CONSUMER PROTECTION ACT (CPA)
The beneficial legislation of Consumer Protection Act aims at reducing the grievances of the all classes of customers by providing them the preferential treatment. According to the Consumer Protection Act, the consumer dispute is the entity where the consumer/ customers have been given the convenient safeguards against ample exploitation like bad customer service, faulty goods or any unfair trade practices. The interest of the customers is protected by setting up, the three tier quasi-judicial consumer Redressal machinery which are at national, state and district levels as per section 9 of Consumer Protection Act. The Consumer Protection Act, 1986 (CPA) has been enacted in light of certain concerns related to public policy and the benefit of consumer.
So the main object of the consumer protection act is to safeguard the consumer against deficiency of service, unfair trade practice, inexpensive and expeditious redressal of grievances before the Consumer Forums. It is also clear that this act is not in derogation of any act but it is in addition of other act. Now we come to see about completion and occupancy certificates and also to know what is different in the two and when they are necessary for the builders.
COMPLETION / OCCUPANCY CERTIFICATE
When buying a home, it is vital to obtain documents, such as the Occupancy Certificate (OC) and Completion Certificate (CC). These are essential documents that allow you to mortgage or sell your home. Hence, homebuyers are advised to take possession of their flat or property only after these documents have been issued.
According to Vikas Bhasin, CMD, Saya Group, “Completion Certificate and Occupancy Certificate are some of the most important documents for a home buyer. Civic authorities can evict the occupants in case of non-availability of the necessary approvals. Before investing in a property, people must be doubly assured that all the certificates and approvals are in place.”
Let us dive a little deeper into the details of these documents and their importance before you make a move to buy your dream home.
Owning a home is the culmination of years of savings, research, and paperwork. After patiently waiting for the construction to be complete, you finally register the property and take possession of your flat. But what if your dream home is declared unauthorised, and you are evicted by the authorities? This is not as far-fetched as it sounds. This nightmare could turn into reality without a crucial link in the property sale process - the Occupancy Certificate (OC).
The majority of apartments in different Indian cities have been occupied by owners without any occupancy certificate. This oversight can turn into a costly mistake, jeopardising the legal status of your dream home. The importance of the occupancy certificate cannot be overstated as it seals the legal status of your property and protects your ownership rights.
Decoding legal documents
To understand the importance of an occupancy certificate and other legal documents, let’s decode the legal jargon and understand their meaning in simple terms. Here’s a ready reckoner of the most important legal documents related to your property:
Occupancy Certificate
An OC certifies that the construction of the building has complied with the approved plans. It is issued by local municipal authorities or the building proposal department once the building has been completed and is ready to be occupied. Simply put, without an OC, your building has not been awarded a ‘pass certificate’.
Completion Certificate
A Completion Certificate (CC) is issued only after the construction meets other building standards like distance from the road, the height of the building, and rainwater harvesting system. A CC alone cannot legalise occupation; the OC is a must.
Commencement Certificate
If you are buying an under construction property, make sure you check the Commencement Certificate before signing the agreement. Many builders do not wait for a Commencement Certificate. This is illegal and can create serious problems in obtaining an OC at a subsequent stage.
Why is it unsafe to buy a flat without OC?
In the absence of a valid OC, the local municipal body can initiate serious action against flat owners. In 2014, residents of a well-known building complex in Mumbai’s upscale Worli area were hit with a bolt from the blue after their complex was declared unauthorised. At the time of possession, buyers overlooked the issuance of an OC from the builder. It was only after that they were forced to evacuate their flats that the writing on the wall became clear to them.
This is just one instance, and if buyers are not careful about getting the OC, they may face the following repercussions:
• In the absence of a valid OC, your building can be demolished as it can be classified as an unauthorised structure.
• The OC is crucial while applying for a home loan or loan to purchase a resale flat. If you wish to sell or hypothecate the property after a lapse of time, you will not be able to do so without a valid OC.
• The water connection, sanitary connection or electricity supply can be disconnected in the absence of an OC.
How to obtain an OC
The OC is obtained from local municipal bodies by submitting an OC application form along with the following documents:
• Commencement Certificate
• Completion Certificate
• Built and Section plan
• NOC for fire and pollution
• Area calculation sheet of floor signed by an authorised architect
• Photographs of the completed building
• Tax assessment with tax paid receipt
• Photographs of rain harvesting and solar panels
• Copy of the sanctioned plan
After submitting the form, authorities inspect the complex and confirm if it has conformed to the approved plan before issuing an OC. Legally and ideally, a builder should submit an application with the municipal commissioner for the OC within 30 days of completion of the property.
How you can apply for an OC
As a flat owner, you can also apply for an OC by approaching the local corporation or municipality, and if all approvals are in place, an OC is issued within 30 days of application. You will have to submit the same documents as the builder to procure an OC.
Know your rights
If the builder refuses to provide an OC, you should consider exercising your legal rights. You can issue a notice against the builder asking him to apply and hand over the copy of the OC within a month. You can also approach consumer forums and file a writ petition demanding the OC.
Some canny builders simply present the receipt of the OC and dupe gullible customers. But you shouldn’t accept anything less than the actual OC as the receipt may be dated.
Landmark legislations like the Real Estate Regulatory Act (RERA) have been passed to regulate the sector, promote transparency and protect consumer rights. However, consumers must be vigilant and understand their rights and responsibilities towards owning a property. Documents like OC are essential and ensure the security of your investment.
