Karnataka High Court
M/S Total Environment Building Systems ... vs Mr Verghese Stephen on 11 March, 2022
Bench: S.Sujatha, Shivashankar Amarannavar
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 11TH DAY OF MARCH, 2022
PRESENT
THE HON'BLE MRS.JUSTICE S.SUJATHA
AND
THE HON'BLE MR. JUSTICE SHIVASHANKAR AMARANNAVAR
RERA.A.No.7/2021
BETWEEN :
M/s TOTAL ENVIRONMENT
BUILDING SYSTEMS (P) LTD.,
HAVING OFFICE AT IMAGINE 78,
ITPL MAINROAD, EPIP ZONE,
BENGALURU-560066.
REP BY ITS MANAGING DIRECTOR ...APPELLANT
(BY SRI G.SRIDHAR, ADV.)
AND :
Mr. VERGHESE STEPHEN
S/O LATE C.M.STEPHEN,
AGED ABOUT 60 YEARS,
C-003, TOWER-4,
BOUGENVILLEA ADARSH PALAM RETREAT,
DEVEREBISHANHALLI,
VARTHUR HOBLI, BENGALURU-560013 ...RESPONDENT
(BY SRI RAJKUMAR M.D., ADV. FOR C/R.)
THIS RERA. APPEAL IS FILED UNDER SECTION 58 OF
THE KARNATAKA REAL ESTATE (REGULATION AND
DEVELOPMENT) ACT, 2016, PRAYING TO SET ASIDE THE
IMPUGNED JUDGMENT AND ORDER DATED 23.04.2021
PASSED BY THE HON'BLE REAL ESTATE APPELLATE TRIBUNAL
IN APPEAL (K-REAT) NO.104/2020 (OLD RERA APPEAL
NO.120/2019) PRODUCED AS ANNEXURE-A AND ETC.
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THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal is filed by the appellant - M/s. Total Environment Systems [P] Ltd., challenging the order dated 23.04.2021 passed in Appeal [K-REAT] No.104/2020 on the file of the Karnataka Real Estate Appellate Tribunal, Bengaluru ['Tribunal' for short] whereby the appeal filed by the respondent herein has been allowed in part.
2. The respondent in order to purchase a villa in the project "After The Rain Phase-II", a project promoted by the appellant, approached the appellant and entered into agreement dated 10.02.2014 by paying the entire consideration amount of Rs.5,77,00,000/- [Rupees Five Crores Seventy Seven Lakhs Only]. Indeed, the respondent has invested the amount from the sale proceeds of his property. As there was no progress in the project relating to the Phase-II, the respondent had -3- agreed for the allotment of an alternative Villa No.058 in the project - After The Rain Phase-I as per the Term Sheet dated 17.03.2016 followed by an agreement of sale and construction dated 30.03.2017 whereby the date for construction and completion of the Villa was agreed as 31.12.2017. To avoid the capital gain taxes under the Income Tax Act, 1961, the respondent has agreed for the registration of the property pursuant to which the appellant had executed the registered sale deed on 19.01.2018. However, no project having completed as agreed upon, the respondent was constrained to file a complaint in CMP No.190118/0001904 before the Real Estate Regulatory Authority, Karnataka [RERA]. The said authority has passed the order dated 18.06.2019 allowing the complaint partly. Being aggrieved, the respondent had preferred an appeal before the Tribunal which came to be allowed in part as under:
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"i) The appeal filed by the appellant is partly allowed.
ii) The impugned order dated 18.06.2019 in Complaint No.CMP/190118/0001904 passed by the Adjudicating Officer, RERA- 2nd Respondent is modified.
iii) The promoter-1st respondent is directed to pay delay compensation to the appellant by way of interest at the rate of 10.75% i.e., 2% above MCLR rate on a sum of Rs.5,77,00,000/- from the date of payment till the appellant takes actual possession of the villa after obtaining Occupancy certificate by the 1st respondent under Section 18 of the Act Read with Rule 16 of the Rules.
