AIT-2008-266-SC
IN THE
SUPREME COURT OF
CIVIL
APPELLATE JURISDICTION
CIVIL
APPEAL NO. 3302 of 2005
Faqir
Chand Gulati ........Appellant(s)
Vs.
Uppal Agencies Pvt. Ltd. & Anr .......Respondent(s)
Date
of judgment:
AIT
Head Note: a land owner, who enters into
an agreement with a builder, for construction of an Apartment Building and for
sharing of the constructed area, is a `consumer' entitled to maintain a
complaint against the builder as a service-provider under the Consumer Protection
Act, 1986.
The District Forum, the
State Commission and the National Commission committed a serious error in
wrongly assuming that agreements of this nature being in the nature of joint
venture are outside the scope of consumer disputes.(Para 24)
J U D G M E N T
R. V. RAVEENDRAN J.
This
appeal is against the order dated 3.2.2004 passed by the National Consumer
Disputes Redressal Commission ('Commission' for short) in Revision Petition No.
1878 of 2000. It relates to the question whether a land owner, who enters into
an agreement with a builder, for construction of an Apartment Building and for
sharing of the constructed area, is a `consumer' entitled to maintain a
complaint against the builder as a service-provider under the Consumer Protection
Act, 1986.
The
agreement
2. The appellant is the
owner of premises no. L-3, Kailash Colony,
(i)
The owner shall place at the disposal of the builder, vacant possession of the
premises and authorize the builder to secure necessary sanctions, permissions
and approvals for demolition of the existing building and construction and
completion of a new building.
(iii)
The builder shall demolish the existing structure and construct a residential
building consisting of ground, first and second floors, at its cost and
expense.
(iv)
The builder will have the right to appoint Architects, contractors, sub-
contractors etc. (v) The new building to be constructed by the builder shall be
of good quality as per the detailed specifications contained in Annexure-A to
the agreement.
(vi)
On completion of construction, the land-owner will be entitled to the entire
ground floor (consisting of three bedrooms with attached bathrooms, one
drawing-cum-dining, one store room, one kitchen) with one servant room under
the overhead water tank on rear terrace and one parking space, as his share in
consideration of his having made available the land. The builder shall also pay
a sum of Rs.8 lakhs as non-refundable consideration to the owner.
(vii)
The remaining part of the building (the entire first and second floors and two
servant rooms and two car parking spaces) shall belong to the builder as its
share of the building in consideration of having spent the cost of construction
of the entire building and all other services rendered by him under the
agreement.
(viii)
The owner and the builder shall be entitled to undivided and indivisible share
in the land, proportionate to their right in the building, that is, an
undivided one-third share in the land shall belong to the owner and two-third
share shall belong to the developer.
(ix)
The builder shall be entitled to either retain or sell its share of the
building. The owner shall execute necessary documents for transferring the
share corresponding to the builder's portion of the building. The owner shall
give an irrevocable power of attorney enabling the builder to execute the deed
of conveyance in regard to the builder's share in the land. The builder will
however, have the option to require the owner to personally execute the sale
deed in regard to the builder's share in the land instead of using such power
of attorney.
(x)
On completion of the building, the builder shall apply for completion
certificate to the concerned authority and shall be liable to pay any penalty
that may be imposed or levied in regard to the deviations, if any, made in the
construction of the building.
(xi)
The owner shall not interfere or obstruct the construction and completion of
the work in any manner, but will have access to the construction to point out
any defect in construction or workmanship or use of inferior material, so as to
require the builder to rectify such defects.
(xii)
Title deeds handed over by the owner to the builder for completing the
formalities relating to the agreement shall thereafter be returned to the
owner, who shall however make available the same for reference by the owners of
the other floors.
(xiii)
The agreement and the power of attorney executed by the owner in favour of the
builder are irrevocable. In the event of neglect, failure, default on the part
of the owner or the builder, the affected party shall have the right to
specific performance of the said agreement at the cost and risk of the
defaulting party who shall also be liable to pay damages.
