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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10748 OF 2016

  Chandigarh Housing Board                ...Appellant

Versus

M/s. Parasvanath Developers Pvt. Ltd. & Anr        …Respondents

J  U  D  G  M  E  N  T

MOHAN M. SHANTANAGOUDAR, J.

1. Delay condoned in filing appeal.

2    This appeal arises out of the final order dated 11.05.2016

passed  by  the  National  Consumer  Disputes  Redressal

Commission at New Delhi (hereinafter  ‘National Commission’)

in Consumer Complaint (C.C.) No. 19 of 2011, vide which the

Respondent  No.1  and Appellant  herein  were directed to  pay

Respondent No. 2 herein a principal sum of Rs. 1,03,31,250/-

with interest @ 10% p.a., Rs.1,00,000 for mental harassment

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and agony, and Rs.1,00,000 towards litigation costs in the ratio

of 70:30.     

3. The factual background to this appeal is as follows:

3.1     The  Appellant  herein,  Chandigarh  Housing  Board

(hereinafter  ‘CHB’)  invited  bids  to  implement  an  integrated

project  with  residential,  commercial,  and  other  related

infrastructure  facilities  at  the  Rajiv  Gandhi  Chandigarh

Technological Park in Chandigarh. The bid sent by Respondent

No.  1  herein,  M/s.  Parasvanath  Developers  Ltd.  (hereinafter

‘Developer’) was accepted by CHB. Consequently, CHB and the

Developer  entered  into  a  Development  Agreement  dated

06.10.2006 for the grant of development rights in respect of

land measuring 123 acres. The said land was allotted to the

Developer by CHB for constructing residential units, who then

advertised its project for the sale of flats and pent houses as

“Parsvanath Pride Asia”.  

3.2  Respondent No. 2 herein (hereinafter  ‘the Complainant’)

applied for the allotment of a five-bedroom apartment in this

project and paid a sum of Rs.1,03,31,250/- towards the total

tentative price of Rs. 3,93,25,000/-. Later, a tripartite flat buyer

agreement  (hereinafter  ‘Tripartite  Agreement’)  was  executed

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between  the  Developer,  CHB,  and  the  Complainant  on

23.04.2008.  Clause  9(a)  of  this  agreement  stated  that  the

construction  of  the  flat  was  likely  to  be  completed  within  a

period  of  36  months  from  the  signing  of  the  Development

Agreement between CHB and the Developer, i.e., 06.10.2006.

3.3   Having received no intimation from the Developer about

the status  of  the  project,  between September-October  2009,

the Complainant inquired and found that construction had not

been commenced at the project site. Consequently, he sought

a refund of the deposit amount of Rs.1,03,31,250 with interest

at 20% p.a. When the refund was not made, the Complainant

approached  the  National  Commission  on  24.02.2011.  It  is

crucial to note here that similar complaints were filed by other

flat  buyers  before  the  State  Commission  and  the  National

Commission.   

3.4  Before the National Commission, it was the case of the

Developer  that  the  construction  could  not  be  carried  out  in

time,  as  CHB  had  failed  to  hand  over  the  possession  of

unencumbered land to it  for raising the construction. On the

contrary,  CHB  argued  that  disputes  only  existed  for  land

earmarked for commercial activities, and there was no dispute

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with  respect  to  the  123  acres  of  land  handed  over  to  the

Developer for the construction of residential units. Therefore, it

was contended by CHB that the Developer was liable to satisfy

the  claim  of  the  flat  buyer  and  the  complaint  was  bad  as

against  CHB  for  misjoinder  of  party.  Notably,  the  dispute

between  the  Developer  and  the  CHB  with  respect  to  the

Development Agreement was referred to arbitration.  

3.5    Pending  the  arbitration  proceedings,  the  National

Commission passed an order in a similar matter on 05.03.2013,

noting  that  the  flat  buyers  could  not  be  deprived  of  their

legitimate claims due to an inter se dispute between CHB and

the  Developer.  Observing  that  the  Developer  had  failed  to

construct  the  residential  units  and  hand  over  possession  in

time,  the  National  Commission  passed  an  interim  order

directing the Developer to pay compensation to the flat buyer

in  terms  of  Clause  9(c)  of  the  Tripartite  Agreement  at  Rs.