iv) The promoter-1st respondent is directed to pay to the appellant interest at the rate of 9% per annum on the maintenance deposit from date of deposit i.e., 27.3.2015 till the appellant takes actual possession of the premises.-5-
v) The promoter-1st respondent is directed to pay to the appellant rentals which is restricted to 12 months in respect of lease agreement dated 1.2.2015 i.e, 44,000 X 12 (Rs.5,28,000/-) and for a period of 11 months in respect of lease agreement dated 1.2.2018 i.e., 49,775 X 11 (Rs.5,47,525/-) totaling Rs.10,75,525/-.
vi) The promoter-1st respondent is directed to handover virtual possession of the villa to the appellant and the appellant shall take possession of the same within two months from the date of occupancy certificate as per Section 19(10) of the Act;
vii) The Registrar of the Tribunal is directed to comply with Section 44(4) of the Real Estate (Regulation and Development) Act, 2016.
viii) The office is directed to return the records to the 2nd respondent.
No order as to cost."
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3. Being aggrieved by the said order of the Tribunal, the appellant has preferred this appeal.
4. Learned counsel for the appellant submitted that the respondent had ceased to be an agreement holder or an allottee as envisaged under the Real Estate [Regulation and Development] Act, 2016 ['Act' for short] upon execution and registration of the sale deed as such the Tribunal has no jurisdiction in entertaining the complaint filed by the respondent. Learned counsel submitted that the respondent had entered into an Interior Customization Supplementary Agreement [ICSA] dated 15.05.2018 after the sale deed in terms of which the date of possession as agreed by the parties was extended to 31.12.2018. The Tribunal has erred in not considering the same. The Tribunal failed to appreciate the partial occupancy certificate issued to the respondent. It was argued that in the construction project consisting of different Phases and of different -7- units more particularly Villas, partial occupancy certificates are issued in a phased manner. The authority and the Tribunal has failed to recognize this aspect in arriving at a decision on the delay factor of handing over possession along with the occupancy certificate. It was submitted that partial occupancy certificate would satisfy the requirement under the Act. Rule 4 [1] and Explanation [v] of the RERA Rules was referred in support of the contention that the compensation ought not to have been awarded by the Tribunal from the date of payment till the respondent takes actual possession of the villa after obtaining occupancy certificate as per Section 18 of the Act read with Rule 16 of the Rules.
5. Nextly, it was submitted that the interest awarded by the Tribunal on the maintenance deposit from the date of deposit i.e., 27.03.2015 is unjustifiable. It was submitted that the maintenance contract dated -8- 30.03.2017 contemplates that the maintenance fund must be paid in full before the effective date. The said maintenance amount having been received by the appellant only on 17.03.2016 awarding interest of 9% p.a., on the maintenance deposit from 27.03.2015 is improper.
6. Learned counsel further submitted that the lease deeds dated 01.02.2015 and 01.02.2018 entered between one Mr. Balasubramaniam Chandrashekaran and the respondent for a period of twelve months and eleven months respectively were in operation during the period prior to the revised virtual completion date of the Unit as agreed in the agreement dated 15.05.2018. Hence, payment of compensation towards rentals arising out of the lease deeds which were prior to any alleged delay in delivery of possession does not arise. Thus, it was argued that the Tribunal has entertained the complaint without application of mind. The reliefs -9- restricted by the adjudicating authority could not have been expanded by the Tribunal.
7. Learned counsel referring to Section 18 of the Act, submitted that the allottee shall be entitled to receive the return of the amount paid by him with interest at such rate as may be prescribed, in case the allottee wishes to withdraw from the project. However, where an allottee does not intend to withdraw from the project, he shall be paid by the promoter interest for every month of delay till the handing over of the possession. But the compensation awarded by the Tribunal in this regard is contrary to this provision.
