Builder can cancel allotment for non payment of demands – NCDRC

Pained by the delay in delivery of their apartment, home buyers sometimes hold further payments to the developer. This often results in cancellation of allotment and forfeiture of earnest money by the developer. National Consumer Disputes  Redressal Commission (NCDRC) in its recent order favored the developer’s decision to cancel the allotment.

This is the case of a Buyer who booked a residential apartment in 2005 in Unitech Cascades, Greater Noida. On visiting the construction site of the project in 2006, buyer came to know that no construction activity was going on and therefore he stopped making further payments to the the developer. The delivery date of his apartment was still two years away in 2008. Developer offered the possession of apartment in 2010 and asked buyer to pay balance amount in 30 days. When buyer did not make further payments, in 2014, the developer cancelled that allotment after deduction of charges like very high earnest money, brokerage charges and interest of 2%. NCDRC favored developer in deduction of only earnest money at 10% of flat value and ordered refund of other charges to buyer at 12% interest.

Buyer’s Grievances 

  • Builder had promised to deliver possession of the flat by March, 2008.
  • When he came to know that no construction activity was going, he stopped making further payment to the developer.

Developer’s Case

  • On 15.11.2010, we  informed the buyer that the unit booked by him was ready for possession and requested him to pay the dues within 30 days thereof.  The buyer did not make the aforesaid payment.
  • The buyer had an opportunity to make payment in 2010 since it was clearly stated in the possession letter that the unit allotted to him was ready for delivery of possession.
  • The allotment was cancelled on 07.01.2014 and a sum of Rs. 10,73,104/- was forfeited claiming the aforesaid amount to be the earnest money and Rs. 4,65,158/- was refunded to the buyer without any interest. We had also deducted a sum of Rs. 71,349/- being the brokerage paid to the broker and simple interest at a nominal rate of 2% per annum was deducted for the delayed payment.
  • As per BBA,  we could have deducted interest @ 18% per annum, they have actually deducted only a nominal interest calculated @ 2% per annum from the date the installment became due till the date the allotment was cancelled.

Court’s Observations on case facts

  • Since the payment plan agreed by the buyer with the builder was a time linked plan and not a construction linked plan, the failure of the developer to complete or even start construction could not have been a ground for withholding further payment to the developer, after March 2006.
  • The last payment by the buyer to the builder was made on 06.03.2006.  The possession to the buyer was to be delivered by March, 2008.  Considering that two years were still left when the buyer stopped making payment to the builder, he could not have assumed that the developer shall not be able to deliver possession by the stipulated date and accordingly could not have withheld further payment to the developer.
  • Since the buyer himself defaulted in performing his part of obligation under the agreement, he cannot insist upon the developer continuing to perform the obligation cast on it under the said agreement.  Therefore, in our opinion, the developer was justified in cancelling the allotment, forfeiting the earnest money from the amount deposited by the buyer and refunding the balance amount to him.
  • Had the buyer made payment as per the payment schedule agreed by him and the builder defaulted in delivery of possession by the stipulated date, he would have been entitled to seek appropriate compensation from the builder, but having defaulted since May 2006, in payment of the installment as per the schedule agreed by him, he failed to perform his part of the obligation under the agreement between the parties.

Court’s Observations on deductions

  • 10% of the total price of the flat, which comes to Rs.4,60,012/-,  the builder was entitled to deduct from the amount deposited by the buyer.
  • As far as the brokerage is concerned, the developer was not entitled to deduct the aforesaid amount from the amount deposited by the buyer.  The brokerage has to be paid by the developer out of its own profit and not out of the booking amount or sale consideration paid by the flat buyer.
  • As regards interest on the overdue installments, which the developer has charged only at the nominal rate of 2% per annum, in our opinion, since the buyer committed default for the first time on 01.05.2006, the developer had a legal right to cancel the allotment on that date itself.  Had the developer cancelled the allotment on that very date, no interest on the unpaid installment would have accrued.  Having itself delayed the cancellation of allotment on account of non-payment of the installments, the developer cannot recover interest for the period the cancellation was delayed by it.  The developer cannot on the one hand defer the cancellation of allotment despite default by the allottee, and charge interest on the overdue payment on the other hand.  It can not be allowed to take advantage of its own act, at the cost of the Consumer.  Had the developer cancelled the allotment on 01.05.2006 and sold the flat to some other person, it would have been able to receive the cost of the flat from the new buyer. Accordingly we hold that since the developer could have cancelled the allotment immediately on the fourth installment falling due on 01.05.2006, it was not entitled to deduct any amount as interest on the overdue installment.

The Order

We direct the developer to refund the balance amount of Rs. 13,64,510/- (Rs. 18,57,923 – Rs. 4,93,413) to the buyer within six weeks from today along with interest on that amount @ 12% per annum from the date of deposit till the date of payment.

Order Copy: CONSUMER CASE NO. 505 OF 2014


One thought on “Builder can cancel allotment for non payment of demands – NCDRC

  • December 5, 2015 at 10:20 am

    very informative

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