Untitled Document
Necessity for Builder
“Builder” – A name in itself denotes a bit of terror of being a “bad man” in the eyes of the common masses. Stories of delayed delivery of possession, non-delivery of possession, constructions not in accordance with the agreement, use of bad materials, deviations from the sanctioned plan which attracts penalty and even demolition, non-delivery of Completion Certificates, are usual. The most unfortunate part is that the buyer /landowner is rendered completely helpless in the situation as he is not able to compete with the builder's large financial and non-financial resources.
Still, in spite of all these odds, their presence is inevitable. Because of financial, non- financial constraints (lack of time / competence / willingness being the majority of non-financial constrains), their services are regularly required by the society. Development of a Group Housing society requires the involvement of builder(s) because of the volume and nature of complex constructions.
Cases where the buyer does not have sufficient funds to purchase the whole house with the land underneath, in such cases the importance of the builder to construct several units on the land and to sell the same to different persons so as to reduce the price, is another area where the importance of builder cannot be undermined.
The last but not the least are cases where the builder enters into an agreement with the landowner for the demolition of the old construction, to construct a new house, give a share of floor area to the landowner and retain the balance for himself or dispose it according to his own wimps and fancies.
Remedy Available to the Landlord
Where there is a buyer's agreement with the builder, ( e.g . a buyer agreeing to purchase a flat in a Group Housing s ociety or even a House) and in case of any breach of any of the terms of the buyer's agreement, there is no dispute that the buyer is treated like a consumer and is entitled for protection of the Consumer Protection Act. This is a settled legal proposition and does not require any deliberations. In such cases, the various remedies available to the buyer are: (1) a civil suit for the breach of the terms and conditions of the contract or for specific performance; (2) a consumer complaint before the District / State / National Consumer Forum alleging deficiency in service or delay / sub-standard construction, and (3) a complaint before the MRTP Commission, New Delhi alleging “Unfair / Restrictive Trade Practice”. Needless to add that the most preferred of all the three remedies available is to file a consumer complaint, because (1) MRTP Commission is situated only at New Delhi and not at other places. This territorial restriction is impediment for the people residing / working at the places away from Delhi . (2) The lengthy and time consuming processunder the Civil Court because of the strict adherence of the provisions of the Civil Procedure Code and Evidence Act.
The easiest, safest and least expensive method is to pursue a consumer complaint under the Consumer Protection Act, which does not require any payment of the Court Fees, (except nominal amount) which is quite high in case of civil litigation. The result is the filing of large number of consumer complaints for the breach of the terms and conditions of the buyer's agreement as compared to the number of civil suits.
Similar is the case when a landlord enters into an agreement with the builder by which the builder is to construct the building as per the specification of the landlord for a consideration. There is no dispute or difficulty to hold that all the above mentioned three remedies are also available to the landlord in case of any breach of the terms and conditions of the contract.
But where there is a Development Agreement /Collaboration Agreement between the landlord and the builder, is the landlord entitled to approach Consumer Forum for the redressal of his grievances?
Collaboration Agreement between the Landlord and the Builder
The terms and conditions which are generally found in the Collaboration Agreement are:
The only distinction is when a Collaboration Agreement is entered into between the landlord and the builder wherein the builder agrees to construct the building and further agrees to distribute the newly constructed building in a particular ratio with the landlord, the question whether the landlord is entitled for relief under the Consumer Protection Act arises, as undisputedly prima facie this seems to be a commercial agreement between the builder and the landlord taking it out of the scope of the Consumer Protection Act.
It seems that, prima facie , the landlord is not entitled for protection under the Consumer Protection Act as (1) on the close scrutiny of the collaboration agreement it is clear that the agreement is also in the nature of an agreement of sale of undivided share in land by the landlord to the builder, (2) it is an agreement to carry out an enterprise or business adventure for mutual profit and such a venture resulting in profit for both the parties can not be an agreement for providing service.
Winds of change – Landlord under a Collaboration Agreement is a Consumer entitled for maintaining Consumer Complaint
To determine whether or not the landlord in spite of Collaboration Agreement is a consumer under the provisions of the Consumer Protection Act is important, for the reason that the remedy available under the Consumer Protection Act is faster in comparison to the Civil Court , the strict rules of procedure are not applicable in consumer courts and the expenses inpursuing the consumer litigation is minimal as compared to pursuing a litigation in the civil courts. Therefore, it will be a great sign of relief to the landlords who are entering into a collaboration agreement with the builder, if it is determined that the landlord even though he has entered into a collaboration agreement with the builder is still a consumer for all purposes and intents.