8. Learned counsel for the respondent supporting the impugned order submitted that no actual possession of the villa has been given till date. Learned counsel submitted that there is no concept of partial occupancy certificate under the Act. The so called partial occupancy certificate produced at
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Annexure-C dated 17.12.2019 does not depict Villa No.058, the property number disclosed in the registered sale deed dated 19.01.2018. Inviting the attention of the Court to the judgment of this Court in the case of Bangalore Housing Development and Investments V/s. Bruhat Bangalore Mahanagara Palike, rep., by its Commissioner and Others [ILR 2014 KAR 2863], it was submitted that a partial occupancy certificate can be granted to a part of the building in terms of BBMP Bye-laws 5.7. Maintenance amount having been deposited on 27.03.2015, the respondent is entitled to interest at 9% p.a., on the maintenance deposit from the date of the deposit i.e., 27.03.2015. It was further submitted that the compensation awarded towards rentals is in terms of the lease agreements. The appellant having failed to handover the actual physical/virtual possession of the property to the respondent, after investing huge amounts, he was
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forced to stay in the rental premises. Hence, no exception can be found with the order of the Tribunal in awarding compensation in this regard. Learned counsel has placed reliance on the judgment of the Hon'ble Apex Court in the case of Wing Commander Arifur Rahman Khan and Aleya Sultana and Others V/s. DLF Southern Homes Private Limited [Now Known as Begur OMR Homes Private Limited] and Others [(2020)16 SCC 512] in support of his contention that the respondent-purchaser has not lost his right to make a claim for compensation for the delay in handing over of the villa subsequent to the execution of the registered sale deed by the appellant in his favour. Thus, the learned counsel sought for the dismissal of the appeal.
9. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
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10. The points that arise for our consideration are:
1. Whether an allottee as defined in Section 2[b] of the RERA Act is precluded from claiming compensation for delay in handing over the possession after execution of the registered sale deed in his favour under Section 18[1] of the Act i.e., for the period after execution of the sale deed?
2. Whether the respondent is entitled for interest at 9% p.a., on the maintenance deposit from the date of deposit i.e., 27.03.2015 till he takes actual possession of the premises?
3. Whether the respondent is entitled to the rentals as claimed and awarded by the Tribunal in terms of the lease agreement dated 01.02.2015 and 01.02.2018?
4. Whether the order of the Tribunal is justifiable?
Re. Point No.1:
11. Under the Scheme of the Act, the promoter has to execute a registered conveyance deed in favour of
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the allottee along with the undivided proportionate title in the common areas to the association of the allottees or the competent authority, as the case may be, and hand over the physical possession of the plot, apartment or building, as the case may be, to the allottees in terms of Section 17[1] of the Act. As per Sub-Section [2] of Section 17, after obtaining the completion certificate and handing over physical possession to the allottees in terms of Sub-section [1], it shall be the responsibility of the promoter to handover the necessary documents and plans, including common areas, to the association of the allottees or the competent authority, as per the local laws. If the promoter fails to complete or if unable to give possession of an apartment, plot or building [a] in accordance with the terms of the agreement or, as the case may be, duly completed by the date specified therein; or [b] due to discontinuance of his business as a developer on account of suspension or revocation of
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the registration under the Act or for any other reason, the promoter shall be liable to return the amount received by him in respect of that apartment, plot, building as the case may be, with interest in case the allottee wishes to withdraw from the project, in terms of Section 18 of the Act. However, in terms of the proviso therein, if the allottee does not withdraw from the project, the promoter is liable to pay interest for every month of delay till the handing over the possession as the case may be, as prescribed. In terms of Section 16, rate of interest payable by the promoter shall be the State Bank of India highest marginal cost of lending rate plus 2% i.e., 10.75% in the present case which is not in dispute.
12. 'Allottee' is defined under Section 2[d] of the Act as under:
"2(d) "Allottee" in relation to a real estate project, means the person to whom a plot, apartment or building, as the case may
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be, has been allotted, sold whether as freehold or leasehold or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent."
13. The issue whether the purchaser ceases to be an allottee subsequent to the execution of the sale deed is no more res integra in view of the judgment of the Hon'ble Apex Court in the case of Wing Commander Arifur Rahman Khan and Aleya Sultana and Others supra, wherein the Hon'ble Apex Court having regard to the flat purchasers as observed thus:
"40. The flat purchasers invested hard earned money. It is only reasonable to presume that the next logical step is for the purchaser to perfect the title to the premises which have been allotted under the terms of the ABA. But the submission of the developer
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is that the purchaser forsakes the remedy before the consumer forum by seeking a Deed of Conveyance. To accept such a construction would lead to an absurd consequence of requiring the purchaser either to abandon a just claim as a condition for obtaining the conveyance or to indefinitely delay the execution of the Deed of Conveyance pending protracted consumer litigation.
