The Supreme Court has ruled that real estate developers are not liable to pay the interest on homebuyers’ personal bank loans taken to finance their flats in cases of delay in delivery. However, developers must refund the principal amount along with applicable compensation for the delay or non-delivery of the property.
In 2011, the Greater Mohali Area Development Authority (GMADA) launched the ‘Purab Premium Apartments’ scheme in Sector 88, Mohali. Anupam Garg applied for a 2-BHK + Servant Room flat, paying ₹5.5 lakhs as earnest money. Allotment was done through a draw of lots in March 2012, followed by a Letter of Intent in May 2012. Possession was scheduled for May 21, 2015, but construction was incomplete by then. Garg opted out and was informed he would be refunded with 8% interest from the possession date.
The State Commission ruled in Garg’s favor, awarding the refund, interest, and compensation. GMADA’s appeal to the NCDRC was dismissed, with reference to a similar case (GMADA v. Priyanka Naiyyar), where ₹2 lakhs compensation and 8% interest were granted. The NCDRC found no merit in GMADA’s appeal and imposed ₹20,000 in costs on GMADA for each respondent.
The bench of Justice Sanjay Karol and Justice Prasanna B. Varale observed, “A perusal of the judgment and orders of the Commissions does not reveal any exceptional or strong reasons for the interest on the loan taken by the respondents to be paid by GMADA. That apart, whether the buyers of the flat do so by utilizing their savings, taking a loan for such purpose or securing the required finances by any other permissible means, is not a consideration that the developer of the project is required to keep in mind. For, so far as they are concerned, such a consideration is irrelevant. The one who is buying a flat is a consumer, and the one who is building it is a service provider. That is the only relationship between the parties.”
“What flows from the above is that the amount of interest awarded is the compensation to the investment maker for the amount of money and the time he has been denied the fruits of that investment. The 8% interest awarded in this case on top of the entire amount that is being invested, is the compensation for being deprived of the investment of that money. Apart from this no amount of interest on the loan taken by the respondents could have been awarded.” the Court said.
The Supreme Court held that GMADA is not required to pay the interest on the homebuyer’s bank loan, modifying the lower forums' order to that extent. However, it upheld the compensation awarded for mental agony and litigation costs. Noting that the amount deposited with the State Commission excludes the loan interest, the Court directed that no further deposit is needed and ordered the currently held amount to be disbursed to the respondents.
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