107.60  per  sq  metre,  subject  to  the  final  outcome  of  the

arbitration proceedings. Further, in terms of Clause 9(d) of the

Tripartite Agreement, the Developer and CHB were directed to

pay interest at the uniform rate of 9% p.a. on the amount to be

refunded to the flat buyers in the ratio of 70:30.

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3.6  Finally,  on 09.01.2015, the learned arbitrator passed an

award  in  the  arbitration  proceedings  between  CHB  and  the

Developer.  The  award  specifically  noted  that  since  the  flat

buyers were not party to the arbitration, the award would only

bind  CHB  and  the  Developer,  and  the  entitlement  of  the

residential flat buyers would have to be decided based on the

facts of each case in independent proceedings. However, with

respect to the liability to refund the advances collected from

the residential unit buyers, the learned arbitrator found that the

non-completion  of  the  project  was  a  result  of  breaches

committed  by  both,  the  Developer  and  CHB.  Therefore,  he

directed  that  any  amount  payable  on  account  of  refund  of

price, interest, or compensation (if and when finally determined

by the National Commission or the Supreme Court) would be

borne by the Developer and CHB in the ratio of 70:30.  

3.7   Meanwhile, an order was passed by a 3-judge Bench of

this Court on 21.04.2015 in an SLP filed against the order of the

National  Commission  dated 05.03.2013 and other  connected

matters.  Dismissing  the  SLP,  the  Court  took  note  of  the

arbitration award dated 09.01.2015 and observed that Clause

9(c) of the Tripartite Agreement, which stipulates the payment

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of  compensation,  would  only  be  applicable  as  against  the

Developer if it is not in a position to offer a flat to the buyer

after the expiry of 36 months as stated in Clause 9(a) of the

Tripartite Agreement.  

3.8  Finally,  vide the impugned order dated 11.05.2016, the

National Commission disposed of the consumer complaint filed

by  Respondent  No.  2  herein.  Taking  into  account  the

observations in the final arbitral award attributing responsibility

of breach of the Development Agreement to the Developer and

CHB, as well as the fact that the Developer had received the

deposit sum from the Complainant long ago and had benefited

from  it,  the  National  Commission  directed  CHB  and  the

Developer to pay the principal sum of Rs. 1,03,31,250/- to the

Complainant  at  10%  p.a.  from  the  date  of  deposit  till

realization.  Further,  Rs.  1  lakh  was  awarded  for  mental

harassment  and  another  Rs.  1  lakh  was  awarded  towards

litigation charges. Both of these were directed to be borne by

the Developer and CHB in the ratio of 70:30. The instant appeal

has been preferred by CHB against this order, contesting the

liability fixed upon it with respect to the payment for litigation

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costs and mental harassment, as well as the enhancement in

interest rate.  

4.    Heard learned Counsel for the parties.  

5. Learned Counsel  for  the Appellant  (CHB) submitted that

the  impugned  order  is  liable  to  be  set  aside  as  it  wrongly

saddles CHB with the liability to pay the Complainant 30% of

the  amount  due  towards  mental  harassment  and  litigation

costs.  It  is  argued  that  such  amount  is  in  the  nature  of

compensation and must therefore be borne by the Developer

as Clause 9(c)  of the Tripartite Agreement  provides that  the

Developer shall be liable to pay compensation to the flat buyer

at  Rs.  107.60  per  sq  metres  in  case  of  non-delivery  of

possession of the residential units in time.  Further, alluding to

a revocation deed dated 04.02.2015 entered into by CHB and

the Developer after the arbitral award, learned Counsel argued

that all third party liabilities have now been taken over by the

Developer and can thus not be affixed on CHB. As far as the

liability  to  return  the  principal  amount  is  concerned,  it  was

submitted that 30% of the principal sum has already been paid

by  CHB  as  per  Clause  9(d)  of  the  Tripartite  Agreement.

However, as regards the interest rate payable on the same, it

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was  contended  that  the  National  Commission  erred  in

enhancing the rate from 9% p.a. to 10% p.a. without giving any

reasons for the same.  

