The Supreme Court has ruled in favour of homebuyers, holding that developers who delay handing over possession can be charged the same rate of interest that they themselves impose on buyers for late payments. Citing the ‘long wait of over a decade’ that caused ‘harassment and anxiety’ to the buyer, the court observed the refund of the principal amount with interest at the rate of 9% per annum awarded by the consumer court was inadequate and directed the developer to refund the principal amount along with interest at the higher rate within two months.

The Supreme Court of India has ruled that real estate developers must pay the same interest on delayed possession as they charge for late payment from buyers. (Photo for representational purposes only) (Pexels)

It should be noted that real estate developers impose an 18% interest on buyers for delayed payments.

The apex court observed that “…it cannot be said that this Court has always rejected the claim of parity. Suffice it to say, there is no principle of law that interest in default charged by the builder can never be granted to the buyer.”

The Supreme Court noted that law is well settled that the amount of interest should be reasonable. “What is reasonable varies from case to case. The same is to be granted considering the facts and circumstances of each case. The series of judgments cited by the respondent to buttress its argument that this Court has consistently granted interest @ 9% p.a. will make no difference to the decision in this lis, as all the said cases were decided in light of the peculiar facts of each case.”

A bench of Justices Dipankar Datta and AG Masih disagreed with the National Consumer Disputes Redressal Commission’s (NCDRC) award of 9% interest, holding it inadequate, and instead directed that interest be paid at 18% per annum, the same rate the builder had charged the buyer for delayed payments.

“In view of the conduct of the respondent, it cannot be permitted to escape with a nominal liability for its default, while it charged interest @ 18% on default committed by the appellant. Although, the rate of interest charged by the builder cannot be granted to the buyer as a rule of thumb, however, in the present case,equity and fairness demands that the respondent be put to the same rigours for charging 18% interest and face consequences similar to those imposed on the appellant for default committed by him. If we hold otherwise, we will be perpetuating a manifestly wrong bargain.”, the court observed, adding that the firm “cannot be permitted to escape with a nominal liability for its default.”

Considering the delay involved, the judgment found 9% interest to be insufficient, considering the plight of the buyer.

“Keeping in mind the overall conduct of the respondent: the delay caused by it in offering the plot, the fact that the respondent charged the appellant delay compensation @ 18% p.a. on the due amount, and the long wait that the appellant had to endure over a period of a decade, causing harassment and anxiety, which are writ large, we find that this is an appropriate case where refund of the principal amount with interest @ 9% p.a., as awarded by the NCDRC, will not serve the ends of justice.”, the court said.

The Supreme Court modified the NCDRC ruling and directed the developer to refund the homebuyer’s principal amount with 18% simple interest from the date of payment until refund within two months, the report published in the Hindustan Times newspaper said.

The case

The case involves a buyer who had booked a plot in the Park Land project in 2006 in Haryana for ₹36.03 lakh. He paid around ₹28 lakh in the next five years but instead of being allotted the plot, the builder sought to allot an ‘alternative plot’ to him and charged an additional sum for it.

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Despite payments totaling ₹43.13 lakh by 2015, the plot was not delivered and the company charged the buyer 18% interest for alleged payment delays.

Sharma terminated the agreement in 2017 and approached the NCDRC in 2018.

In January 2023, the NCDRC ordered the firm to refund the principal with 9% interest and ₹25,000 in litigation costs. Dissatisfied, the buyer approached the Supreme Court, a report published in the Hindustan Times newspaper said.

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This is what legal experts have to say

The principle of fairness and parity has been applied in this matter as it is essential to protect the homebuyers for the harassment and delay caused by the developer in handing over the possession of booked plots/ units, Sunil Tyagi, Managing Partner, ZEUS Law Associates told HT.com

“This judgement would act as a deterrent for the builders and set an important precedent on the consequences of delayed project handovers. Although, interest of 18% was granted on the refundable sums in the aforementioned case, nevertheless, it has been made clear that the exact amount of interest will depend on each individual matter and should not be regarded as a general norm,” he said.