Delay in Flat Possession? Don’t Expect Loan Interest Back, Supreme Court Clarifies

The Supreme Court has said that homebuyers cannot ask builders to return the interest paid on their home loans if a housing project gets delayed. They can only get the main amount they paid to the builder and the compensation agreed upon in the contract.

A Supreme Court bench, including Justices Sanjay Karol and Prasanna B Varale, ruled that buyers cannot ask for many types of compensation unless it is clearly written in their agreement with the builder. The court said there cannot be “multiple heads for awarding damages or interest beyond what is contractually agreed upon.”

The judges said that unless there are “exceptional” reasons, a builder or authority like the Greater Mohali Area Development Authority (GMADA) cannot be told to return the interest that buyers paid to the bank on their home loans.

Details of the Case

The case is about a man named Anupam Garg. In 2011, he booked a flat in the ‘Purab Premium Apartments’ project by GMADA in Mohali. He paid ₹5.5 lakh as an initial amount. The total cost of the flat was ₹55 lakh.

In 2012, GMADA gave him a Letter of Intent, promising to hand over the flat by May 2015. The letter also said that if there is a delay, the money will be returned with 8% interest.

But the construction moved very slowly, and by 2016, Garg asked for a refund. When GMADA refused, he went to the Punjab State Consumer Commission. In 2018, the commission asked GMADA to refund the amount with 8% interest. It also told GMADA to pay ₹60,000 for mental stress, ₹30,000 as legal costs, and the full home loan interest that Garg had paid as reported by Economic Times.

This order was upheld by the National Consumer Disputes Redressal Commission (NCDRC) in 2019.

Supreme Court Changes the Order

GMADA then moved to the Supreme Court. The court partly agreed with GMADA. It cancelled the part of the earlier orders that said GMADA had to pay back the loan interest.

The bench said, “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.”

It added, “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 bench also said, “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.” They added that if there is a delay in giving possession, then refund with 8% interest is enough.

So, the Supreme Court allowed GMADA’s appeal in part and said that the money already with the consumer commission will be returned to the buyer, but there will be no extra payment for home loan interest.

Legal Experts Share Their Views

Yudhist Narain Singh, a senior lawyer, said that the court’s decision was based on the facts of this case and the time lost by the buyer. He said the court only considered the sale agreement, not the home loan deal, which is a separate contract.

Another lawyer, Yogendra Aldak, said that under the Consumer Protection Act, the buyer can only get back what was lost due to the builder’s delay. He explained, “The consequences of buyer’s independent financial choice in taking a loan should not be the obligation of developer.”

When Can Loan Interest Be Repaid by the Builder?

The court said there may be rare cases where the builder may have to pay back the loan interest. These “exceptional circumstances” can be when the delay has caused the buyer serious financial loss, or when the builder acted with bad intent or fraud.

Aldak said that in such rare cases, refund of principal and interest might not be enough to make up for the buyer’s trouble. Singh added that exceptions could be made where the buyer was tricked into buying or when there is clear proof of wrongdoing.

The court has now made it clear that unless the buyer can show very strong reasons, they cannot expect the builder to pay for home loan interest.