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Builder must check development plan before bookings written by Jehangir Gai, published in Business Standard. December 12, 2014

Several apartment buyers filed individual complaints before the National Consumer Disputes Redressal Commission against Adarsh Developers for deficiencies in respect of a project called Adarsh Palm Retreat Villas at Bengaluru. Villas with built-up area ranging from 2,230 sq ft to 3,010 sq ft were to be constructed on individual plots measuring 4,000-4,250 sq ft. The cost of plot and villas ranged from Rs 1.31 crore to Rs 1.44 crore.


The purchasers had paid substantial amounts but the project did not take off. So, they filed individual complaints before the National Commission for a direction to the builder to construct the villas and hand over possession, along with a registered conveyance deed. Alternatively, they demanded the builder compensate them by paying the current market value of the property.


The builder stated the allotment was subject to approval of plans by the authorities. The construction was to be in phases. One phase comprising 40 villas was not sanctioned by the Bangalore Development Authority, as a substantial portion of land had been reserved for a proposed road under a Revised Comprehensive Development Plan 1995 (RCDP-1995). Later, the master plan as revised in 1997 reserved the land for industrial use, with residences permitted as only an ancillary in the hi-tech zone. The builder claimed it was a contingent contract, whose performance had become impossible. So, the purchasers were asked to take a refund of their money, with interest.


The Commission noted RCDP-1995 was in force when the villas were allotted in 2005, a decade later. The Commission observed the builder ought to have known permission would not be granted, as a major portion of the land on which these 40 villas were to be constructed was reserved for a proposed road. It is to be presumed that everyone is aware of the law. It is inconceivable that a builder would not check the development plans before accepting bookings and collecting money for a project. It was the builder's duty to ascertain the plans prior to allotment of the villas and acceptance of consideration. The Commission also indicted Adarsh Developers of misrepresentation because one of the purchasers who wanted to take a bank loan had been issued a certificate by the builder stating all the approvals had been obtained.


The Commission felt the builder could have attempted to resolve the issue by accommodating the purchasers of these villas in the next phase of construction on another plot of land. Yet, instead of honouring contractual obligations, the builder chose to sell villas to other purchasers at a much higher rate in the subsequent phase of development.


As for compensation, the Commission observed the purchasers could not claim the market value, as they could have taken back their money with interest and used it to purchase other property. The loss would be confined to the difference between the price at which the villas had been booked and that prevalent on September 2, 2009, when refund was offered. Even this difference would be computed on a pro rata basis according to the proportion of the payments made to the total cost.


Accordingly, by an order dated November 14, 2014, the bench of V K Jain and B C Gupta directed Adarsh Developers to refund the amount paid with 12 per cent interest from July 19, 2007, till actual refund. Additionally, compensation for price difference due to cost escalation, computed on a pro rata basis, was also awarded. Thus, when part payment is made, compensation would be proportionate to the payment to provide for escalation.