This issue arose for the consideration of the Hon'ble Supreme Court of India in the matter of Faqir Chand Gulati v . Uppal Agencies Pvt. Ltd. & Anr. (decided on 10 th July, 2008) wherein the Hon'ble Court held that even though there exists a collaboration agreement, still the landlord is a consumer and is entitled for pursuing a consumer complaint against the builder for the breach of any of the terms and conditions of the collaboration agreement. The Hon'ble Court further held that however, a builder cannot maintain his complaint against the builder for breach of terms and conditions of the collaboration agreement before the consumer forums and the only remedy available to him is to pursue the same before the civil court.
While holding so the Hon'ble Supreme Court took note of the fact that the Consumer Protection Act is an Act which has been brought in the statute book to protect the consumers from large and powerful organizations before which they don't have any say. It further took note of the fact that the building construction is a ‘service‘ and falls within the four corners of the Consumer Protection Act. It also took a very serious note of the high-handed practices adopted by the builders. The Hon'ble Court after considering the scope and extent of the word “Joint Venture Agreement” as rendered by itself and also as given in the American Jurisprudence, Black's Law Dictionary and Corpus Juris Secundum came to the conclusion that the basic requirement of sharing of profits and losses and management rights are missing in the collaboration agreement entered into between the builder and the landlord inasmuch as the builder is free to sell the portion falling to his share and retain all the proceeds thereof to himself and there is no sharing of the profits and losses between the landlord and the builder. The Hon'ble Court further noted that there is no control of the landlord on any of the activities of the builder, who is free and independent to take all the decisions. Because of the above mentioned reasons the Hon'ble Supreme Court held that the Agreement between the landlord and the builder though named as collaboration agreement is not a Joint Venture Agreement.
Hon'ble Supreme Court further held that the agreement between the landlord and the builder is, in fact, a contract for construction of an apartment or house for the landlord, in accordance with the specifications of the landlord and on terms of the contract. The consideration for the builder is in the form of sale of an undivided share in the land and permission to construct and own the upper floors. To adjust the value of the extent of land to be transferred, there may be also payment of cash consideration by the builder. But the important aspect is the availment of services of the builder by the land-owner for a house construction (construction of owner's share of the building) for a consideration. To that extent, the land-owner is a consumer, the builder is a service-provider and if there is deficiency in service in regard to construction, the dispute raised by the land-owner will be a consumer dispute.
The Hon'ble Court further held that in case of pure “Joint Venture Agreement” (agreement in which profits and losses or management rights are shared between the landlord and the builder), the landlord is not entitled for prosecuting a consumer complaint.
Conclusion
With this landmark judgment the Hon'ble Supreme Court has held that the landlord, who enters into any “development agreement” / “Collaboration agreement” / any other agreement , by whatsoever name called, by which the builder agrees to construct the building to be shared in the agreed ratio between the two, is a consumer as per the provisions of the Consumer Protection Act entitled for all the protection under the Act in case of breach of any part of the agreement. It further held that the builder, however, is not a consumer and cannot take shelter under the Act. But where there is a true Joint Venture Agreement between the landlord and the builder (sharing of profits /losses, control in the management of the business of construction, joint ownership and control of the property) landlord is not a consumer under the provisions of the Consumer Protection Act.
This judgment has brought a great sign of relief to the landlords in terms of time being taken in getting the matter adjudicated as well as costs involved, is granted to the landlords.
Time to rejoice, anyway!
-------------
CONSUMER FORUM'S JURISDICTION
Landlord, Builder Collaboration Agreement
Praveen Agrawal*
Can a Landlord file a consumer complaint for the breach of the terms and conditions of the collaboration agreement by the Builder or any part thereof? Are such proceedings maintainable? A Landlord who has entered into a Collaboration Agreement ( i.e. an agreement by which the builder has agreed to construct the building on the property (land) of the landlord, in which landlord will be entitled to get the agreed share and balance will be kept / disposed off by the builder at his absolute discretion) can he be construed as a “consumer” entitled for protection under the Consumer Protection Act?Necessity for Builder
“Builder” – A name in itself denotes a bit of terror of being a “bad man” in the eyes of the common masses. Stories of delayed delivery of possession, non-delivery of possession, constructions not in accordance with the agreement, use of bad materials, deviations from the sanctioned plan which attracts penalty and even demolition, non-delivery of Completion Certificates, are usual. The most unfortunate part is that the buyer /landowner is rendered completely helpless in the situation as he is not able to compete with the builder's large financial and non-financial resources.
