent) p.a.
2. For breach of contractual obligations, the builder may serve termination notice to the flat purchaser. If the flat purchaser failed to rectify the default within 30 (thirty) days of the said termination notice, then the agreement would automatically stand cancelled, and the builder would have the right to forfeit the entire amount of earnest money towards liquidated damages.
On the other hand, if the flat purchaser failed to exercise his right of termination within the time limit provided, then he shall not be entitled to terminate the agreement thereafter.
The Supreme Court held that 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. It further held that incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice under Section 2(r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling flats by builders.
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