Going forward, real estate experts believe that the OC should be made mandatory for the registration of flats and essential services. Until then, buyers must ensure builders get all the necessary approvals before handing over a property.
A Completion Certificate (CC) is an important legal document that certifies that a building is constructed according to the laid down norms and master plan of the city. This document has all the information related to the project, such as the building materials used, building height, and building plan, among other things like provision for green belt.
In a nutshell, this document certifies that the building adheres to all the prevailing rules and has not violated any norms. In fact, this document is to be shown compulsorily to the authorities to obtain electricity and water connection.
Builders are allowed to obtain a provisional Completion Certificate when there are minor works left in the project. Authorities then provide a provisional certificate valid for six months. After the expiry of the six months, the developer is bound to get a final CC.
Who issues a Completion Certificate?
Local authorities issue the Completion Certificate after a thorough inspection of the premises. If the developer violates no rules, authority issues a Completion Certificate.
Why is Completion Certificate important?
Buyers must be aware of the fact that if they are buying or moving into a property that does not have a Completion Certificate, they might be making a risky investment choice. The civic authorities hold the power to slap heavy penalties on the developer, leading to stalling or cancellation of the registered layout of the project. In case the building is already occupied, residents may also have to face eviction in extreme cases.
Difference between Occupancy Certificate and Completion Certificate
Occupancy Certificate examines and certifies a property for adherence to bye-laws, civic amenities, electricity, sanitation and other clearances. On the other hand, a Completion Certificate is a document that certifies that a property is fit for possession by the buyers.
Clarifying the difference, Deepak Kapoor, Director, Gulshan Homz, says, “Completion Certificate is just a reaffirmation that the building has been constructed as per the building byelaws and the layout plan has been approved by various concerned authorities. Occupation Certificate signals that there is no violation of building construction norms, and thus, the structure is safe for occupants.
Generally, these documents are not required at the time of registry, and hence, buyers tend to overlook or ignore these. But for their own benefit and peace of mind, it is warranted that buyers of both ready-to-move-in as well as under-construction properties check these documents before taking possession. This would help avoid any unnecessary dispute or confrontation in the future.”
In the absence of any such certificate on the record it shall be presumed that the builders did not get the completion certificate or occupancy certificate. Occupancy certificate is necessary at the time of giving possession of the flat to the allottee which can be seen by the following judgement of this Hon’ble Supreme Court.
Supreme Court: The bench of Dr. DY Chandrachud* and AS Bopanna, JJ has held that failure on the part of the builder to provide occupancy certificate is a continuing breach under the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 and amounts to a continuing wrong.
Factual Background
The appellant is a co-operative housing society. The respondent constructed Wings ‘A’ and ‘B’ and entered into agreements to sell flats with individual purchasers in accordance with the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (MOFA). The members of the appellant booked the flats in 1993 and were granted possession in 1997. According to the appellant, the respondent failed to take steps to obtain the occupation certificate from the municipal authorities.
There was an obligation on the respondent to provide the occupancy certificate and pay for the relevant charges till the certificate has been provided, however, the respondent time and again failed to provide the occupancy certificate to the appellant society. For this reason, a complaint was instituted in 1998 by the appellant against the respondent. The NCDRC on 20 August 2014 directed the respondent to obtain the certificate within a period of four months. Further, the NCDRC also imposed a penalty for any the delay in obtaining the occupancy certificate beyond these 4 months. Since 2014 till date, the respondent failed to provide the occupancy certificate.
In the absence of the occupation certificate, individual flat owners were not eligible for electricity and water connections. Due to the efforts of the appellant, temporary water and electricity connections were granted by the authorities. However, the members of the appellant had to pay property tax at a rate 25% higher than the normal rate and water charges at a rate which was 50% higher than the normal charge.
Analysis
Obligations of Promoter under MOFA
Section 3 of the MOFA imposes certain general obligations on a promoter. These obligations inter alia include making disclosures on the nature of title to the land, encumbrances on the land, fixtures, fittings and amenities to be provided, and to not grant possession of a flat until a completion certificate is given by the local authority. The responsibility to obtain the occupancy certificate from the local authority has also been imposed under the agreement to sell between the members of the appellant and the respondent on the latter.
Sections 3 and 6 of the MOFA indicate that the promoter has an obligation to provide the occupancy certificate to the flat owners. Apart from this, the promoter must make payments of outgoings such as ground rent, municipal taxes, water charges and electricity charges till the time the property is transferred to the flat-owners. Where the promoter fails to pay such charges, the promoter is liable even after the transfer of property.
Limitation
In the instant case, the appellant submitted that since the cause of action is founded on a continuing wrong, the complaint is within limitation.
Section 24A of the Consumer Protection Act 1986 provides for the period of limitation period for lodging a complaint. A complaint to a consumer forum has to be filed within two years of the date on which the cause of action has arisen.
Section 22 of the Limitation Act 1963 provides for the computation of limitation in the case of a continuing breach of contract or tort. It provides that in case of a continuing breach of contract, a fresh period of limitation begins to run at every moment of time during which the breach continues
A continuing wrong occurs when a party continuously breaches an obligation imposed by law or agreement. The 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, therefore, were entitled to damages arising out of this continuing wrong and their complaint is not barred by limitation.
“Rejecting the complaint as being barred by limitation, when the demand for higher taxes is made repeatedly due to the lack of an occupancy certificate, is a narrow view which is not consonance with the welfare objective of the Consumer Protection Act 1986.”
