Consumer Courts Can Award Compensation Irrespective Of Contractual Terms: Supreme Court

The Supreme Court has said the power of the consumer fora to grant just and reasonable compensation for deficiency in service is traceable to the statute and cannot be curtailed by contractual terms which operate to the detriment of the consumer.

A bench of Justices BV Nagarathna and R Mahadevan dismissed civil appeals filed by M/s Parsvanath Developers Ltd against the NCDRC's orders directing it to complete construction of the flats in a project developed by it at Sector 53, Gurgaon known as Parsvnath Exotica and hand over possession to the respondents in these appeals on or before March 31, 2019, after obtaining the requisite occupancy certificate from the competent authorities. 

The appellant was further directed to pay compensation by way of simple interest at the rate of 8% per annum with effect from specific dates in 2014, 2013 and 2015 respectively till the actual delivery of possession.  

"Having regard to the totality of circumstances, namely the prolonged delay, failure to obtain mandatory statutory approvals, repeated non-compliance with the directions of this court and the long deprivation suffered by the respondents despite payment of substantial consideration, we are of the considered view that award of interest at the rate of 8% per annum represents fair and reasonable compensation consistent with the principles laid down by this court,'' the bench said.    

The court rejected the appellant's contention that the NCDRC exceeded its jurisdiction by travelling beyond the scope of Section 14 of the Consumer Protection Act, 1986, while granting the reliefs under the impugned orders, and failed to give due effect to the contractual terms governing the relationship between the parties.  

The court pointed out, the jurisdiction of the consumer fora is traceable not merely to the contractual terms agreed between the parties but to the statute itself. 

Sections 12 and 22 of the Act empower the consumer fora, including the NCDRC to adjudicate complaints relating to deficiency in service and to grant appropriate reliefs. Section 22 expressly incorporates the powers under Sections 12, 13 and 14, thereby enabling the NCDRC to issue directions and award compensation for loss or injury caused to a consumer. The source of power, therefore, is statutory, and not contractual, the bench said.   

The court emphasized, it is well settled that housing construction falls within the ambit of “service” under Section 2(1)(o) of the Act, and failure to deliver possession within the stipulated period constitutes “deficiency” under Section 2(1)(g). 

In Lucknow Development Authority Vs M K Gupta (1994), this court held that the provisions of the Act must receive a liberal construction in favour of the consumer, the legislation being beneficial in character. The expression “compensation” was held to be of wide amplitude, extending not only to pecuniary loss but also to mental agony and harassment occasioned by deficiency in service, it noted.  

The bench also pointed out, in M/s Imperia Structures Ltd Vs Anil Patni and another (2020), and IREO Grace Realtech Private Limited Vs Abhishek Khanna and others (2021), this court reiterated that flat purchasers are “consumers” under the Act, and delay in handing over possession amounts to deficiency in service. The consumer fora, in exercise of powers under Section 14, are competent to redress such deficiency and award just and reasonable compensation commensurate with the injury suffered.

The bench also pointed out, it is equally well settled that contractual stipulations cannot curtail the statutory jurisdiction of the consumer fora. 

In Pioneer Urban Land & Infrastructure Ltd Vs Govindan Raghavan (2019), this court held that one-sided and unreasonable clauses in builder-buyer agreements constitute an unfair trade practice under Section 2(1)(r) of the Act. It was further observed that the incorporation of such oppressive terms in a standard form contract, where purchasers have little or no bargaining power, cannot bind the consumer so as to defeat statutory remedies under the Act.  

After going through the flat buyer agreement, the bench noted, a reading of Clause 10(c) revealed that compensation for delay is stipulated at the rate of Rs 10 per sq ft per month. Whereas, Clause 5(b) of the Agreement empowers the developer to charge interest at 24% per annum for delayed payments by the allottee and to forfeit a substantial portion of the earnest money. 

Thus, the terms are evidently one-sided and have been drafted unilaterally by the developer. The stipulated compensation is nominal and disproportionate, particularly in cases of prolonged delay causing financial strain and mental hardship to homebuyers, the court held.

"The statute does not impose any embargo on the grant of higher or reasonable compensation merely because the parties have agreed to a particular clause, especially where such clause is found to be unfair or oppressive. While consumer fora must act judicially and not arbitrarily enhance compensation, they are not bound to mechanically enforce a contractual term that results in manifest injustice. Departure from such a clause, where justified by the nature and duration of the delay and the hardship caused, lies within the statutory competence of the forum,'' the bench said. 

In the instant case, the court found, the delay in completion and handing over of possession is not disputed. Such failure constitutes deficiency in service. The NCDRC has examined the facts, assessed the extent of delay and its impact on the complainants, and determined compensation in the exercise of its powers conferred under the Act.  

The court held that the NCDRC acted well within the ambit of its statutory authority in awarding compensation, notwithstanding the restrictive stipulation contained in Clause 10(c) of the Agreement.   

"The power of the consumer fora to grant just and reasonable compensation for deficiency in service is traceable to the statute and cannot be curtailed by contractual terms which operate to the detriment of the consumer,'' the bench said, holding the award therefore represented a legitimate and permissible exercise of statutory jurisdiction.  

Relying upon Bangalore Development Authority Vs Syndicate Bank (2007), the bench pointed out, this court held that where possession is not delivered within the stipulated or reasonable time without justifiable cause, the allottee is entitled to refund with reasonable interest and in appropriate cases, additional compensation depending upon the facts. Compensation is not uniform and must be moulded in light of the nature of delay, conduct of the authority, and extent of harassment suffered.

Citing other authorities, the bench said, the jurisprudence that emerges is clear: compensation under the Act is remedial and protective in character. 

"Detailed mathematical ascertainment of market decline is not a sine qua non; what is required is that the award be just, reasonable and proportionate to the delay, deprivation and hardship established on record,'' the court said.

The court finally directed the appellant to obtain the requisite occupancy certificate and hand over possession to the respondents within a period of six months from the date of this judgment. Till such time, the appellant would continue to pay compensation as determined by the NCDRC without any default, it said. 

Case Title: Parsvanath Developers Ltd Vs Mohit Khirbat

Bench: Justices B V Nagarathna and R Mahadevan

Date of Judgment: February 20, 2026