Still, in spite of all these odds, their presence is inevitable. Because of financial, non- financial constraints (lack of time / competence / willingness being the majority of non-financial constrains), their services are regularly required by the society. Development of a Group Housing society requires the involvement of builder(s) because of the volume and nature of complex constructions.
Cases where the buyer does not have sufficient funds to purchase the whole house with the land underneath, in such cases the importance of the builder to construct several units on the land and to sell the same to different persons so as to reduce the price, is another area where the importance of builder cannot be undermined.
The last but not the least are cases where the builder enters into an agreement with the landowner for the demolition of the old construction, to construct a new house, give a share of floor area to the landowner and retain the balance for himself or dispose it according to his own wimps and fancies.
Remedy Available to the Landlord
Where there is a buyer's agreement with the builder, ( e.g . a buyer agreeing to purchase a flat in a Group Housing s ociety or even a House) and in case of any breach of any of the terms of the buyer's agreement, there is no dispute that the buyer is treated like a consumer and is entitled for protection of the Consumer Protection Act. This is a settled legal proposition and does not require any deliberations. In such cases, the various remedies available to the buyer are: (1) a civil suit for the breach of the terms and conditions of the contract or for specific performance; (2) a consumer complaint before the District / State / National Consumer Forum alleging deficiency in service or delay / sub-standard construction, and (3) a complaint before the MRTP Commission, New Delhi alleging “Unfair / Restrictive Trade Practice”. Needless to add that the most preferred of all the three remedies available is to file a consumer complaint, because (1) MRTP Commission is situated only at New Delhi and not at other places. This territorial restriction is impediment for the people residing / working at the places away from Delhi . (2) The lengthy and time consuming processunder the Civil Court because of the strict adherence of the provisions of the Civil Procedure Code and Evidence Act.
The easiest, safest and least expensive method is to pursue a consumer complaint under the Consumer Protection Act, which does not require any payment of the Court Fees, (except nominal amount) which is quite high in case of civil litigation. The result is the filing of large number of consumer complaints for the breach of the terms and conditions of the buyer's agreement as compared to the number of civil suits.
Similar is the case when a landlord enters into an agreement with the builder by which the builder is to construct the building as per the specification of the landlord for a consideration. There is no dispute or difficulty to hold that all the above mentioned three remedies are also available to the landlord in case of any breach of the terms and conditions of the contract.
But where there is a Development Agreement /Collaboration Agreement between the landlord and the builder, is the landlord entitled to approach Consumer Forum for the redressal of his grievances?
Collaboration Agreement between the Landlord and the Builder
The terms and conditions which are generally found in the Collaboration Agreement are:
• The landlord will give to the builder vacant possession of the premises and authorize the builder to secure necessary sanctions, permissions and approvals for demolition of the existing building and construction and completion of a new building.Prima Facie it seems that the agreement between the landlord and the builder is a collaboration agreement, which in turn is in the nature of a joint venture; the agreement also contemplates ‘sharing' of constructed area between the builder and the landlord, and hence the agreement does not have any element of “hiring any services” of the builder by the landlord and therefore, the landlord is not a ‘consumer' and the builder not a ‘service-provider'. If this be the legal position the possibility of the applicability of the Consumer Protection Act is altogether ruled out.
• The builder shall demolish the existing structure and construct a new building at his cost and expense. Complete liberty is granted to the builder in the matter of construction except to the extent that the construction should confirm to the agreed specification.
• Landlord, on completion of construction, is entitled to the agreed portion of the constructed building and the balance is retained by the builder or disposed off by the builder at his absolute discretion. Many a times in addition to the agreed portion in the newly constructed house, builder also pays non-refundable amount to the landlord.
• The landlord and the builder are further entitled for undivided and indivisible share in the land, proportionate to their right in the building.
• On completion of the building, the builder applies and obtains the Completion Certificate from the concerned authority.
• The agreement is not a partnership and shall not be deemed to be a partnership between the owner and the builder.
The only distinction is when a Collaboration Agreement is entered into between the landlord and the builder wherein the builder agrees to construct the building and further agrees to distribute the newly constructed building in a particular ratio with the landlord, the question whether the landlord is entitled for relief under the Consumer Protection Act arises, as undisputedly prima facie this seems to be a commercial agreement between the builder and the landlord taking it out of the scope of the Consumer Protection Act.
