The Supreme Court has held that a flat buyer who financed his purchase through a housing loan cannot take back the full refund from a builder that failed to deliver possession. A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe ruled that he is entitled to the money he paid from his own pocket, with 12% simple interest.
Background
In 2009, Madhu Kudapa, then known as K. Madhusudhan Rao and a Non-Resident Indian, booked an apartment in the “Lodha Bellezza” project in Hyderabad for about Rs 2.30 crore. He paid Rs 51.11 lakh from his own funds. HDFC sanctioned a Rs 2 crore loan, and under a tripartite agreement it released Rs 1.68 crore to M/s Lodha Healthy Constructions and Developer Private Limited in thirteen instalments by July 2011.
Possession never came. In 2013, the buyer approached the National Consumer Disputes Redressal Commission seeking refund, interest, rent and compensation. In July 2022, the Commission ordered the builder to refund the entire amount with 9% interest. It also found the bank deficient in service and directed it to pay Rs 2 lakh. The buyer and the bank both appealed.
The Court said the transaction was triangular and the real question was who should receive the refund. It relied on the principle of unjust enrichment, which means no one should profit at another’s expense. On the loan, it observed:
“It is true that under Recital (H) and Clause 4 of the Tripartite Agreement, a disbursal to the Builder is deemed to be a disbursal to the Borrower. That fiction, however, serves a limited purpose. It fastens the obligation to repay the loan on the Borrower, though the money never passed through his hands. It does not convert borrowed money, which remains unpaid, into the Borrower’s own money.”
The Bench found that the buyer had paid Rs 1,27,34,726 himself, including Rs 51.11 lakh to the builder and Rs 76.23 lakh to the bank. On interest, it relied on Clause 24 of the sale agreement, which fixed 12% per annum, and rejected the 18% claim.
The Court also refused the claim for rent. It said:
“Secondly, the award of rent in addition to interest on the full refund would amount to double compensation for the same default. Interest at 12% per annum is awarded precisely because the Borrower was deprived of the use of his money.”
Because the buyer had been kept waiting for over fifteen years, the Court awarded a lump sum of Rs 15 lakh in compensation. It upheld the finding that the bank had not shown it verified construction progress before releasing funds.
The Supreme Court directed the Commission to release Rs 1,27,34,726 to the buyer with 12% simple interest from each payment date. It also directed release of Rs 15 lakh as compensation within one month.
The balance of the deposited amount will stay in an interest-bearing account until the bank’s appeal in the High Court is decided.
The Court left all contentions on the loan liability open and disposed of the appeals.
