Balancing commercial considerations with consumer interests

By Shreya Sircar and Ishita Jain, Bharucha & Partners
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The Maharashtra Real Estate Appellate Tribunal (appellate tribunal), in Dinesh R Humane & Anr v Piramal Estate Private Ltd, held that the right of an allottee to book an apartment includes the right to withdraw such booking. The reasoning of the appellate tribunal appeared to be founded on the principle that a party, which lacks equal bargaining power cannot be forced to comply with the onerous terms of a contract of adhesion, otherwise known as a standard terms contract. In granting a full refund of monies to the allottee, the appellate tribunal has set a dangerous precedent, which may have a cascading effect on consumer matters before consumer courts.

Shreya Sircar, Partner, Bharucha & Partners
Shreya Sircar
Partner
Bharucha & Partners

The legislative intent of the Real Estate (Regulation and Development) Act, 2016 (act), in the same way as the Consumer Protection Act, 2019, is intended to operate, is to protect consumer interests. However, a failure by the judiciary to adopt a balanced approach could open the floodgates to frivolous bookings, cancellations and refunds, along with high interest rates. The consequent liquidity crunch may prevent developers from completing projects.

Any order directing that money should be refunded should take into account the commercial considerations of promoters developing large scale real estate projects, and the commercial practices generally applicable to goods and services. In transactions for the delivery of goods or services, buyers are deemed to be aware of the terms and conditions of booking, and sellers are entitled to forfeit amounts already paid in the event of cancellation. Under the Maharashtra Real Estate (Regulation and Development) (Registration of Real Estate Projects, Registration of Real Estate Agents, Rates of Interest and Disclosures on Website) Rules, 2016 (rules), even the Real Estate Regulatory Authority (RERA) is permitted by law to retain administrative charges if a promoter withdraws an application for registration of a project.

The appellate tribunal also held that, in the event of the cancellation of a booking, contract terms that grant rights to promoters to forfeit the booking amounts or part payments of the sale consideration, but do not provide such corresponding rights to allottees are on the face of it unreasonable, unfair, inequitable and against the purpose and object of the act. In arriving at this conclusion, the appellate tribunal relied on the judgment of the Supreme Court in Pioneer Urban Land and Infrastructure v Govindan Raghavan, where the court held that arbitrary terms in a sale agreement where the allottee lacks equal bargaining power are not enforceable. Reliance on the Pioneer judgment is misplaced, however, as that judgment dealt with the deficiencies of promoters in performing their obligations under the sale agreement. In the Piramal judgment, no sale agreement had been executed, and the cancellation of the booking agreement was not due to the default of the promoter.

The appellate tribunal appears to have exceeded its jurisdiction by purporting to use its inherent powers to grant relief solely on the basis of equity. There was no agreement between parties such as an allotment letter, or an apartment buyer agreement, and there was no specific provision under the act or rules, which enabled the appellate tribunal to direct the refund of the booking amount. The act and the Model Agreement For Sale (model agreement) under the rules specify the events when a promoter is liable to refund the amount. These include events that are due to the failure of the promoter to meet its obligations. When an allottee cancels its booking, neither the act or the rules oblige a promoter to refund the full amount. However, in case of failure, or delay by the allottee in making a payment to the promoter, clause 6 of the model agreement gives the promoter the right to charge interest, terminate the agreement and refund amounts to the allottee after adjustment and recovery of any amount payable to such a promoter. While the intention of the act is to protect consumers, in the interests of justice courts should also take into account the commercial considerations of constructing real estate projects, especially in cases where the promoters have not defaulted.

Shreya Sircar is a partner and Ishita Jain is a senior associate at Bharucha & Partners

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