6.   Per contra, learned Senior Counsel for Respondent No. 1

emphasized  that  the  finding  of  the  arbitrator  that  both  the

Developer  and  CHB  are  guilty  of  breach,  and  are  therefore

liable to make refund of price, interest, or compensation in the

ratio  of  70:30,  should  be  given  utmost  importance.  This  is

because  the  order  of  the  National  Commission  dated

05.03.2013 passed in a similar matter, made the direction as to

the payment of compensation under Clause 9(c) subject to the

outcome of the arbitration proceedings. Similarly, the interim

order of this Court dated 21.04.2015 affirms the findings in the

arbitration award as to the interpretation of Clause 9(c) of the

Tripartite  Agreement.  Thus,  it  was  argued  that  in  all  these

orders,  the  inter  se  apportionment  of  liability  has  been

relegated in terms of the arbitration award, and therefore, the

ratio of 70:30 stipulated therein should be given effect. Further,

learned Senior Counsel argued that Clause 9(c) was not made

applicable  to  the  instant  case,  as  this  clause  deals  with

compensation  payable  upon  non-performance  of  obligations,

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which is different from the nature of compensation awarded in

the impugned order.  

7. In addition to this, learned Senior Counsel representing the

Complainant  (Respondent  No.  2)  argued  that  the  amount

awarded to the Complainant vide the impugned order is only in

the  nature  of  a  general,  lump  sum  amount  and  is  not  the

compensation contemplated under Clause 9(c) of the Tripartite

Agreement. In any case, he submitted that an inter se dispute

between CHB and the Developer as to the apportionment of

liability should not come in the way of the Complainant’s right

to receive compensation.  

8.   Upon perusing the  record and hearing the arguments

advanced by the parties, two issues arise for our consideration

in this appeal:

(a)  whether  the  National  Commission  was  right  in

directing  the  payment  of  amount  towards  mental

harassment and litigation costs in the ratio of 70:30, or

whether  such  amount  falls  within  the  purview  of

compensation  under  Clause  9(c)  of  the  Tripartite

Agreement so as to be paid solely by the Developer.

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(b)  whether the interest rate awarded on the principal

sum was rightly increased from 9% p.a. to 10% p.a.

9.  As regards the first issue, it would be useful to refer to the

relevant  portions  of  the  Tripartite  Agreement  executed

between  the  Complainant,  CHB,  and  the  Developer  on

23.04.2008:

“9. (a)  Construction of the residential units is likely to  be  completed  within  a  period  of  thirty  six  (36 months)  of  the  signing  of  the  Development Agreement  on  06.10.2006  between  the  Developer and CHB and/or  as may be extended terms of the Development  Agreement  shall  be  subject  to  force majeure and circumstances beyond the control of the developer,  and  any  restrain  restrictions  from  any Courts/Authorities. The delay in grant of development clearances beyond 12 months of the signing of the Development  Agreement  shall  not  be  counted towards the said portion of 36 months.  …(c) In case possession of the built up area is not offered to the buyer within a period of 36 months or extended  period  as  stipulated  in  sub-clause  (a) above, the buyer shall be entitled to receive from the developer compensation @ Rs.107.60 per Sq. Mtrs. (Rs. 10/- per Sq. Ft.) of the super area of the unit per month and to no other compensation of any kind. In case the  buyer  fails  to  clear  his  account  and take possession of  the unit  within 30 days of  offer,  the buyer shall be liable to pay to the developer holding charges @ Rs. 107.60 per Sq Mtrs. (Rs. 10/- per Sq. Ft.)  of  the  super  area  of  the  unit  per  month  in addition to the liability to pay interest to the sellers and other consequences of default in payment.

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(d) If  as a result  of  any Rules or directions of  the Government  or  if  any  competent  authority  delays, withholds,  denies  the grant of  necessary approvals for  the  Project,  or  if  due  to  any  force  majeure conditions, the developer is unable to deliver the unit to the buyer, the developer and CHB shall be liable to refund to the buyer the amounts received from the buyer with interest at the SBI term deposit rate as applicable on the date of refund.”

From the above, it is evident that the Developer and CHB

agreed  to  complete  the  construction  of  the  residential  units

within a period of 36 months from the date of signing of the

Development Agreement on 06.10.2006. In the event that such

construction  was  not  done,  Clause  9(c)  would  come  into

operation  and  the  Developer  would  become  liable  to

compensate the buyer at Rs. 107.60 per sq metre of the super

area of the unit, per month.   

