Developer Not Liable To Pay Homebuyer's Bank Loan Interest For Delay In Flat Delivery : Supreme Court
In a notable ruling shaping the rights of homebuyers and the liabilities of real estate developers, the Supreme Court has clarified that while developers must refund the principal amount with interest to aggrieved homebuyers in cases of delay or non-delivery, they cannot be held liable for paying interest on the personal loans taken by buyers to finance their homes.A bench of Justice Sanjay...
In a notable ruling shaping the rights of homebuyers and the liabilities of real estate developers, the Supreme Court has clarified that while developers must refund the principal amount with interest to aggrieved homebuyers in cases of delay or non-delivery, they cannot be held liable for paying interest on the personal loans taken by buyers to finance their homes.
A bench of Justice Sanjay Karol and Justice Prasanna B. Varale delivered this decision in Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors., arising from a dispute over delayed possession of flats in GMADA's 'Purab Premium Apartments' scheme launched in 2011 in Mohali, Punjab.
Background
Anupam Garg and others had booked flats in GMADA's project by paying 10% of the total cost as earnest money. The flats were to be handed over within 36 months from the issuance of the Letter of Intent, but when Garg visited the site in May 2015, he found that construction was incomplete and that possession was unlikely for another 2-3 years. He sought a refund and later filed a consumer complaint.
The State Consumer Disputes Redressal Commission ruled in Garg's favor, ordering GMADA to refund the entire deposited amount (Rs..50,46,250) with 8% interest compounded annually. It also ordered compensation for mental harassment and litigation costs, and directed GMADA to pay the interest on loans that Garg had taken from the State Bank of India for purchasing the flat.
"The opposite party shall also pay the interest paid by the complainant to State Bank of India on the loan taken from it and paid to the opposite party for the purchase of the flat, as charged by the Bank from the complainant," the Commission ordered.
GMADA appealed to the National Consumer Disputes Redressal Commission (NCDRC), which upheld the State Commission's order. GMADA then approached the Supreme Court, challenging specifically the direction to pay the interest on Garg's housing loan.
Supreme Court's Ruling
The Supreme Court upheld the refund with 8% annual interest and compensation for mental harassment but set aside the direction requiring GMADA to pay interest on the buyer's housing loan. The judgment authored by Justice Karol emphasized that compensation under the Consumer Protection Act cannot be awarded arbitrarily and should be based on legal principles and the extent of the developer's liability.
Quoting previous judgments including Bangalore Development Authority v. Syndicate Bank ((2007) 6 SCC 711) and DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda ( (2020) 16 SCC 318), the Court noted that while a developer is liable to pay interest for delayed possession (to compensate the buyer for the lost use of their money), it cannot be forced to pay interest on loans taken by buyers unless exceptional circumstances justify such an award.
The Court explained:
“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. That apart, 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 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.”
The Court held that the amount of interest awarded is sufficient compensation for the investment made and beyond that, the builder can't be asked to bear the loan interest amount as well.
"What flows from the above is that the amount of interest awarded is the compensation to the investment maker for the amount of money and the time he has been denied the fruits of that investment. The 8% interest awarded in this case on top of the entire amount that is being invested, is the compensation for being deprived of the investment of that money. Apart from this no amount of interest on the loan taken by the respondents could have been awarded."
Case Title: Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors.
Citation : 2025 LiveLaw (SC) 677