Consumer
Section 2(1)(d) of the Consumer Protection Act defines a ‘consumer’ as a person that avails of any service for a consideration. A ‘deficiency’ is defined under Section 2(1)(g) as the shortcoming or inadequacy in the quality of service that is required to be maintained by law.
In the present case, the NCDRC had held that the appellant is not a ‘consumer’ under the provisions of the Consumer Protection Act as they have claimed the recovery of higher charges paid to the municipal authorities from the respondent. Extending this further, the NCDRC observed that the respondent is not the service provider for water or electricity and thus, the complaint is not maintainable.
The respondent 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 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.
[Samruddhi Co-operative Housing Society Ltd v. Mumbai Mahalaxmi Construction Pvt. Ltd, , decided on 11.01.2022]
During the course of argument, the complainants counsel stated that after filing of this complaint some more money has been deposited by the complainant which is more than 90% of the total cost of the flat but the flat has not been given up till now. The first flat buyer agreement was executed between the first allottee M/S Jai Shree Shyam Associates and the opposite parties on 24 October 2011. According to the flat buyer agreement the possession of the flat was to be given in three years, that is by 23rd October 2014. When this flat was transferred to the complainant, and other unfair contract was executed on 25 September 2012 . This transfer of the flat has been confirmed by the opposite parties on 24 September 2012 and thereafter the agreement was executed. The promise was made to complete the flat within three years from 24 October 2011 but cleverly when the flat was transferred in the name of complainant, the opposite parties executed another agreement on 24 September 2012 and now they argued that the period shall be reckoned from 24 September 2012 and not from 24 October 2011. It means if there would be more than 2, 3 subsequent purchasers till 2018, the period of construction will automatically enhanced from the last agreement ! The answer is ‘no’. You have promised to complete the flat within three years and the period will start from the flat buyer agreement executed between the first allottee and the opposite parties. So we take 24 October 2011 as the starting point and according to it the delivery of possession of the flat was to be given on or before 23 October 2014. For the purpose of calculation of compensation, interest, rent et cetera we take the cut-off date as 01.11.2014.
As the written statement of the opposite parties has not be taken on record so only the argument presented by the opposite parties can be considered. The counsel of the opposite parties argued that the demand of 18% interest is unreasonable and the current price of the unit which is mentioned as Rs 75 lacs is false and unreasonable. He further argued that when there is a specific term in the contract, the parties are bound by the terms in the contract. The property in question is almost prepared and will be ready for possession within 8 to 10 months. But no such offer of possession has been given along with the completion certificate and occupancy certificate showing that the opposite parties are not serious in this matter.
In this case it is also to be noted that the opposite parties illegally and without informing or consulting the complainant decreased the area of the flat from the agreed 1706 square ft to 1047.54 square ft. The opposite party has sent a letter to the present complainant on 24 September 2012 stating that
“this is to confirm that unit no 3621-1/C1-201 measuring 1706 sq ft situated in Sushant Golf City , Lucknow which was in the name of m/s Jai Shree Shyam Associates stands transferred in your name and the amount of ₹ 1,140,090/– stand credited to your account.”
So it is clear that when the said flat was transferred in the name of the complainant, it is area was 1706 square ft. The counsel of the opposite parties vehemently denied this fact and stated that the area of the flat is still 1706 square ft as was specified in the agreement. So it will be seen later on or at the time of execution.
It is argued on behalf of the opposite parties that the complainant has no locus standi against the opposite parties and there is no deficiency of service on the part of the opposite parties and there is no relation of consumer and service provider between the two because the first agreement was entered into by the previous allottee. The only Supreme Court in the following judgement has discussed in length all the aspects of this relation.
Whether the relation of service provider and consumer between the parties or not. Now Supreme Court has discussed in length all these aspects in the following judgement.
In the case of Faqir Chand Gulati vs Uppal Agencies Pvt. Ltd. & Anr. on 10 July, 2008, CIVIL APPEAL NO. 3302 of 2005 ,IN THE SUPREME COURT OF INDIA, Hon’ble Supreme Court has held
“3. The appellant (also referred to as `land-owner') alleges that the first respondent (also referred to as the `builder') secured sanction of the plan for construction from the Municipal Corporation of Delhi [for short 'MCD') but made several unauthorized deviations during construction, resulting in several deviation notices from MCD. In fact, MCD passed an order dated 16.1.1991 to seal the premises, but subsequently, the premises was de- sealed to enable the builder to rectify the deviations. The builder delivered possession of the ground floor on 2.4.1992. The builder sold the first and second floors to four persons under sale deeds dated 18.3.1992, 18.3.1992, 2.6.1995 and 2.6.1995.
4. The delivery of the ground floor was made by the builder to appellant's son during appellant's absence from India. On his return, the appellant sent a letter dated 29.10.1992, pointing out several shortcomings in the construction and the violations of sanctioned plan, and called upon the builder to rectify the deviations and defects. The builder did not comply.”
“5. The appellant therefore filed complaint No. 1866 of 1994 before the District Consumer Disputes Redressal Forum-IX, Delhi, under the Consumer Protection Act, 1986 (`Act' for short) seeking the following reliefs against the builder :
a) Return of the title deeds relating to the premises;
b) Supply of completion certificate and C&D Forms from MCD; and
c) Delivery of security deposit receipt for electricity meter and payment
of Rs.4262.64 being the charges for change of electricity meter. The District Forum dismissed the complaint by order dated 10.5.1996 as not maintainable under the Act, holding that the appellant was not a `consumer' as defined in section 2(1)(d)(ii) of the Act. It held that the agreement between the parties created mutual rights and obligations with a provision that in the event of breach of any condition, the affected party shall have the right of specific performance and such an agreement cannot be construed as a contract for hiring/availing a service, for consideration by a consumer.”
