Whether A Real Estate Company Falls Within The Meaning Of ‘Consumer’ Under Section 2(7) Of The Consumer Protection Act, 2019 If It Purchases A Flat For Personal Use

Summary:

[1]In the recent Supreme Court judgment, the bench consisting of Hon’ble Justice Pankaj Mithal and Hon’ble Justice Pamidighantam Sri Narasimha, addressed a statutory appeal concerning a consumer complaint under the Consumer Protection Act, 2019. The central issue was whether Kushalraj, a real estate company, qualified as a consumer entitled to protection under the Act after it booked a flat for residential use and subsequently faced issues with double allotment by Omkar Realtors. The Court while dismissing the appeal, upheld the National Consumer Disputes Redressal Commission’s (NCDRC) finding that Kushalraj was indeed a consumer, as the flat was intended for personal use by one of its directors and not for commercial resale and ordered to refund ₹7.16 crore to Kushalraj, with interest.

Facts:

In this case, Kushalraj Land Developers Pvt. Ltd., a real estate company, booked a flat with Omkar Realtors and Developers Pvt. Ltd. in their project ‘Omkar 1973 Worli’ for residential use of one of its directors and family members. Omkar Realtors allotted Flat No.5001 to Kushalraj but also allotted the same flat to another person, Mr. Nakul Arya, causing confusion. When Kushalraj tried to take possession, he was informed that the flat was already allotted to Mr. Arya. Omkar Realtors then cancelled Kushalraj’s allotment and forfeited the ₹7.16 crore deposited by Kushalraj.

Consequently, Kushalraj filed a consumer complaint before the NCDRC and alleged deficiency in service and unfair trade practices. The NCDRC allowed the complaint holding the respondent to be a ‘consumer’ under Section 2 (7) of Consumer Protection Act. Aggrieved by the decision of NCDRC an appeal was preferred by the Appellant/Respondent before the Supreme Court.

Issues:

Whether a real estate company qualified as a ‘consumer’ under Section 2(7) of the Consumer Protection Act if it purchased a flat for personal use and whether there was any deficiency in service exhibited by the respondent in cancelling the allotment of a flat and forfeiting the deposit without resolving a double allotment issue?

Judgement:

The Supreme Court while addressing two issues mainly of maintainability and deficiency of services affirmed the NCDRC’s findings, stating that Kushalraj’s purchase was for personal use and thus qualified as a consumer transaction under Section 2(7) of the Consumer Protection Act. The Court emphasized that the burden of proof lay with Omkar Realtors to demonstrate that Kushalraj was engaged in commercial activities through this purchase, which they failed to do. The judgment highlighted that the mere fact that Kushalraj was a real estate company did not automatically categorize the flat purchase as a commercial transaction, instead, it was determined that the dominant purpose of the acquisition was personal use.

Furthermore, the Supreme Court found that Omkar Realtors had committed a deficiency in service by cancelling Kushalraj’s allotment and forfeiting the deposit before resolving the issue of double allotment. This confusion persisted until it was clarified through a rectification deed in March 2018, well after Omkar had terminated Kushalraj’s allotment in August 2017. Consequently, the Court ruled that Omkar’s actions constituted unfair trade practices and were unjustified. As a result, the Court ordered Omkar Realtors to refund ₹7.16 crore along with interest at 6% per annum from the date of deposit until payment to Kushalraj. The appeal was dismissed with no order as to costs, reinforcing consumer rights and ensuring accountability in real estate transactions.

Analysis:

The judgment sets a significant precedent by stressing that the definition of ‘consumer’ extends beyond individual buyers to include corporate entities when the purchase is intended for personal use rather than for commercial resale or profit-making activities. This interpretation broadens the scope of consumer rights and stresses that the dominant purpose of a transaction should guide its classification. It establishes a clear guideline for real estate developers regarding their obligations to consumers, mandating that they cannot unilaterally cancel allotments or forfeit deposits without addressing any disputes or confusions surrounding property allotments.

Moreover, it serves as a warning to real estate developers about the legal consequences of unfair trade practices and deficiencies in service thereby creating a more accountable real estate industry. It strengthens consumer rights and promotes ethical business practices within the real estate sector, eventually leading to the creation of a fair market for all stakeholders involved.

[1] https://api.sci.gov.in/supremecourt/2023/3226/3226_2023_15_1502_54965_Judgement_23-Aug-2024.pdf

BEFORE THE HON’BLE SUPREME COURT

Omkar Realtors and Developers Pvt. Ltd. v. Kushalraj Land Developers Pvt. Ltd. and Anr.

CIVIL APPEAL NO. 858 OF 2023

Judgment dated 23rd August, 2024