Excessive Forfeiture And Service Tax Deductions Amounts As Unfair Trade Practices: NCDRC

Tea National Consumer Disputes Redressal Commissionpresided by Mr. Subhash Chandra and Dr. Sadhna Shanker, held that forfeiture of a deposit must be justified and proportionate, it should not exceed 10% of the total amount deposited.

Brief Facts of the Case

The complainant applied for a 4 BHK villa at the Bellezza Benicia project by Macrotech Developers/builder, making an initial payment of Rs. 4,50,000 to secure the allotment, followed by a total payment of Rs. 54,50,000. Despite the builder promising to complete construction by a specific date, they failed to start the project and sent a draft agreement with objectionable clauses, which the complainant sought to amend. After multiple requests for modifications went unaddressed, the complainant informed the builder of her decision to withdraw from the purchase and requested a refund. The builder unilaterally deducted Rs. 29,72,000 from her payments and refunded only Rs. 24,78,388. The complainant claimed the builder’s actions were illegal and violated several housing laws, leading her to file a complaint with the State Commission of Telangana for a refund, punitive damages, compensation for mental distress, and legal costs. The State Commission allowed the complaint and directed the builder to pay a sum of Rs.29,71,612, Rs.5,00,000 as punitive damages, Rs.5,00,000 towards compensation for mental agony and harassment along with litigation cost of Rs.25,000 . Aggrieved, the builder appealed before the National Commission.

Contentions of the Builder

The builder contended that the State Commission could not entertain the complaint since it exceeded its pecuniary jurisdiction as the value of the property has been assessed at Rs. 2,28,38,517. It relied on the decision of the larger bench of appeal in Ambrish Kumar Shukla v. In Ferrous Infrastructure Pvt. Ltd., where it was held that the amount of transaction including the so called compensation is the jurisdiction of the Consumer Forum. Furthermore, the builder referred to Renu Singh v. In Experion Developers (P) Ltd where it was confirmed that all the principles from the Ambrish Kumar Shukla case apply even where the complaint pertains to a refund of the deposited amount.

Observations by the National Commission

The National Commission observed that the main issue is whether there was a deficiency in service by the builder, noting that the builder had not previously raised concerns regarding the pecuniary jurisdiction before the State Commission. The commission also relied on the decisions of the Supreme Court in Maula Bux v. Union of Indiainforming that forfeiture has to be reasonable and it cannot be more than 10 percent of the deposit. Therefore, commission decided that builder could only forfeit Rs. 10,00,000 out of the earnest money and rest of the amount was to be returned with 6% per annum interest from the date of termination notice, with a warning that delay in doing so would attract interest at 9%. Moreover, the commission found the forfeiture exceeding 10% and the deduction for service tax as unfair trade practices; citing the case of DLF Homes Panchkula Pvt Ltd vs DS Dhandawhich held against receiving multiple compensations for a single deficiency. Hence, the compensation award of Rs. 50,000 for mental anguish was not warranted.

The National Commission held that the earnest money of Rs. 4,50,000 deposited by the complainant for the flat will be deducted. It modified the State Commission’s order to require the builder to refund the balance of Rs. 25,66,136, which included Rs. 22,83,852 plus Rs. 2,82,284, along with interest at 9% per annum.

Case Title: Macrotech Developers Ltd. Vs. A. Syamala Reddy

Box Number: FA No. 422/2023

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