“ 12. On the contentions raised, two questions arise for consideration :
(i) Whether on the facts and circumstances, a complaint under the Consumer Protection Act, 1986 is maintainable, in regard to the Agreement dated 17.5.1991 between the parties
(ii) Whether a complaint is maintainable under the Act for a prayer seeking delivery of completion certificate and C&D Forms in regard to a building and whether the prayer for completion certificate/C&D Forms involves a prayer for rectification of the deficiencies in the building so as to secure the completion certificate and C&D Forms. Re : First Question :
13. The first question in fact involves examination of the following issue: When the owner of a plot of land enters into an agreement with a builder for development of the property by construction of a building and sharing the constructed area between the owner and the builder, and the developer commits any breach either by failing to deliver owner's share of constructed area or by constructing the building contrary to specifications, or by failing to fulfill the obligations relating to completion certificate or amenities like water, electricity and drainage, whether the owner can maintain a complaint under the Consumer Protection Act and whether in such circumstances, the owner can claim that he is a consumer and the builder is the service- provider.
14. In Lucknow Development Authority vs. M. K. Gupta [1994 (1) SCC 243] referring to the nature and object of the Act, this Court observed:
"To begin with the preamble of the Act, which can afford useful assistance to ascertain the legislative intention, it was enacted, 'to provide for the protection of the interest of consumers'. Use of the word 'protection' furnishes key to the minds of makers of the Act. Various definitions and provisions which elaborately attempt to achieve this objective have to be construed in this light without departing from the settled view that a preamble cannot control otherwise plain meaning of a provision. In fact the law meets long felt necessity of protecting the common man from such wrongs for which the remedy under ordinary law for various reasons has become illusory. Various legislations and regulations permitting the State to intervene and protect interest of the consumers have become a haven for unscrupulous ones and the enforcement machinery either does not move or it moves ineffectively, inefficiently and for reasons which are not necessary to be stated. The importance of the Act lies in promoting welfare of the society by enabling the consumer to participate directly in the market economy. It attempts to remove the helplessness of a consumer which he faces against powerful business, described as, 'a network of rackets' or a society in which, 'producers have secured power' to 'rob the rest' and the might of public bodies which are degenerating into store house of inaction where papers do not move from one desk to another as a matter of duty and responsibility but for extraneous consideration leaving the common man helpless, bewildered and shocked. The malady is becoming so rampant, widespread and deep that the society instead of bothering, complaining and fighting for it, is accepting it as part of life. The enactment in these unbelievable yet harsh realities appears to be a silver lining, which may in course of time succeed in checking the rot. A scrutiny of various definitions such as 'consumer', 'service', 'trader', 'unfair' trade practice indicates that legislature has attempted to widen the reach of the Act. Each of these definitions are in two parts, one, explanatory and the other expandatory. The explanatory or the main part itself uses expressions of wide amplitude indicating clearly its wide sweep then its ambit is widened to such things which otherwise would have been beyond its natural import."
This Court next considered the meaning of the word 'service'. Thereafter, this Court dealt with the question whether `service' included housing construction, even before the inclusion of `housing construction' in the definition of `service' by Act No.50 of 1993 with effect from 18.6.1993. This Court observed:
"What is the meaning of the word 'service'? Does it extend to deficiency in the building of a house or flat? Can a complaint be filed under the Act against the statutory authority or a builder or contractor for any deficiency in respect of given property. The answer to all this shall understanding of the word 'service'. The term has variety of meanings. It may mean any benefit or any act resulting in promoting interest or happiness. It may be contractual, professional, public, domestic, legal, statutory etc. The concept of service thus is very wide. How it should be understood and what it means depends in the context in which it has been used in an enactment.
What remains to be examined is if housing construction or building activity carried on by a private or statutory body was service within meaning of Clause (o) of Section 2 of the Act as it stood prior to inclusion of the expression 'housing construction' in the definition of "service" by Ordinance No. 24 of 1993. As pointed out earlier the entire purpose of widening the definition is to include in it not only day to day buying and selling activity undertaken by a common man but even to such activities which are otherwise not commercial in nature yet they partake of a character in which some benefit is conferred on the consumer. Construction of a house or flat is for the benefit of person for whom it is constructed. He may do it himself or hire services of a builder or contractor. The latter being for consideration is service as defined in the Act.... If the service is defective or it is not what was represented then it would be unfair trade practice as defined' in the Act. Any defect in construction activity would be denial of comfort and service to a consumer. When possession of property is not delivered within stipulated period the delay so caused is denial of service. Such disputes or claims are not in respect of immoveable property as argued but deficiency in rendering of service of particular standard, quality or grade. Such deficiencies or omissions are defined in Sub-clause (ii) of Clause (r) of Section 2 as unfair trade practice. If a builder of a house uses sub-standard material in construction of a building or makes false or misleading representation about the condition of the house then it is denial of the facility or benefit of which a consumer is entitled to claim value under the Act. When the contractor or builder undertakes to erect a house or flat then it is inherent in it that he shall perform his obligation as agreed to. A flat with a leaking roof, or cracking wall or sub-standard floor is denial of service. .............A person who applies for allotment of a building site or for a flat constructed by the development authority or enters into an agreement with a builder or a contractor is a potential user and nature of transaction is covered in the expression 'service of any description'. It further indicates that the definition is not exhaustive. The inclusive clause succeeded in widening its scope but not exhausting the services which could be covered in earlier part. So any service except when it is free of charge or under a constraint of personal service is included in it. Since housing activity is a service it was covered in the clause as it stood before 1993."
