New Delhi: The Supreme Court of India, in a significant ruling for consumers caught in builder-buyer disputes, has directed a developer to refund a homebuyer’s money with 18 percent simple interest per annum—doubling the compensation from what was earlier granted by the consumer commission.
In a sharp message to builders in the real estate world, the Supreme Court reasoned that a builder who imposes steep penalties on buyers for late payments cannot evade similar liability when they default on timely delivery of possession.
Many builder-buyer agreements impose harsh terms on buyers while being lenient on builders. The top court has signalled that such one-sided clauses will not be blindly enforced.
The verdict, delivered on 24 September by a bench of justices Dipankar Datta and Augustine George Masih, is expected to have wide implications for consumer rights in real estate, where delays in project delivery remain one of the most common grievances.
As real estate disputes continue to clog consumer courts, with delayed possession, refund claims, and hidden charges, among the top complaints, this ruling strengthens consumer bargaining power, reminding builders that liability works both ways.
Plot booked in 2006, possession in 2018
A dispute began in 2006, when homebuyer Rajnesh Sharma booked a plot in a project by M/s Business Park Town Planners Ltd, paying over Rs 28 lakh in installments. According to the buyer’s agreement, possession was due within 24 months of approval of service plans.
However, despite years of payments, Sharma did not receive possession. In April 2011, the developer invoked a contractual clause to change the location of the plot citing “changes in the layout plan” and demanded an additional Rs 2.3 lakh. By 2015, Sharma had already paid more than Rs 43 lakh. The builder charged 18 percent interest on minor delays in Sharma’s payments.
Aggrieved by the planner’s failure to allot the plot, Sharma finally terminated the agreement on 27 March, 2017, sending a legal notice informing the respondent about the termination of the deal from his side and seeking a refund of Rs 43,13,212, along with a 24 percent interest per annum.
Sharma also sought an additional amount of Rs 72,30,000 as compensation for the increase in the property’s value that he missed out due to not receiving the plot.
Possession was eventually offered only in May 2018, more than a decade after booking, and after Sharma had already terminated the agreement and filed a consumer complaint seeking refund with interest.
This offer of possession in 2018 was also conditional on the payment of a further sum of Rs 7,60,900.33, which Sharma argued included improperly charged amounts, such as GST, which was introduced in 2017, while most payments were pre-2012.
Lower interest of nine percent earlier
In January 2023, the National Consumer Disputes Redressal Commission (NCDRC) handled Sharma’s complaint, directing the developer to refund the principal amount with nine percent simple interest per annum, along with Rs 25,000 in litigation costs.
Sharma challenged this before the Supreme Court, arguing that granting nine percent interest when the builder had charged 18 percent interest from him was “in defiance of logic and reason”.
The developer, however, defended the award, stating that courts have consistently granted nine percent interest in such cases and that comparison to builder’s rate was not a valid claim without proof of “actual loss” of money due to delay in possession.
‘Builders can’t escape with nominal liability’
The apex court disagreed with the NCDRC, calling its award inadequate, given the decade-long delay and the builder’s own conduct.
“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,” the Bench observed.
The top court clarified that while the builder’s penalty rate cannot automatically serve as the benchmark in every case, equity and fairness may justify applying the same standard in this case.
“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 judgment authored by Justice Datta said.
The Supreme Court emphasised that compensation must always be “reasonable”, depending on the facts of each case.
“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 Bench explained.
While rejecting the builder’s argument that 18 percent would amount to a “windfall” gain for the buyer, the apex court observed that the buyer had endured a decade of harassment and anxiety due to the delay.
Verdict and consumer rights
The ruling is not just about one buyer’s grievance. It also clarifies consumer rights principles in the real estate sector.
If a builder charges a high penalty for delayed buyer payments, it cannot argue for lower liability when it defaults on timely delivery.
The judgment makes clear that courts are not bound to apply nine percent interest in all cases. Instead, the rate must reflect fairness, prevailing conditions, and the conduct of the parties.
The Supreme Court also balanced its reasoning by cautioning that compensation should not turn into a “windfall gain”. Proof of actual loss is a “guiding lamp” for assessing damages, but in cases of extreme delay and builder misconduct, higher rates can be justified.
For buyers, the case underlines the importance of documenting payments and agreements carefully, challenging one-sided clauses that impose unequal penalties and pursuing legal remedies if compensation awarded seems insufficient.
Partly allowing Sharma’s appeal, the Bench substituted the NCDRC’s nine percent interest rate with 18 percent per annum while keeping all other directions intact. The top court ordered the developer to refund the requisite amount within two months.
Summing up, the judgment stated, “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.”
(Edited by Vidhi Bhutra)
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