Slowdown is no excuse for delayed construction

Would recession be a ground for breach of contract? This interesting issue was dealt with in an order dated May 7 by a bench of the National Consumer Disputes Redressal Commission in the case of Sai Arvind Property Developers versus Sri Koduru Subba Reddy & Ors and connected matters.

Koduru Reddy and Ravindra Reddy (complainants) had filed two identical complaints before the Andhra Pradesh State Commission. Each of them had booked independent houses to be constructed by Sai Arvind Property Developers (builders) on lands owned by Mamidi Reddy and Mamidi Parasanna (land owners). The cost of each of the house was Rs 80 lakh. Of this, Rs 35 lakh had been paid by each of them. In their complaints against the builder and land owners, they alleged the construction was delayed and their dreams shattered due to the incompetence of the builder and land owners.

After hearing all the parties, the State Commission observed the land owners could not be held liable as no payment had been made to them. As the builder had received money, the builder would be liable. Since construction was delayed and possession was not given, the builder was ordered to refund the amounts paid by each purchasers, along with interest at nine per cent per annum, compensation of Rs 10,000 and costs or Rs 5,000.

Not satisfied with the compensation awarded, the complainants appealed against the order. The builder also challenged the order, claiming he could not be held liable as the complainants had defaulted in making payments. Also, a slump in the market and the Telangana agitation had resulted in a drastic fall in the real estate business. Hence, construction work had temporarily been stopped. The builder claimed that work would commence when the situation improved.

The National Commission observed the delay in construction of the houses was admitted by the builder. The agreement provided that possession would be given by February 13, 2009, with a grace period of three months. The valuation report of a chartered engineer showed the construction of each house costs only Rs 22.42 lakh. Each of the complainants has paid about Rs 35 lakh, much more than this amount and adequate to cover the construction cost. Yet, even at the time when the complaint was filed in 2010, the houses were not ready for possession.

The National Commission held there was deficiency in service for which the builder would be liable. The builder’s appeal was dismissed as being devoid of merit.

As regards the appeal of the complainants, the order of refund was confirmed. The National Commission also held that interest at nine per cent was reasonable. However, the period over which interest would be payable was enhanced, holding that it would have to be computed from the dates of payment of each instalment, and not merely for the period of delay. In addition, compensation was increased to Rs 50,000 to each complainant.

When a consumer’s money is used by the other party, refund has to be awarded for the entire period, right from the date when payment was made till the amount is actually refunded. However, many consumer forums award interest either from the date of cancellation or from the date when the complaint is lodged, depriving the consumer of a substantial amount of interest. This is incorrect, and consumers must appeal against such orders.

 

The writer is a consumer activist