15. The predicament faced by the persons who deal with builders and promoters, was noticed by this Court in Friends Colony Development Committee vs. State of Orissa [2004 (8) SCC 733] in a different context while dealing with town planning laws :
"Builders violate with impunity the sanctioned building plans and indulge deviations much to the prejudice of the planned development of the city and at the peril of the occupants of the premises constructed or of the inhabitants of the city at large. Serious threat is posed to ecology and environment and, at the same time, the infrastructure consisting of water supply, sewerage and traffic movement facilities suffer unbearable burden and are often thrown out of gear. Unwary purchasers in search of roof over their heads and purchasing flats/apartments from builders, find themselves having fallen prey and become victims to the design of unscrupulous builders. The builder conveniently walks away having pocketed the money leaving behind the unfortunate occupants to face the music in the event of unauthorized constructions being detected or exposed and threatened with demolition. Though the local authorities have the staff consisting of engineers and inspectors whose duty is to keep a watch on building activities and to promptly stop the illegal constructions or deviations coming up, they often fail in discharging their duty. Either they don't act or do not act promptly or do connive at such activities apparently for illegitimate considerations. If such activities are to stop, some stringent actions are required to be taken by ruthlessly demolishing the illegal constructions and non-compoundable deviations. The unwary purchasers who shall be the sufferers must be adequately compensated by the builder. The arms of the law must stretch to catch hold of such unscrupulous builders. At the same time in order to secure vigilant performance of duties, responsibility should be fixed on the officials whose duty was to prevent unauthorized construction, but who failed in doing so either by negligence or connivance."
[Emphasis supplied]
16. There is no dispute or doubt that a complaint under the Act will be maintainable in the following circumstances :
(a) Where the owner/holder of a land who has entrusted the construction of a house to a contractor, has a complaint of deficiency of service with reference to the construction.
(b) Where the purchaser or intending purchaser of an apartment/flat/ house has a complaint against the builder/developer with reference to construction or delivery or amenities.
But we are concerned with a third hybrid category which is popularly called as `Joint-Venture Agreements' or `Development Agreements' or `Collaboration Agreements' between a land-holder and a Builder. In such transactions, the land-holder provides the land. The Builder puts up a building. Thereafter, the land owner and builder share the constructed area.
The builder delivers the `owner's share' to the land-holder and retains the `Builder's share'. The land-holder sells/transfers undivided share/s in the land corresponding to the Builder's share of the building to the builder or his nominees. As a result each Apartment owner becomes the owner of the Apartment with corresponding undivided share in the land and an undivided share in the common areas of the building. In such a contract, the owner's share may be a single apartment or several apartments. The land-holder who gets some apartments may retain the same or may dispose of his share of apartments with corresponding undivided shares to others. The usual feature of these agreements is that the land-holder will have no say or control in the construction. Nor will he have any say as to whom and at what cost the builder's share of apartments are to be dealt with or disposed of. His only right is to demand delivery of his share of constructed area in accordance with the specifications. The builders contend that such agreements are neither contracts for construction, nor contracts for sale of apartments, but are contracts entered for mutual benefit and profit and in such a contract, they are not `service-providers' to the land-owners, but a co-adventurer with the land-holder in a `joint venture', in developing the land by putting up multiple-housing (Apartments) and sharing the benefits of the project. The question is whether such agreements are truly joint-ventures in the legal sense.
17. This Court had occasion to consider the nature of `joint-venture' in New Horizons Ltd vs. Union of India [1995 (1) SCC 478). This Court held :
"The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. [Black's Law Dictionary; Sixth Edition, p. 839]. According to Words and Phrases, Permanent Edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit [P.117, Vol. 23]. "
[Emphasis supplied] The following definition of 'joint venture' occurring in American Jurisprudence [2nd Edition, Vol.46 pages 19, 22 and 23] is relevant:
"A joint venture is frequently defined as an association of two or more persons formed to carry out a single business enterprise for profit. More specifically, it is in association of persons with intent, by way of contract, express or implied, to engage in and carry out a single business venture for joint profit, for which purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the undertaking, and that each joint venturer must stand in the relation of principal, as well as agent, as to each of the other coventurers within the general scope of the enterprise.
Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships."
"A joint venture is to be distinguished from a relationship of independent contractor, the latter being one who, exercising an independent employment, contracts to do work according to his own methods and without being subject to the control of his employer except as to the result of the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any actual partnership or corporate designation."
(emphasis supplied) To the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages 314-315):
"Joint venture," a term used interchangeably and synonymous with 'joint adventure', or coventure, has been defined as a special combination of two or more persons wherein some specific venture for profit is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for profit or a special combination of persons undertaking jointly some specific adventure for profit, for which purpose they combine their property, money, effects, skill, and knowledge........ Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fixing of salaries by joint agreement."
(emphasis supplied) Black's Law Dictionary (7th Edition, page 843) defines `joint venture' thus :
"Joint Venture : A business undertaking by two or more persons engaged in a single defined project. The necessary elements are : (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each member's equal voice in controlling the project."
An illustration of joint venture may be of some assistance. An agreement between the owner of a land and a builder, for construction of apartments and sale of those of apartments so as to share the profits in a particular ratio may be a joint venture, if the agreement discloses an intent that both parties shall exercise joint control over the construction/development and be accountable to each other for their respective acts with reference to the project.