41. It has been urged by the learned counsel of the developer that a consequence of the execution of the Deed of Conveyance in the present case is that the same ceases to be a transaction in the nature of "supply of services" covered under the CP Act 1986 and becomes a mere sale of immovable property which is not amenable to the jurisdiction of Consumer Fora. In Narne Construction (P) Ltd. v. Union of India [(2012) 5 SCC 359], this Court distinguished between a simple transfer of a piece of immovable property and housing construction or building activity carried out by a private or statutory body falling in the category of "service‟ within the
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meaning of Section 2 (1) (o) of the CP Act 1986. This Court held that:
"8. Having regard to the nature of transaction between the appellant Company and its customers involved much more than a simple transfer of a piece of immovable property it is clear the same constitutes "service" within the meaning of the Act. It was not the case that the appellant Company was selling the given property with all its advantages and/or disadvantages on "as is where is" basis, as was the position in State [UT of Chandigarh] v. Amarjeet Singh [(2009) 4 SCC 660]. It is a case where a clear-cut assurance was made to the purchasers as to the nature and extent of development that would be carried out by the appellant Company as a part of package under which a sale of fully developed plots with assured facilities was made in favour of the purchasers for valuable consideration. To the extent the transfer of site with developments in the manner and to the
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extent indicated earlier was a part of the transaction, the appellant Company has indeed undertaken to provide a service. Any deficiency or defect in such service would make it accountable before the competent Consumer Forum at the instance of consumers like the respondents."
The developer in the present case has undertaken to provide a service in the nature of developing residential flats with certain amenities and remains amenable to the jurisdiction of the Consumer Fora.
Consequently, we are unable to subscribe to the view of the NCDRC that flat purchasers who obtained possession or executed Deeds of Conveyance have lost their right to make a claim for compensation for the delayed handing over of the flats."
14. Thus, it is clear that execution of the registered sale deed by the promoter - appellant on 19.01.2018 which indeed was made pursuant to the request made by the respondent to get the benefit of the
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capital gains under the Income Tax Act, 1961 would not take away the rights of an allottee as defined under Section 2[b] of the Act to claim compensation under Section 18 of the Act. It is evident that the respondent has not withdrawn from the project. Thus, the proviso to Section 18 would be applicable wherein the compensation would be the interest for every month delay till the handing over of the possession at 10.75%. The Adjudicating Authority indeed had awarded the compensation at 10.75% p.a., on the total amount paid by the respondent commencing from 01.01.2018 till 18.01.2019 and Rs.1,00,000/- per month as delay compensation from 19.01.2018 till the possession is delivered officially after obtaining the occupancy certificate. This order of the adjudicating authority has been modified by the Tribunal in allowing the appeal in part directing the appellant to pay the compensation for the delay by way of interest at the rate of 10.75% i.e., 2% above MCLR Rate on a sum of Rs.5,77,00,000/-
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from the date of payment till the respondent takes actual possession of the villa after obtaining occupancy certificate by the appellant under Section 18 of the Act read with Rule 16 of the Rules. In terms of the agreement entered into between the parties, the appellant had agreed to hand over the constructed building with the occupancy certificate as per Section 18 of the Act on or before 31.12.2017. In such circumstances, the respondent is entitled to compensation by way of interest for every month of delay from the date of the commencing of the delay i.e., 01.01.2018 till handing over the possession. Hence, in our considered view, the order of the Tribunal in allowing the compensation by way of interest at 10.5% from the date of the payment is not sustainable. Accordingly, we modify the same.
