Case: CHANDIGARH HOUSING BOARD Vs. M/S. PARASVANATH DEVELOPERS PVT. LTD.

3.1 The Appellant herein, Chandigarh Housing Board (hereinafter CHB) invited bids to implement an integrated project with residential, commercial, and other related infrastructure facilities at the Rajiv Gandhi Chandigarh Technological Park in Chandigarh. The bid sent by Respondent No. 1 herein, M/s. Parasvanath Developers Ltd. (hereinafter Developer) was accepted by CHB. Consequently, CHB and the Developer entered into a Development Agreement dated 06.10.2006 for the grant of development rights in respect of land measuring 123 acres. The said land was allotted to the Developer by CHB for constructing residential units, who then advertised its project for the sale of flats and pent houses as Parsvanath Pride Asia3.2 Respondent No. 2 herein (hereinafter the Complainant) applied for the allotment of a five-bedroom apartment in this project and paid a sum of Rs.1,03,31,250/- towards the total tentative price of Rs. 3,93,25,000/-. Later, a tripartite flat buyer agreement (hereinafter Tripartite Agreement) was executed between the Developer, CHB, and the Complainant on 23.04.2008. Clause 9(a) of this agreement stated that the construction of the flat was likely to be completed within a period of 36 months from the signing of the Development Agreement between CHB and the Developer, i.e., 06.10.20063.3 Having received no intimation from the Developer about the status of the project, between September-October 2009, the Complainant inquired and found that construction had not been commenced at the project site. Consequently, he sought a refund of the deposit amount of Rs.1,03,31,250 with interest at 20% p.a. When the refund was not made, the Complainant approached the National Commission on 24.02.2011. It is crucial to note here that similar complaints were filed by other flat buyers before the State Commission and the National Commission3.4 Before the National Commission, it was the case of the Developer that the construction could not be carried out in time, as CHB had failed to hand over the possession of unencumbered land to it for raising the construction. On the contrary, CHB argued that disputes only existed for land earmarked for commercial activities, and there was no dispute with respect to the 123 acres of land handed over to the Developer for the construction of residential units. Therefore, it was contended by CHB that the Developer was liable to satisfy the claim of the flat buyer and the complaint was bad as against CHB for misjoinder of party. Notably, the dispute between the Developer and the CHB with respect to the Development Agreement was referred to arbitration3.5 Pending the arbitration proceedings, the National Commission passed an order in a similar matter on 05.03.2013, noting that the flat buyers could not be deprived of their legitimate claims due to an inter se dispute between CHB and the Developer. Observing that the Developer had failed to construct the residential units and hand over possession in time, the National Commission passed an interim order directing the Developer to pay compensation to the flat buyer in terms of Clause 9(c) of the Tripartite Agreement at Rs. 107.60 per sq metre, subject to the final outcome of the arbitration proceedings. Further, in terms of Clause 9(d) of the Tripartite Agreement, the Developer and CHB were directed to pay interest at the uniform rate of 9% p.a. on the amount to be refunded to the flat buyers in the ratio of 70:303.6 Finally, on 09.01.2015, the learned arbitrator passed an award in the arbitration proceedings between CHB and the Developer. The award specifically noted that since the flat buyers were not party to the arbitration, the award would only bind CHB and the Developer, and the entitlement of the residential flat buyers would have to be decided based on the facts of each case in independent proceedings. However, with respect to the liability to refund the advances collected from the residential unit buyers, the learned arbitrator found that the non-completion of the project was a result of breaches committed by both, the Developer and CHB. Therefore, he directed that any amount payable on account of refund of price, interest, or compensation (if and when finally determined by the National Commission or the Supreme Court) would be borne by the Developer and CHB in the ratio of 70:303.7 Meanwhile, an order was passed by a 3-judge Bench of this Court on 21.04.2015 in an SLP filed against the order of the National Commission dated 05.03.2013 and other connected matters. Dismissing the SLP, the Court took note of the arbitration award dated 09.01.2015 and observed that Clause 9(c) of the Tripartite Agreement, which stipulates the payment of compensation, would only be applicable as against the Developer if it is not in a position to offer a flat to the buyer after the expiry of 36 months as stated in Clause 9(a) of the Tripartite Agreement3.8 Finally, vide the impugned order dated 11.05.2016, the National Commission disposed of the consumer complaint filed by Respondent No. 2 herein. Taking into account the observations in the final arbitral award attributing responsibility of breach of the Development Agreement to the Developer and CHB, as well as the fact that the Developer had received the deposit sum from the Complainant long ago and had benefited from it, the National Commission directed CHB and the Developer to pay the principal sum of Rs. 1,03,31,250/- to the Complainant at 10% p.a. from the date of deposit till realization. Further, Rs. 1 lakh was awarded for mental harassment and another Rs. 1 lakh was awarded towards litigation charges. Both of these were directed to be borne by the Developer and CHB in the ratio of 70:30.

