One-sided clauses in builder-buyer agreements unfair, says Supreme Court

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In the Pioneer Urban Land & Infrastructure Ltd v Govindan Raghavan case, the Supreme Court held that a contract that is one-sided and against the interests of buyers cannot be final and binding if it is shown that buyers had no option but to sign on the dotted line.

In this case, the buyer, Govindan Raghavan, had deposited `48.3 million (US$695,000) with the builder, Pioneer Urban Land & Infrastructure, for a flat in Araya Complex, Gurugram. But the builder failed to obtain an occupancy certificate for the flat within the stipulated period of 39 months (with a grace period of 180 days) and, therefore, could not hand over the possession of the flat to the buyer within the time period agreed by them in the agreement.

The buyer had approached the National Consumer Disputes Redressal Commission (NCDRC), which directed the builder to pay compensation to the buyer and also awarded interest for a part of the period. Meanwhile, the builder obtained the occupancy certificate and issued a possession letter to the buyer. The buyer submitted that he was not interested in taking possession of the apartment because of the delay. The builder filed an appeal before the Supreme Court.

The Supreme Court analyzed the builder-buyer agreement and compared the options available to the builder and the buyer regarding the right of cancellation and termination, rate of interest, and when the amount should be refunded. The court observed that there were stark inconsistencies between the remedies available to both the parties. The court held that a term of a contract is not final and binding if it is shown that the flat buyer had no option but to sign on the dotted line on a contract framed by the builder. The court held that contractual terms of the agreement were on the face of it one-sided, unfair and unreasonable, and such incorporation of one-sided clauses in an agreement constitutes an unfair trade practice as per section 2(r) of the Consumer Protection Act, 1986.

The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at [email protected] Readers should not act on the basis of this information without seeking professional legal advice.