When a builder fails to de­liver on agree­ment

In a dis­puted agree­ment be­tween a builder and landowner, the lat­ter can ap­peal for jus­tice as a con­sumer

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Su­nil Tyagi ht­es­tates@hin­dus­tan­times.com The au­thor is a se­nior part­ner at Zeus Law, a cor­po­rate com­mer­cial law firm. One of its ar­eas of spe­cial­i­sa­tions is real es­tate trans­ac­tional and lit­i­ga­tion work. If you have any queries, email us at ht@zeus.firm.

Build­ing con­struc­tion ar­range­ments are com­mon in In­dia, al­low­ing a builder to con­struct a struc­ture on the land owned by an­other party. The prop­erty is nor­mally shared be­tween the builder and the landowner. The builder can also make cash pay­ment to the landowner and hand over to him the built-up area.

Courts in In­dia when han­dling such build­ing ar­range­ments have of­ten had to de­cide if the owner of the land could make a com­plaint un­der the Con­sumer Pro­tec­tion Act, 1986. Could own­ers be con­sid­ered as con­sumers and builders as ser­vice providers?

In many cases, the courts have held that the landowner is not a con­sumer un­der sec­tion 2(1)(d) of the Act as his or her ob­jec­tive was to en­ter into an agree­ment with the builder to get the con­struc­tion com­pleted for sell­ing or rent­ing it to earn a profit. As the landowner had a profit mo­tive, he or she could not be con­sid­ered a con­sumer and there­fore could not main­tain a com­pli­ant un­der the Act.

A sim­i­lar ques­tion arose in the mat­ter of Bunga Daniel Babu ver­sus Sri Va­sudeva Con­struc­tions and Oth­ers. The Supreme Court (SC) set aside the or­der passed by the Na­tional Con­sumer Dis­pute Re­dres­sal Com­mis­sion (NCDRC) and State Con­sumer Dis­pute Re­dres­sal Com­mis­sion (SCDRC) that the com­plainant landowner was not a con­sumer un­der the Act. NCDRC and SCDRC based their judg­ment on the as­sump­tion that the landowner had made an ar­range­ment with a builder with com­mer­cial pur­pose in mind and thus fell out of the purview of con­sumer as per the Act.

The landowner and the builder signed a mem­o­ran­dum of un­der­stand­ing (MoU) in which the builder was re­spon­si­ble for con­struc­tion, timely delivery, ob­tain­ing ap­provals and sanc­tions. Non-com­pli­ance of the same at­tracted penalty. The builder failed to com­ply with the time­lines as per the MoU and also de­faulted/ made de­vi­a­tions/ omis­sions in the sanc­tion plan.

When the landowner ap­proached the district fo­rum, it said the trans­ac­tion be­tween him and the builder could not be termed as joint ven­ture as the landowner came within the def­i­ni­tion of con­sumer un­der sec­tion 2(1)(d) of the Act. Ag­grieved by the or­der, the builder ap­pealed to the SCDRC, which re­versed the district fo­rum’s or­der. SCDRC held that the trans­ac­tion was meant for a com­mer­cial pur­pose, as the landowner had the in­ten­tion to get it con­structed, sell, let it on rent and earn prof­its. The NCDRC con­curred with the view of SCDRC.

The com­plainant filed a spe­cial leave be­fore the SC, which had to de­cide whether the com­plainant was within the def­i­ni­tion of con­sumer read with ex­pla­na­tion of the Act.

The SC said in a true joint ven­ture agree­ment be­tween a landowner and builder, the former was a true part­ner or co-ad­ven­turer, hav­ing a say or con­trol in the con­struc­tion, par­tic­i­pa­tion in busi­ness or man­age­ment of the ven­ture and a share in profit/loss. Such an agree­ment is rare. Nor­mally in such agree­ments, the landowner pro­vides the land and the builder con­structs a build­ing. There­after, the landowner and builder share the con­structed area. The landowner who has some apart­ments can re­tain the same or dis­pose of his share of apart­ments with cor­re­spond­ing un­di­vided shares to oth­ers. The usual fea­ture of such an agree­ment is that the landowner would have no con­trol or say in the con­struc­tion or man­age­ment of the busi­ness.

Ex­cept for en­sur­ing the landowner, a cer­tain con­structed area and/or cer­tain cash con­sid­er­a­tion, the builder would en­sure ab­so­lute con­trol in him­self, only as­sur­ing qual­ity of con­struc­tion, com­pli­ance with the lo­cal, mu­nic­i­pal laws and timely delivery of con­structed area/ build­ing to the landowner.

The SC also stated that the ti­tle/cap­tion/nomen­cla­ture of the in­stru­ment/doc­u­ment was not de­ter­mi­na­tive of its na­ture or char­ac­ter. Mere use of the words “joint ven­ture” or “col­lab­o­ra­tion” in the ti­tle or body of the agree­ment did not make the trans­ac­tion a joint ven­ture, un­til and un­less there were pro­vi­sions of shared con­trol of in­ter­est, man­age­ment, prof­its and losses.

Af­ter scru­tiny of the pro­vi­sions of the MoU, the SC held that the landowner was nei­ther a part­ner nor a co-ad­ven­turer. He had no say or con­trol over the con­struc­tion, nor did he par­tic­i­pate in the busi­ness. The only thing he was en­ti­tled to was a cer­tain con­structed area. Thus, the agree­ment could not be termed as a joint ven­ture. SC said avail­ing of ser­vices of the builder by the landowner for con­struc­tion, for a con­sid­er­a­tion was an im­por­tant as­pect and go­ing by the same the landowner was a con­sumer and the builder a ser­vice provider and if there was de­fi­ciency in re­gard to con­struc­tion, the dis­pute raised by the landowner would be a con­sumer dis­pute.

A landowner is a con­sumer and the builder a ser­vice provider. In case of de­fi­ciency in re­gard to con­struc­tion, it is a con­sumer-re­lated dis­pute. ISTOCK

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