Court's reasoning:
From the above, it is evident that the Developer and CHB agreed to complete the construction of the residential units within a period of 36 months from the date of signing of the Development Agreement on 06.10.2006. In the event that such construction was not done, Clause 9(c) would come into operation and the Developer would become liable to compensate the buyer at Rs. 107.60 per sq metre of the super area of the unit, per month10. A close reading of Clause 9(c) of the Tripartite Agreement indicates two salient features– first , the liability to pay compensation under this Clause can only be affixed on the Developer if it fails to fulfill the condition under Clause 9(a) and perform its obligations under the Development Agreement, i.e. if it does not hand over the possession of the flat to the buyer within a period of 36 months from the date of signing of the Development Agreement. The second feature of Clause 9(c) is that it envisages a fixed compensation of Rs. 107.60 per sq metre per month to be paid to the flat buyer10.1 When the facts of the instant case are examined in light of these observations, it becomes clear that Clause 9(c) is not attracted in the present case at all. First, there has been no fulfilment of the condition under Clause 9(a) for Clause 9(c) to come into operation. This is because the Developer never even began construction at the project site due to the dispute with CHB about the encumbrances on the allotted land. Thus, the question of finishing such construction within the period mentioned under Clause 9(a) does not even arise. Consequently, Clause 9(c), which is concerned with the non- fulfilment of this obligation, is also not attractedThus, given that the breach of the Development Agreement is attributable to both, CHB and the Developer, the failure to hand over possession of the flat to the buyer cannot be said to be on account of the non-performance of the obligation of the Developer alone. Consequently, Clause 9(c) is not applicable to the present case. This reading of Clause 9(c) has also been affirmed by this Court in its order dated 21.04.2015, and for the reasons mentioned supra, we do not deem it fit to interfere with the same10.2 Secondly, we find that the amount awarded by the National Commission in the impugned order, i.e. Rs. 1 lakh each towards mental harassment and litigation costs, cannot be read as compensation contemplated under Clause 9(c) of the Tripartite Agreement. Evidently, the litigation costs cannot be construed as compensation. Even with respect to the award of Rs. 1 lakh for mental harassment, we find that such amount is in the nature of a general, lump sum compensation, which falls short of qualifying as compensation under Clause 9(c). This is especially because there is no mention of the stipulated fixed rate of Rs.107.60 per sq metre of the super area of the unit, per month in the impugned order. Thus, the liability of paying a total of Rs. 2 lakhs under those heads cannot be foisted on the Developer alone in terms of Clause 9(c)10.3 Hence, the contention of the learned Counsel for the Appellant that the impugned order is liable to be set aside on the ground that the amount towards mental harassment and litigation costs is in the nature of compensation that is solely payable by the Developer in terms of Clause 9(c) of the Tripartite Agreement, cannot be accepted11. We also find that the Appellants reliance on the revocation deed dated 04.02.2015 is misplaced, as para 4 of this deed clearly states that the parties have accepted the award and chosen to act in accordance with the same. Thus, it cannot be argued that this revocation deed displaces the arbitration award dated 09.01.2015 and the direction therein for the Developer and CHB to pay compensation (if and when determined) in the ratio of 70:30. In any case, this revocation deed may, at best, arguably settle the rights and obligations or disputes between the parties in respect of the Development Agreement dated 06.10.2006. In our considered opinion, such settlement of rights and obligations cannot be extended in a manner that enables the Developer and CHB to wriggle out of their liability under the Tripartite Agreement with the Complainant. Thus, we find that the revocation deed dated 04.02.2015 cannot be invoked by the Appellant to escape its liability flowing from the Tripartite Agreement and the arbitration award dated 09.01.201512. We also note that the finding in the arbitration award dated 09.01.2015 as to the apportionment of liability between the Developer and CHB to pay the principal sum and general compensation, must be given effect. To this extent, we find merit in the argument raised by the learned Senior Counsel for Respondent No. 1 that the prior National Commission order dated 05.03.2013 and the subsequent order of this Court dated 21.04.2015 both relegate the inter se apportionment of liability between the Developer and CHB to the arbitration award. Thus, the split of 70:30 under the arbitration award must be given effect, having attained finality13. In any case, we find that such division is well-founded as the sale proceeds from the flat buyers were apportioned in the same ratio of 70:30 between the Developer and CHB. This is supported by the Escrow Agreement dated 01.06.2007 executed by CHB and the Developer in pursuance of the Development Agreement dated 06.10.2006. Clause 4(b) of this Escrow Agreement provides that 30% of the sale proceeds in respect of the residential units would first be transferred to CHB, and the remaining amount shall then be transferred to the Developer. In view of this, we find that the amount directed to be paid by the National Commission in the impugned order must be paid by the Developer and CHB in the ratio of 70:3014. With respect to the second issue concerning the enhancement of interest rate, Clause 9(d) of the Tripartite Agreement is relevant. As mentioned supra, this Clause requires the Developer and CHB to refund the amounts received from the buyer with interest if the Developer is unable to deliver the unit to the buyer due to non-approvals from the competent authorities. Here, under Clause 9(d), the parties are liable to refund the principal sum in the ratio of 70:30 as they had received the sale proceeds in the same ratio. It has been brought to our notice that CHB has already paid 30% of the principal sum at 9% interest p.a. in accordance with the directions of the National Commission in order dated 05.03.2013 passed in a similar matter. Notably, the interest rate was revised to 10% p.a. in the impugned order and has been challenged by the Appellant. We do not find any reason to interfere with the same, as the increase was made by the National Commission in exercise of its discretionary power. It is possible that the National Commission chose to enhance the interest rate in view of the fact that it had already imposed lesser compensation than the significantly higher compensation stipulated under Clause 9(c). Thus, the contention of the Appellant on this front is liable to be dismissed15. In view of the foregoing observations, we find that the National Commission was right in directing the Developer and CHB to pay the principal sum of Rs. 1,03,31,250/- at 10% p.a. to the Complainant herein. Further, it is found that the direction to pay Rs. 2 lakhs in toto towards mental harassment and litigation costs in the ratio of 70:30 between the Developer and CHB, is also correct.