18. We may now notice the various terms in the agreement between the appellant and first respondent which militate against the same being a `joint venture'. Firstly, there is a categorical statement in clause 24, that the agreement shall not be deemed to constitute a partnership between the owner and the builder. The land-owner is specifically excluded from management and is barred from interfering with the construction in any manner (vide clause 15) and the Builder has the exclusive right to appoint the Architects, contractors and sub-contractors for the construction (vide clause 16). The Builder is entitled to sell its share of the building as it deemed fit, without reference to the land owner. (vide clauses 7 and 13). The builder undertakes to the landowner that it will construct the building within 12 months from the date of sanction of building plan and deliver the owner's share to the land owner (vide clauses 9 & 14). The Builder alone is responsible to pay penalties in respect of deviations (vide clause 12) and for payment of compensation under the Workmen's Compensation Act in case of accident (vide clause 10). Secondly, there is no community of interest or common/joint control in the management, nor sharing of profits and losses. The land owner has no control or participation in the management of the venture. The requirement of each joint venturer being the principal as well as agent of the other party is also significantly absent. We are therefore of the view that such an agreement is not a joint venture, as understood in law.
19. What then is the nature of the agreement between the appellant and the first respondent? Appellant is the owner of the land. He wants a new house, but is not able to construct a new house for himself either on account of paucity of funds or lack of expertise or resources. He, therefore, enters into an agreement with the builder. He asks the builder to construct a house and give it to him. He says that as he does not have the money to pay for the construction and will therefore permit the builder to construct and own additional floor/s as consideration. He also agrees to transfer an undivided share in the land corresponding to the additional floor/s which falls to the share of the builder. As a result, instead of being the full owner of the land with an old building, he becomes a co-owner of the land with a one-third share in the land and absolute owner of the ground floor of the newly constructed building and agrees that the builder will become the owner of the upper floors with corresponding two-third share in the land. As the cost of the undivided two-third share in the land which the land owner agrees to transfer to the builder, is more than the cost of construction of the ground floor by the builder for the landowner, it is also mutually agreed that the builder will pay the landowner an additional cash consideration of Rs.8 lakhs. The basic underlying purpose of the agreement is the construction of a house or an apartment (ground floor) in accordance with the specifications, by the builder for the owner, the consideration for such construction being the transfer of undivided share in land to the builder and grant of permission to the builder to construct two floors. Such agreement whether called as a `collaboration agreement' or a `joint-venture agreement', is not however a `joint-venture'. There is a contract for construction of an apartment or house for the appellant, in accordance with the specifications and in terms of the contract. There is a consideration for such construction, flowing from the landowner to the builder (in the form of sale of an undivided share in the land and permission to construct and own the upper floors). To adjust the value of the extent of land to be transferred, there is also payment of cash consideration by the builder. But the important aspect is the availment of services of the builder by the land-owner for a house construction (construction of owner's share of the building) for a consideration. To that extent, the land-owner is a consumer, the builder is a service-provider and if there is deficiency in service in regard to construction, the dispute raised by the land owner will be a consumer dispute. We may mention that it makes no difference for this purpose whether the collaboration agreement is for construction and delivery of one apartment or one floor to the owner or whether it is for construction and delivery of multiple apartments or more than one floor to the owner. The principle would be the same and the contract will be considered as one for house construction for consideration. The deciding factor is not the number of apartments deliverable to the land owner, but whether the agreement is in the nature of a joint-venture or whether the agreement is basically for construction of certain area for the land-owner.
20. It is however true that where the contract is a true joint venture the scope of which has been pointed out in para 17 above, the position will be different. In a true joint venture agreement between the land-owner and another (whether a recognized builder or fund provider), the land-owner is a true partner or co-adventurer in the venture where the land owner has a say or control in the construction and participates in the business and management of the joint venture, and has a share in the profit/loss of the venture. In such a case, the land owner is not a consumer nor is the other co- adventurer in the joint venture, a service provider. The land owner himself is responsible for the construction as a co-adventurer in the venture. But such true joint ventures are comparatively rare. What is more prevalent are agreements of the nature found in this case, which are a hybrid agreement for construction for consideration and sale and are pseudo joint-ventures. Normally a professional builder who develops properties of others is not interested in sharing the control and management of the business or the control over the construction with the land owners. Except assuring the land owner a certain constructed area and/or certain cash consideration, the builder ensures absolute control in himself, only assuring the quality of construction and compliance with the requirements of local and municipal laws, and undertaking to deliver the owners' constructed area of the building with all certificates, clearances and approvals to the land owner.
21. Learned counsel for the respondent contended that the agreement was titled as "collaboration agreement" which shows an intention to collaborate and therefore it is a joint venture. It is now well settled that the title or caption or the nomenclature of the instrument/document is not determinative of the nature and character of the instrument/document, though the name may usually give some indication of the nature of the document. The nature and true purpose of a document has to be determined with reference to the terms of the document, which express the intention of the parties. Therefore, the use of the words `joint venture' or `collaboration' in the title of an agreement or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses.
