In a major judgment that has shaped real estate disputes, the Supreme Court has ruled that developers are not responsible for paying interest on personal bank loans taken by homebuyers even if there is a delay in handing over possession of the property. However, developers are still liable to refund the principal amount along with interest for the delay.
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The judgment came in the case of Greater Mohali Area Development Authority (GMADA) vs Anupam Garg and others, which involved a case of delayed possession in GMADA’s “Purab Premium Apartments” project in Mohali, Punjab.
Background of the case
In 2011, Anupam Garg and others booked flats under GMADA's housing scheme, and paid 10% of the total cost in advance. As per the terms, the flats were to be delivered within 36 months from the date of the letter of intent. However, when Garg visited the site in May 2015, the construction had not been completed. Expecting a delay of at least 2-3 years, he sought a refund and filed a consumer complaint.
The State Consumer Disputes Redressal Commission ruled in favour of Garg, ordering GMADA to:
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- Refund ₹50,46,250 with 8% annual compound interest,
- Pay compensation for mental harassment and litigation costs, and
- Pay interest on the housing loan taken by Garg from the State Bank of India to purchase the flat.
The commission directed that "the opposite party shall also pay the interest paid by the complainant to the opposite party on the loan taken by the complainant from the State Bank of India and for the purchase of the flat, as charged by the bank to the complainant."
GMADA appealed to the National Consumer Disputes Redressal Commission (NCDRC), but the NCDRC upheld the order of the state commission. GMADA then moved the Supreme Court.
Supreme Court verdict
A bench of Justices Sanjay Karol and Prasanna B. Varale agreed with the refund and 8% interest, but rejected the direction to pay the loan interest.
"A perusal of the judgment and orders of the Commission does not reveal any extraordinary or strong reason for GMADA to pay interest on the loan taken by the respondents," the court said.
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The court clarified that the developer's liability is limited to compensating the buyer for delayed possession. The financing method chosen by the buyer – whether through savings or a bank loan – is irrelevant from the developer’s point of view.
“Whether the buyer does so by using savings, taking a loan or through any other means is not of concern to the developer. The buyer is a consumer; the developer is a service provider. That is the only relationship.”
The Supreme Court cited earlier judgments in Bangalore Development Authority vs Syndicate Bank and DLF Homes Panchkula (P) Ltd vs D.S. Dhanda to hold that developers cannot be asked to pay the buyer loan interest unless exceptional circumstances exist.
“The 8% interest paid…is compensation for being deprived of the investment of that money. Moreover, no interest could have been paid on the loan taken by the respondents.”
Case Title: Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors.
