When a builder fails to deliver on agreement.

COURTS DECIDE In a disputed agreement between a builder and landowner, the latter can appeal for justice as a consumer.

Building construction arrangements are common in India, allowing a builder to construct a structure on the land owned by another party. The property is normally shared between the builder and the landowner. The builder can also make cash payment to the landowner and hand over to him the built-up area.

Courts in India when handling such building arrangements have often had to decide if the owner of the land could make a complaint under the Consumer Protection Act, 1986. Could owners be considered as consumers and builders as service providers?

In many cases, the courts have held that the landowner is not a consumer under section 2(1)(d) of the Act as his or her objective was to enter into an agreement with the builder to get the construction completed for selling or renting it to earn a profit. As the landowner had a profit motive, he or she could not be considered a consumer and therefore could not maintain a compliant under the Act.

A similar question arose in the matter of Bunga Daniel Babu versus Sri Vasudeva Constructions and Others. The Supreme Court (SC) set aside the order passed by the National Consumer Dispute Redressal Commission (NCDRC) and State Consumer Dispute Redressal Commission (SCDRC) that the complainant landowner was not a consumer under the Act. NCDRC and SCDRC based their judgment on the assumption that the landowner had made an arrangement with a builder with commercial purpose in mind and thus fell out of the purview of consumer as per the Act.

The landowner and the builder signed a memorandum of understanding (MoU) in which the builder was responsible for construction, timely delivery, obtaining approvals and sanctions. Non-compliance of the same attracted penalty. The builder failed to comply with the timelines as per the MoU and also defaulted/ made deviations/ omissions in the sanction plan.

When the landowner approached the district forum, it said the transaction between him and the builder could not be termed as joint venture as the landowner came within the definition of consumer under section 2(1)(d) of the Act. Aggrieved by the order, the builder appealed to the SCDRC, which reversed the district forum’s order. SCDRC held that the transaction was meant for a commercial purpose, as the landowner had the intention to get it constructed, sell, let it on rent and earn profits. The NCDRC concurred with the view of SCDRC.

The complainant filed a special leave before the SC, which had to decide whether the complainant was within the definition of consumer read with explanation of the Act.

The SC said in a true joint venture agreement between a landowner and builder, the former was a true partner or co-adventurer, having a say or control in the construction, participation in business or management of the venture and a share in profit/loss. Such an agreement is rare. Normally in such agreements, the landowner provides the land and the builder constructs a building. Thereafter, the landowner and builder share the constructed area. The landowner who has some apartments can retain the same or dispose of his share of apartments with corresponding undivided shares to others. The usual feature of such an agreement is that the landowner would have no control or say in the construction or management of the business.

Except for ensuring the landowner, a certain constructed area and/or certain cash consideration, the builder would ensure absolute control in himself, only assuring quality of construction, compliance with the local, municipal laws and timely delivery of constructed area/ building to the landowner.

The SC also stated that the title/caption/nomenclature of the instrument/document was not determinative of its nature or character. Mere use of the words “joint venture” or “collaboration” in the title or body of the agreement did not make the transaction a joint venture, until and unless there were provisions of shared control of interest, management, profits and losses.

After scrutiny of the provisions of the MoU, the SC held that the landowner was neither a partner nor a co-adventurer. He had no say or control over the construction, nor did he participate in the business. The only thing he was entitled to was a certain constructed area. Thus, the agreement could not be termed as a joint venture. SC said availing of services of the builder by the landowner for construction, for a consideration was an important aspect and going by the same the landowner was a consumer and the builder a service provider and if there was deficiency in regard to construction, the dispute raised by the landowner would be a consumer dispute.