22. The State Commission and National Commission have proceeded on an assumption, which appears to be clearly baseless, that wherever there is an agreement for development of a property between the property owner and builder under which the constructed area is to be divided, it would automatically amount to a joint venture and there is no question of the landholder availing the service of the builder for consideration. Reliance was placed on two decisions, the first being that of the National Commission in C Narasimha Rao v. K R Neelakandan - I (1994) CPJ 160 and the second being that of the Delhi State Commission in Har Sarup Gupta v. M/s. Kailash Nath & Associates - II (1995) CPJ 275. In C Narasimha Rao, there was an agreement between the landowners and a builder for construction of a building and sharing of the constructed area. The old building was demolished, but the builder failed to complete the construction of a new building and hand over the owner's share of flats. The landowners preferred a complaint claiming Rs.94,000/- as the value of the malba (retrievable valuables from the debris of the old building) that had been removed by the builder. The National Commission held that as the claim was for recovery of the money being value of the malba removed by the builder, it does not amount to a claim based on deficiency of service and therefore such a claim would fall outside the scope of the Consumer Protection Act. The said decision is wholly inapplicable, as it dealt with a different question. In Har Swarup Gupta, the State Commission was concerned with a claim of the landowners for compensation alleging that the builder had not built the flats in terms of the contract under which the landowners were entitled to 36% and the builder was entitled to 64% of the built up area. The State Commission held that the complaint was not maintainable on the ground that on similar facts the National Commission in Narasimha Rao's case (supra) had held that the fora under the Consumer Protection Act did not have jurisdiction. But Narasimha Rao (supra), as noticed above, was not similar on facts, nor did it lay down any such proposition. Har Swarup Gupta is clearly wrongly decided.
23. We may notice here that if there is a breach by the landowner of his obligations, the builder will have to approach a civil court as the landowner is not providing any service to the builder but merely undertakes certain obligations towards the builder, breach of which would furnish a cause of action for specific performance and/or damages. On the other hand, where the builder commits breach of his obligations, the owner has two options. He has the right to enforce specific performance and/or claim damages by approaching the civil court. Or he can approach the Forum under Consumer Protection Act, for relief as consumer, against the builder as a service- provider. Section 3 of the Act makes it clear that the remedy available under the Act is in addition to the normal remedy or other remedy that may be available to the complainant.
24. The District Forum, the State Commission and the National Commission committed a serious error in wrongly assuming that agreements of this nature being in the nature of joint venture are outside the scope of consumer disputes.
Re : Second Question
25. Under the agreement, the builder is required to construct the ground floor in accordance with the sanctioned plan, and specifications and the terms in the agreement and deliver the same to the owner. If the construction is part of a building which in law requires a completion certificate or C&D forms (relating to assessment), the builder is bound to provide the completion certificate or C&D forms. He is also bound to provide amenities and facilities like water, electricity and drainage in terms of the agreement. If the completion certificate and C&D forms are not being issued by the Corporation because the builder has made deviations/violations in construction, it is his duty to rectify those deviations or bring the deviations within permissible limits and secure a completion certificate and C&D forms from MCD. The builder can not say that he has constructed a ground floor and delivered it and therefore fulfilled his obligations. Nor can the builder contend that he is not bound to produce the completion certificate, but only bound to apply for completion certificate. He cannot say that he is not concerned whether the building is in accordance with the sanction plan or not, whether it fulfills the requirements of the municipal bye-laws or not, or whether there are violations or deviations. The builder cannot be permitted to avoid or escape the consequences of his illegal acts. The obligation on the part of the builder to secure a sanctioned plan and construct a building, carries with it an implied obligation to comply with the requirements of municipal and building laws and secure the mandatory permissions/certificates.
26. The surviving prayer is no doubt only for a direction to the builder to furnish the completion certificate and C&D forms. It is not disputed that a building of this nature requires a completion certificate and building assessment (C&D forms). The completion certificate and C&D forms will not be issued if the building constructed is contrary to the bye-laws and sanctioned plan or if the deviations are beyond the permissible compoundable limits. The agreement clearly contemplates the builder completing the construction and securing completion certificate. The agreement, in fact, refers to the possibility of deviations and provides that if there are deviations, the builder will have to pay the penalties, that is do whatever is necessary to get the same regularized. Even if such a provision for providing completion certificate or payment of penalties is not found in the agreement, the builder cannot escape the liability for securing the completion certificate and providing a copy thereof to the owner if the law requires the builder to obtain completion certificate for such a building.
27. A prayer for completion certificate and C&D Forms cannot be brushed aside by stating that the builder has already applied for the completion certificate or C&D Forms. If it is not issued, the builder owes a duty to make necessary application and obtain it. If it is wrongly withheld, he may have to approach the appropriate court or other forum to secure it. If it is justifiably withheld or refused, necessarily the builder will have to do whatever that is required to be done to bring the building in consonance with the sanctioned plan so that the municipal authorities can inspect and issue the completion certificate and also assess the property to tax. If the builder fails to do so, he will be liable to compensate the complainant for all loss/damage. Therefore, the assumption of the State Commission and National Commission that the obligation of the builder was discharged when he merely applied for a completion certificate is incorrect. Conclusion
28. The District Forum and National Commission did not examine the matter with reference to facts. The State Commission held that the complaint was not maintainable but purported to consider the factual question in a half-hearted and casual manner. The matter will now have to go back to District Forum for deciding the matter on merits. We, accordingly, allow this appeal as follows :
a) The orders of the National Commission, State Commission and District Forum are set aside.
b) The appellant's complaint is held to be maintainable.
c) The District Forum is directed to consider the matter on merits and dispose of the matter in accordance with law, within six months from the date of receipt of this order.
d) The respondents shall pay costs of Rs.25,000/- to the appellant.
