Introduction
In the recent judgement given by the Honourable Supreme Court of India in the case of Bunga Daniel Babu v. Sri. Vasudeva Construction1, the Court held that in an agreement entered between the landholder and the builder in which the landlord provides the land and the builder puts up the building and both share the constructed area, the landholder was treated as a “consumer” under the Consumer Protection Act even when the landowner (after getting his share of the building from the builder), sold the flats to third party.
By the said judgement, the Honourable Supreme Court quashed the order of the National Consumer Disputes Redressal Commission which had concurred with the view of the State Commission and had held that if the landowner had an intention to sell the plots and earn profits, the transaction was meant for commercial purpose and hence the landowner could not be regarded as a “consumer”.
Legal Background
The definition of “consumer” as given under section 2(1)(d) of the Consumer Protection Act, 1986 (“Act”) was amended in 2002 to exclude a person who avails services for any commercial purpose.
In case of development agreements entered between the landholder and the builder in which the landholder provides the land and the builder puts up the building and both share the constructed area, a question used to arise as to whether the landowner was a “consumer” under the provisions of the Act. In the case of Faqir Chand Gulati2 it was held by the Honorable Supreme Court of India that the landowner is regarded as a consumer except where the agreement was a joint venture in which both the landowner and the builder (i) exercise joint control over the construction/development, (ii) what participate in the business and management of the joint venture, (iii) are accountable to each other for the respective acts with reference to the project and (iv) the landowner has a share in the profits/loss of the venture.
In the aforesaid case, the Honourable Supreme Court had also ruled that the title or caption or nomenclature of the instrument/document is not determinative of the nature and character of the instrument/document, and the use of the words ‘joint venture’ or ‘collaboration’ in the title or even in the body of the agreement will not make the transaction a joint venture, if there are no provisions for shared control of interest or enterprise and shared liability for losses.
Question of law for consideration
The controversy in the Faqir Chand case (supra) had arisen before the definition of consumer was amended in 2002 as mentioned above which excluded a person who avails services for any commercial purpose from the purview of the definition of “consumer” under the Act.
The question which hence required consideration was that in case of development agreements where the landowner (after getting his share of the building from the builder), sold the flats to a 3rd party, will the landowner be considered as availing services for a commercial purpose from the purview of the definition of “consumer” under the Act?
Facts of the Case
The applicant was the owner of plots of land situated within the limits of the Vishakhapatnam Municipal Corporation. He entered into a Memorandum of Understanding (“MoU”) with the developers for construction of a multi-storied building, and the apartments which were to be shared in the proportion of 40% and 80% between the landowner and the developer. The construction was to be completed within 19 months from the date of approval of the plans by the Municipal Corporation.
There was a delay of about 3 years in handing over the flats and the land owner had certain other grievances pertaining to deviations from sanction plans and non-completion of various other works and other omissions for which he claimed damages from the developer and the developers repudiated the claims.
The landowner appellant approached the District Forum, which placed reliance on the decision of the Supreme Court in Faqir Chand Case (supra) and held that the appellant came under the definition of “consumer” under the Act and allowed the claim in favour of the appellant complainant.
The respondent preferred an appeal before the State Commission which reversed the findings of the District Forum on the grounds that there was an intention to sell the plots and earn profits and hence the transaction was meant for commercial purpose.
The appellant invoked the divisional jurisdiction of National Commission which concurred with the view expressed by the State Commission by holding that the State Commission had rightly distinguished the authority in Faqir Chand case (supra) on facts because the flats were not for personal use and the complainant had already sold 4 of the 12 flats.
Issue
Whether in the background of the aforesaid facts, the appellant-complainant was regarded as a “consumer” under the Act?
Court’s Judgment (Main Excerpts Unquoted)
In background of the facts of the aforesaid case, and relying and taking note of various precedents including particularly Faqir Chand case (supra), the Honorable Supreme Court held that though the controversy in the said case had arisen before the amendment of 2002, the principles laid down therein would apply even after the amendment if the fact situation comes within the four corners of the principles laid in the Faqir Chand case.
The National commission had taken an erroneous approach by holding that the complainant was not a consumer as his purpose was to sell flats (i.e. a commercial purpose). What was required to be scrutinise was whether there was any joint venture agreement between the litigating parties. On a studied scrutiny of the agreement entered between the litigating parties, the Court came to a conclusion that the landowner was neither a partner nor our co-adventurer with the builder. The landowner did not have any say or control of the construction and did not participate in the business of construction.
The Court therefore held that the appellant landowner was regarded as a “consumer” under the Act. Accordingly, the Court remitted the matter to the State Commission to the adjudicate treating the appellant as a consumer.
Comments & Takeaway
The Honorable Supreme Court’s judgment is definitely much welcomed by the landowners who are entangled in a legal dispute with the developers or otherwise propose to take any legal action them because of the deficiency in services. In such cases, the landowner can avail a recourse under the Consumer Protection Act.
Taking the authority laid down by the Court in the Faqir Chand case, the Court has clarified that in order to determine whether or not there is any joint venture arrangement between the builder and developer, the parameter to be considered was not whether the landowner has the right to sell the flats / apartments, but that the landowner had any control or participation in the construction of the building, or had any share in the profits of the venture.
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