10. A close reading of Clause 9(c) of the Tripartite Agreement

indicates  two  salient  features–  first,  the  liability  to  pay

compensation  under  this  Clause  can  only  be  affixed  on  the

Developer if it fails to fulfill the condition under Clause 9(a) and

perform its obligations under the Development Agreement, i.e.

if it does not hand over the possession of the flat to the buyer

within a period of 36 months from the date of signing of the

Development Agreement. The second feature of Clause 9(c) is

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that it  envisages a fixed compensation of  Rs.  107.60 per sq

metre per month to be paid to the flat buyer.  

10.1    When the facts of the instant case are examined in light

of these observations, it becomes clear that Clause 9(c) is not

attracted in the present case at all.  First, there has been no

fulfilment of the condition under Clause 9(a) for Clause 9(c) to

come into operation. This is because the Developer never even

began construction at the project site due to the dispute with

CHB about the encumbrances on the allotted land. Thus, the

question  of  finishing  such  construction  within  the  period

mentioned  under  Clause  9(a)  does  not  even  arise.

Consequently,  Clause 9(c),  which is  concerned with the non-

fulfilment of this obligation, is also not attracted. It is notable

that the arbitrator has also arrived at a finding to this effect in

his award dated 09.01.2015 as follows:

“296.  Consequently,  if  any  amount  is  payable  on account of refund of price, interest, or compensation (if and when finally determined), respondent is liable to bear  and pay 30% thereof,  the balance of  70% being payable by the claimant (PDL).  Article 14.2.5 no doubt makes the developer solely and exclusively responsible to residential unit buyers, but that is only in regard to non-performance of its obligations. The said  provision  does  not  make  claimant  responsible for the breaches committed by the respondent, nor absolve  the  respondent  from  liability  for  the

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consequences  of  its  defaults/breaches,  which contributed  to  the  non-performance  of  the obligations by the developer towards the residential unit buyers.”

(emphasis supplied)  

Thus,  given  that  the  breach  of  the  Development

Agreement is attributable to both, CHB and the Developer, the

failure to hand over possession of the flat to the buyer cannot

be  said  to  be  on  account  of  the  non-performance  of  the

obligation of the Developer alone. Consequently, Clause 9(c) is

not applicable to the present case. This reading of Clause 9(c)

has  also  been  affirmed  by  this  Court  in  its  order  dated

21.04.2015, and for the reasons mentioned supra, we do not

deem it fit to interfere with the same.

10.2    Secondly,  we  find  that  the  amount  awarded  by  the

National  Commission  in  the  impugned  order,  i.e.  Rs.  1  lakh

each towards mental harassment and litigation costs,  cannot

be read as compensation contemplated under Clause 9(c) of

the Tripartite Agreement. Evidently, the litigation costs cannot

be construed as compensation. Even with respect to the award

of Rs. 1 lakh for mental harassment, we find that such amount

is in the nature of a general, lump sum compensation, which

falls short of qualifying as compensation under Clause 9(c). This

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is especially because there is no mention of the stipulated fixed

rate of Rs.107.60 per sq metre of the super area of the unit, per

month in the impugned order.  Thus, the liability of paying a

total of Rs. 2 lakhs under those heads cannot be foisted on the

Developer alone in terms of Clause 9(c).  

10.3     Hence, the contention of the learned Counsel for the

Appellant that the impugned order is liable to be set aside on

the ground that the amount towards mental harassment and

litigation costs is in the nature of compensation that is solely

payable  by  the  Developer  in  terms  of  Clause  9(c)  of  the

Tripartite Agreement, cannot be accepted.   

11.  We  also  find  that  the  Appellant’s  reliance  on  the

revocation deed dated 04.02.2015 is misplaced, as para 4 of

this  deed clearly  states that  “the parties have accepted the

award” and chosen to act in accordance with the same. Thus, it

cannot  be  argued  that  this  revocation  deed  displaces  the

arbitration award dated 09.01.2015 and the direction therein

for the Developer and CHB to pay compensation (if and when

determined) in the ratio of 70:30. In any case, this revocation

deed may, at best, arguably settle the rights and obligations or

disputes  between the parties  in  respect  of  the Development

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Agreement  dated 06.10.2006. In our considered opinion, such

settlement of rights and obligations cannot be extended in a

manner that enables the Developer and CHB to wriggle out of

their  liability  under  the  Tripartite  Agreement  with  the

Complainant.  Thus,  we  find  that  the  revocation  deed  dated

04.02.2015 cannot be invoked by the Appellant to escape its

liability  flowing  from  the  Tripartite  Agreement  and  the

arbitration award dated 09.01.2015.  