It seems that, prima facie , the landlord is not entitled for protection under the Consumer Protection Act as (1) on the close scrutiny of the collaboration agreement it is clear that the agreement is also in the nature of an agreement of sale of undivided share in land by the landlord to the builder, (2) it is an agreement to carry out an enterprise or business adventure for mutual profit and such a venture resulting in profit for both the parties can not be an agreement for providing service.
Winds of change – Landlord under a Collaboration Agreement is a Consumer entitled for maintaining Consumer Complaint
To determine whether or not the landlord in spite of Collaboration Agreement is a consumer under the provisions of the Consumer Protection Act is important, for the reason that the remedy available under the Consumer Protection Act is faster in comparison to the Civil Court , the strict rules of procedure are not applicable in consumer courts and the expenses inpursuing the consumer litigation is minimal as compared to pursuing a litigation in the civil courts. Therefore, it will be a great sign of relief to the landlords who are entering into a collaboration agreement with the builder, if it is determined that the landlord even though he has entered into a collaboration agreement with the builder is still a consumer for all purposes and intents.
This issue arose for the consideration of the Hon'ble Supreme Court of India in the matter of Faqir Chand Gulati v . Uppal Agencies Pvt. Ltd. & Anr. (decided on 10 th July, 2008) wherein the Hon'ble Court held that even though there exists a collaboration agreement, still the landlord is a consumer and is entitled for pursuing a consumer complaint against the builder for the breach of any of the terms and conditions of the collaboration agreement. The Hon'ble Court further held that however, a builder cannot maintain his complaint against the builder for breach of terms and conditions of the collaboration agreement before the consumer forums and the only remedy available to him is to pursue the same before the civil court.
While holding so the Hon'ble Supreme Court took note of the fact that the Consumer Protection Act is an Act which has been brought in the statute book to protect the consumers from large and powerful organizations before which they don't have any say. It further took note of the fact that the building construction is a ‘service‘ and falls within the four corners of the Consumer Protection Act. It also took a very serious note of the high-handed practices adopted by the builders. The Hon'ble Court after considering the scope and extent of the word “Joint Venture Agreement” as rendered by itself and also as given in the American Jurisprudence, Black's Law Dictionary and Corpus Juris Secundum came to the conclusion that the basic requirement of sharing of profits and losses and management rights are missing in the collaboration agreement entered into between the builder and the landlord inasmuch as the builder is free to sell the portion falling to his share and retain all the proceeds thereof to himself and there is no sharing of the profits and losses between the landlord and the builder. The Hon'ble Court further noted that there is no control of the landlord on any of the activities of the builder, who is free and independent to take all the decisions. Because of the above mentioned reasons the Hon'ble Supreme Court held that the Agreement between the landlord and the builder though named as collaboration agreement is not a Joint Venture Agreement.
Hon'ble Supreme Court further held that the agreement between the landlord and the builder is, in fact, a contract for construction of an apartment or house for the landlord, in accordance with the specifications of the landlord and on terms of the contract. The consideration for the builder is in the form of sale of an undivided share in the land and permission to construct and own the upper floors. To adjust the value of the extent of land to be transferred, there may be also payment of cash consideration by the builder. But the important aspect is the availment of services of the builder by the land-owner for a house construction (construction of owner's share of the building) for a consideration. To that extent, the land-owner is a consumer, the builder is a service-provider and if there is deficiency in service in regard to construction, the dispute raised by the land-owner will be a consumer dispute.
The Hon'ble Court further held that in case of pure “Joint Venture Agreement” (agreement in which profits and losses or management rights are shared between the landlord and the builder), the landlord is not entitled for prosecuting a consumer complaint.
Conclusion
With this landmark judgment the Hon'ble Supreme Court has held that the landlord, who enters into any “development agreement” / “Collaboration agreement” / any other agreement , by whatsoever name called, by which the builder agrees to construct the building to be shared in the agreed ratio between the two, is a consumer as per the provisions of the Consumer Protection Act entitled for all the protection under the Act in case of breach of any part of the agreement. It further held that the builder, however, is not a consumer and cannot take shelter under the Act. But where there is a true Joint Venture Agreement between the landlord and the builder (sharing of profits /losses, control in the management of the business of construction, joint ownership and control of the property) landlord is not a consumer under the provisions of the Consumer Protection Act.
This judgment has brought a great sign of relief to the landlords in terms of time being taken in getting the matter adjudicated as well as costs involved, is granted to the landlords.
Time to rejoice, anyway!
-------------
* The writer is an Advocate on Record, Supreme Court of India .
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