...............................J [R. V. Raveendran] ..............................J A[Lokeshwar Singh Panta] New Delhi. July 10, 2008 .”
Now in this case it has become clear that the opposite parties failed to deliver the possession of the said flat within the stipulated time.
Further regarding delay and regarding completion certificate Hon’ble Supreme Court has very well discussed in the following case law. Hon’ble Supreme Court has also discussed the one-sided agreement which is often entered into by the builder and the allottee.
In the case of Kolkata West International City Pvt. Ltd. Vs. DevasisRudra ,[Civil Appeal No. 3182 of 2019 @ SLP (C) No(S). 1795 of 2017] ;2019 Latest Case law 299 SC
Dr. Dhananjaya Y. Chandrachud, J.
“ This appeal arises from the judgment dated 21 November 2016 of the National Consumer Disputes Redressal Commission1. A Buyer's Agreement dated 2 July 2007 was entered into between the appellant and the respondent. The respondent paid an amount of Rs 39,29,280 in 2006 in terms of a letter of allotment dated 20 September 2006. The agreement between the parties envisaged that the appellant would hand over possession of a Row House to the respondent by 31 December 2008 with a grace period of a further six months ending on 30 June 2009.
The respondent filed a consumer complaint before the West Bengal State Consumer Disputes Redressal Commission2 in 2011 1 "NCDRC" "SCDRC" 2 praying for possession of the Row House and in the alternative for the refund of the amount paid to the developer together with interest at 12% per annum. Compensation of Rs 20 lakhs was also claimed. The SCDRC allowed the complaint by directing the appellant to refund the moneys paid by the respondent together with interest at 12% per annum and compensation of Rs 5 lakhs. The NCDRC has modified this order by reducing the compensation from Rs 5 lakhs to Rs 2 lakhs. Mr. Ravinder Narain, learned counsel appearing on behalf of the appellant submits that the primary relief which was sought in the consumer complaint was for delivery of possession. According to the appellant, the completion certificate was received on 29 March 2016, which was intimated to the respondent on 11 April 2016.
Moreover, before the SCDRC, in its written submissions, the appellant had offered possession of the Row House to the respondent. It has also been stated that in a complaint which was filed by an association representing the allottees of 161 Row houses, a settlement was arrived on 11 September 2018 before the NCDRC specifying the date on which possession would be handed over together with interest at 6% per annum instead of 4% as mentioned in the Buyers' Agreement. It was urged that the developer having made a substantial investment in terms of the agreement, a direction for refund is not warranted. It has also been urged that the SCDRC in the course of its decision erroneously observed that the developer was unable to fulfill its obligation to complete the construction within the agreed period and it was not certain when the Row house would be handed over. It was urged that this observation by the SCDRC is contrary to the record since before it, a specific offer of possession was made.”
“ Interestingly, where the buyer is in default, the agreement stipulates that interest at the rate of 18 per cent from the date of default until the date of payment would be charged for a period of two months, failing which the allotment would be cancelled by deducting 5% of the entire value of the property. The agreement was evidently one sided. For a default on the part of the buyer, interest at the rate of 18% was liable to be charged. However, a default on the part of the developer in handing over possession would make him liable to pay interest only at the savings bank rate prescribed by the SBI. There is merit in the submission which has been urged by the buyer that the agreement was one sided.
The clause which has been extracted in the earlier part of this order will not preclude the right and remedy available to the buyer to claim reasonable interest or, as the case may be, compensation. The essential aspect of the case which is required to be analysed is whether the buyer was entitled to seek a refund or was estopped from doing so, having claimed compensation as the primary relief in the consumer complaint.
The Buyer's Agreement is dated 2 July 2007. In terms of the agreement, the date for handing over possession was 31 December 2008, with a grace period of six months. Even in 2011, when the buyer filed a consumer complaint, he was ready and willing to accept possession. It would be manifestly unreasonable to construe the contract between the parties as requiring the buyer to wait indefinitely for possession. By 2016, nearly seven years had elapsed from the date of the agreement. Even according to the developer, the completion certificate was received on 29 March 2016. This was nearly seven years after the extended date for the handing over of possession prescribed by the agreement. A buyer can be expected to wait for possession for a reasonable period.
A period of seven years is beyond what is reasonable. Hence, it would have been manifestly unfair to non-suit the buyer merely on the basis of the first prayer in the reliefs sought before the SCDRC. There was in any event a prayer for refund. In the circumstances, we are of the view that the orders passed by the SCDRC and by the NCDRC for refund of moneys were justified. Having regard to all the facts and circumstances of the case, we modify the order of the NCDRC by directing that the appellant shall pay interest at the rate of 9% per annum to the respondent instead and in place of 12% as directed by the NCDRC. Save and except for the above modification, we affirm the directions of the NCDRC. ”
So it is clear that such type of agreement which is one sided cannot be binding on the consumer. When the consumer is in default you will charge exorbitant rate of interest and when you, the builder, is in default you provide a meagre amount of damage to the consumer. Therefore such an agreement cannot be considered as a true agreement or contract in the parties. Now we come to the present case. It is clear that the opposite party failed to provide the possession of the flat within stipulated time that is on or before 24.04.2010. For the convenience of calculation of the damages and interest we take the cut-off date as 01.05.2010. Now we have to see the compensation, loss of rent due to non-delivery of possession and rate of interest on the deposited amount by way of judgement delivered by Hon’ble Supreme Court and Hon’ble NCDRC.
Ghaziabad Development Authority v. Balbir Singh