12.  We also  note  that  the  finding  in  the  arbitration  award

dated 09.01.2015 as to the apportionment of liability between

the Developer and CHB to pay the principal sum and general

compensation,  must  be given effect.  To this  extent,  we find

merit in the argument raised by the learned Senior Counsel for

Respondent  No.  1  that  the  prior  National  Commission  order

dated 05.03.2013 and the subsequent order of this Court dated

21.04.2015 both relegate the inter se apportionment of liability

between the Developer and CHB to the arbitration award. Thus,

the split of 70:30 under the arbitration award must be given

effect, having attained finality.  

13.   In any case, we find that such division is well-founded as

the sale proceeds from the flat buyers were apportioned in the

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same ratio of 70:30 between the Developer and CHB. This is

supported  by  the  Escrow  Agreement  dated  01.06.2007

executed  by  CHB  and  the  Developer  in  pursuance  of  the

Development Agreement dated 06.10.2006. Clause 4(b) of this

Escrow Agreement provides that 30% of the sale proceeds in

respect  of  the  residential  units  would  first  be  transferred  to

CHB, and the remaining amount shall then be transferred to the

Developer. In view of this, we find that the amount directed to

be  paid  by  the  National  Commission  in  the  impugned order

must be paid by the Developer and CHB in the ratio of 70:30.  

14.   With  respect  to  the  second  issue  concerning  the

enhancement  of  interest  rate,  Clause  9(d)  of  the  Tripartite

Agreement  is  relevant.  As  mentioned  supra,  this  Clause

requires  the  Developer  and  CHB  to  refund  the  amounts

received from the buyer with interest if the Developer is unable

to deliver the unit to the buyer due to non-approvals from the

competent authorities. Here, under Clause 9(d), the parties are

liable to refund the principal sum in the ratio of 70:30 as they

had received the sale proceeds in the same ratio. It has been

brought to our notice that CHB has already paid 30% of the

principal  sum  at  9%  interest  p.a.  in  accordance  with  the

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directions  of  the  National  Commission  in  order  dated

05.03.2013 passed in  a  similar  matter.  Notably,  the  interest

rate was revised to 10% p.a. in the impugned order and has

been challenged by the Appellant. We do not find any reason to

interfere  with  the  same,  as  the  increase  was  made  by  the

National Commission in exercise of its discretionary power. It is

possible that the National Commission chose to enhance the

interest rate in view of the fact that it  had already imposed

lesser compensation than the significantly higher compensation

stipulated  under  Clause  9(c).  Thus,  the  contention  of  the

Appellant on this front is liable to be dismissed.   

15.    In view of the foregoing observations, we find that the

National Commission was right in directing the Developer and

CHB to pay the principal sum of Rs. 1,03,31,250/- at 10% p.a. to

the Complainant herein. Further, it is found that the direction to

pay  Rs.  2  lakhs  in  toto  towards  mental  harassment  and

litigation costs in the ratio of 70:30 between the Developer and

CHB, is also correct.  

Accordingly, the instant appeal deserves to be dismissed.

We note that the Appellant herein (CHB) has already paid its

share  of  the  principal  sum  along  with  interest  at  9%  p.a.

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Further,  in  pursuance  of  the  order  of  this  Court  dated

04.12.2019,  the  Developer  has  also  deposited  the  amount

awarded by the National Commission with interest at 10% p.a..

In view of our findings, we now direct CHB to pay the remaining

amount,  i.e.  30%  of  the  total  Rs.  2  lakhs  awarded  by  the

National  Commission  to  the  Complainant  towards  mental

harassment  and  litigation  charges,  as  well  as  an  additional

interest  of  1%  p.a.  on  its  share  of  the  principal  sum.  This

amount shall be paid within a period of eight weeks from the

date  of  this  order.  The  instant  appeal  stands  dismissed

accordingly.

…..…………................................J. (MOHAN M. SHANTANAGOUDAR)

.……………………………...............J.       (R. SUBHASH REDDY)

New Delhi; December 17, 2019