Supreme Court trims flat buyer refund in tripartite housing loan case, bars double compensation - Builder must refund only the amount actually paid by the buyer with 12% simple interest; Court awards Rs. 15 lakh compensation and upholds Rs. 2 lakh penalty on bank for deficient loan disbursal checks.
The Supreme Court has modified a consumer forum’s order in a delayed housing possession dispute, ruling that a homebuyer cannot receive refund of the entire apartment price when a large part of the consideration was paid directly by the bank under a loan arrangement and remains unpaid by the borrower. The Court held that refunding the full amount to the buyer would amount to unjust enrichment.
A Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe delivered the verdict in appeals arising from a complaint filed by Madhu Kudapa, formerly known as K. Madhusudhan Rao, against M/s Lodha Healthy Constructions and Developers Pvt. Ltd. and Housing Development Finance Corporation Ltd.
The dispute began in 2009 when the buyer booked an apartment in the “Lodha Bellezza” project in Hyderabad. He paid about Rs. 51.11 lakh from his own funds, while the bank sanctioned a Rs. 2 crore housing loan and disbursed Rs. 1.68 crore directly to the builder in tranches. Although the builder had received nearly 95% of the sale consideration, possession was delayed for years. The buyer then approached the National Consumer Disputes Redressal Commission seeking refund, interest, rent, and compensation.
The Supreme Court agreed that the builder had failed to deliver possession and was liable to refund the money it had received. However, it held that the refund could extend only to the amount actually paid by the buyer from his own pocket, namely Rs. 1,27,34,726, and not the loan amount still outstanding to the bank. The Court said the tripartite arrangement may treat disbursal to the builder as disbursal to the borrower for repayment purposes, but it does not convert borrowed money into the borrower’s own money.
On interest, the Court rejected the buyer’s demand for 18% per annum and relied on Clause 24 of the agreement for sale, which specifically provided for simple interest at 12% per annum in the event of delayed possession and termination. The Court said contractual terms should not be departed from without strong reasons. It therefore ordered refund of the buyer’s own payments with 12% simple interest from the date of each payment.
The Court also dealt with the buyer’s claim for rent, mental agony, and litigation expenses. While noting that the Commission had failed to address these prayers, the Supreme Court refused to award rent separately, holding that it would amount to double compensation when interest was already being paid for deprivation of money. The Court further observed that the buyer had elected the remedy of termination and refund, and could not simultaneously claim rent as if he had continued to occupy the apartment.
At the same time, considering the prolonged delay and the buyer’s loss of the benefit of price escalation, the Court awarded a lump sum compensation of Rs. 15 lakh in full and final settlement of claims towards rent, harassment, mental agony, and litigation expenses.
The Court also upheld the Commission’s finding that the bank had been deficient in service. It noted that the borrower had repeatedly asked for inspection details and verification of construction progress before loan disbursal, but the bank produced no inspection reports and led no evidence to prove that stage-wise verification had actually been carried out. The award of Rs. 2 lakh against the bank was therefore sustained.
Importantly, the Court clarified that the bank’s independent recovery claim against the borrower could not be decided in the consumer proceedings, as the bank’s appeal on that issue was already pending before the High Court. It directed the remaining amount deposited by the builder to be kept in an interest-bearing account, subject to the outcome of that appeal.
Bottom Line:
Consumer dispute - Delayed possession of flat - Refund in builder-buyer-bank tripartite arrangement - Buyer cannot receive refund of entire amount including unpaid loan component, as that would amount to unjust enrichment - Buyer entitled only to amount paid from own pocket with 12% simple interest - Separate rent claim not maintainable in addition to refund with interest, but lump sum compensation can be awarded - Bank held deficient in service for failing to prove stage-wise verification before loan disbursal.
Statutory provision(s): Consumer Protection Act, 1986 Sections 2(1)(g), 14(1)(d), 22, 23, Indian Contract Act, 1872 Sections 64, 65, 68, 69, 70, 71, 72