Re. Point No.2:
15. Clause 12 of the maintenance agreement entered into between the parties no doubt would not
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depict the rate of interest at 9% p.a., on the maintenance deposit, awarding interest at 9% p.a., from the date of deposit i.e., 27.03.2015 till the appellant takes physical possession of the building would not be construed as arbitrary. The appellant is not disputing the award of interest at 9% p.a., on the maintenance deposit but the argument is that the liability of interest would arise only from 17.03.2016 as per the Term Sheet agreement and not from 27.03.2015. This arguments deserves to be negated for the reason that admittedly the maintenance deposit was made on 27.03.2015. The Term Sheet agreement made on 17.03.2016 was due to non progress of the project "After the Rain Phase-II". It cannot be presumed that the maintenance amount was paid on 17.03.2016 in terms of the Term Sheet Agreement when actually it was received on 27.03.2015. Maintenance deposit could be collected only from the date of handing over possession of the Villa in terms of Section 18 of the Act. As could be seen
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from the records, even today the subject Villa is not handed over in terms of the Act and is not in habitable condition as required/agreed between the parties. Hence, we answer point No.2 in the Affirmative. Re. Point No.3:
16. We find considerable force in the arguments advanced by the learned counsel appearing for the appellant in this regard inasmuch as the compensation towards the rentals relating to the lease agreement dated 01.02.2015 certainly was prior to the alleged delay in delivery of possession. Lease agreement dated 01.02.2018 was not established as required under law.
The Tribunal having come to the conclusion that the respondent has failed to prove the documents in the manner prescribed by law cannot rely upon the said documents to award rentals to the respondents. In our considered view, the Tribunal should have refrained in awarding rentals in the absence of, any such clause in
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the contract entered into between the parties and substantial material to prove the same. Hence we answer this point in the Affirmative. Re. Point No.4:
17. In the case of Bangalore Housing Development and Investments supra, the Writ Court has observed thus:
"10. If the building is partly constructed, then an Occupancy Certificate in terms of Bye-Law 5.6 cannot be granted. However, a POC can be granted to a part of the building, in terms of Bye-Law-5.7, which reads as follows.
"5.7 Occupancy or letting of the new buildings.- No person shall occupy or allow any other person to occupy any new building or part of a new building for any purpose whatsoever until occupancy certificate to such buildings or part thereof has been granted by an officer authorized to give such certificate, if in his opinion in every respect the building is completed according to
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the sanctioned plans and fit for the use for which it is erected. The Authority may in exceptional cases (after recording reasons) allow partial occupancy for different floors of a building."
11. Bye-law-5.7 postulates various requirements. The first is that no person shall occupy or let-in any other person to the building or part thereof, until an Occupancy Certificate to such a building or part thereof has been granted. Therefore, until and unless an Occupancy Certificate is granted, no building or part of it, can be occupied. Secondly, the grant of Occupancy Certificate shall be only after the opinion of the officer is to the effect that in every respect, the building or part thereof is complete, according to the plan sanction and that it is fit for use for which it was erected."
18. We find no reasons to differ from the same. Hence, even POC should be in terms of the BBMP Bye- law 5.7 and the property number has to be disclosed as per the registered sale deed as Villa No.058. Thus, as
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discussed in the preceding paragraphs, the impugned order requires modification to the extent discussed above.
19. For the reasons aforesaid, we pass the following:
ORDER i] The appeal is allowed in part.
ii] The order dated 23.04.2021 passed in appeal No.(K-REAT) 104/2020 (old RERA appeal No.120/2019) of the Karnataka Real Estate Appellate Tribunal, Bengaluru impugned herein is modified.
iii] The promoter-appellant is directed to pay the compensation to the respondent by way of interest @ 10.75% i.e. 2% above the MCLR rate on a sum of Rs.5,77,00,000/- from 01.01.2018 till respondent takes actual
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possession of the villa after the occupancy certificate is obtained by the promoter- appellant under Section 18 of the Act r/w 16 of the Rules.
iv] The promoter-appellant is directed to pay to the respondent interest @ 9% p.a. on the maintenance deposit from the date of deposit i.e. 27.03.2015 till the respondent takes actual possession of the premises.
v] The order of the Tribunal to pay rentals to the respondent for the period as per the lease agreement dated 01.02.2015 for the period of 11 months and in respect of lease agreement dated 01.02.2018 for the period of 11 months totalling to Rs.10,75,525/- is set aside.
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vi] The promoter-appellant is directed to handover the actual physical possession of the villa to the respondent within a period of two months from the date of occupancy certificate issued to the subject property - Villa No.58, as per Section 19(10) of the Act.
Sd/-
JUDGE Sd/-
JUDGE NC.