(xiv)
The agreement is not a partnership and shall not be deemed to be a partnership
between the owner and the builder.
The
dispute and the decision.
3. The appellant (also
referred to as `land-owner') alleges that the first respondent (also referred
to as the `builder') secured sanction of the plan for construction from the
Municipal Corporation of
4. The delivery of the
ground floor was made by the builder to appellant's son during appellant's
absence from
5. The appellant therefore
filed complaint No. 1866 of 1994 before the District Consumer Disputes
Redressal Forum-IX, Delhi, under the Consumer Protection Act, 1986 (`Act' for
short) seeking the following reliefs against the builder: a) Return of the
title deeds relating to the premises; b) Supply of completion certificate and
C&D Forms from MCD; and c) Delivery of security deposit receipt for
electricity meter and payment of Rs.4262.64 being the charges for change of
electricity meter. The District Forum dismissed the complaint by order dated
10.5.1996 as not maintainable under the Act, holding that the appellant was not
a `consumer' as defined in section 2(1)(d)(ii) of the Act. It held that the agreement
between the parties created mutual rights and obligations with a provision that
in the event of breach of any condition, the affected party shall have the
right of specific performance and such an agreement cannot be construed as a
contract for hiring/availing a service, for consideration by a consumer.
6. The appellant filed an
appeal against the order of the District Forum and the said appeal was
dismissed by the State Commission,
7. The appellant filed a
revision petition before the National Commission. The appellant challenged the
finding that the complaint was not maintainable. He also contended that as the
builder had failed to secure and furnish the completion certificate and C&D
forms (that is property tax assessment listing) from MCD, his complaint could
not have been dismissed. He also submitted that in view of the violations, the
MCD had demolished certain portions of the structure and was insisting upon the
other deviations which were beyond compoundable limits to be rectified; and
that MCD was refusing to issue the completion certificate and C&D forms
without those rectifications; and that the prayer for delivery of completion
certificate and C&D forms required the builder to rectify all defects and
bring the deviations within permissible limits and secured completion
certificate and C&D forms. He pointed out that in the absence of completion
certificate and C&D forms, he was facing threats of demolition apart from
harassment from MCD. He contended that the non-completion of building as per
the sanctioned plan and making deviations on a large scale resulting in
non-issue of completion certificate and C&D forms amounted to deficiency in
service and therefore, his complaint ought to have been allowed.
8. The National Commission
dismissed the revision petition by order dated 3.2.2004. The order extracted
the relevant provisions of the agreement in extenso and then proceeded to
reject the petition by merely observing that the agreement was in the nature of
a joint venture and transaction did not have any element of hiring the services
of the builder within the meaning of section 2(1)(d)(ii) of the Act and that
the District Forum and the State Commission had rightly held that the appellant
was not a consumer. The said order is challenged in this appeal by special
leave.
Legal
Provisions.
9. We may briefly notice the
provisions of the Act before referring to the contentions of the parties. The
object of the Act is to provide for better protection of the interests of
consumers. It establishes consumer disputes redressal agencies and enables
persons having grievances regarding goods supplied or services provided, to
file complaints before such redressal agencies. Section 14 enumerates the
reliefs that can be granted by a redressal agency to the complainant if he
satisfies the agency about the defect in goods or deficiency in service. Two of
the reliefs that can be granted by the forum, if it is satisfied that any of
the allegations contained in 10 the complaint about the deficiency in the
service are proved, are, a direction to the opposite party to remove the
deficiencies in the service in question and a direction to pay compensation to
the consumer for any loss or injury suffered by him. Section 3 provides that
the provisions of the Act shall be in addition and not in derogation of the
provisions of any other law for the time being in force. Any allegation in
writing made by the complainant that the services hired or availed of or agreed
to be hired or availed of by him suffered from deficiency in any respect, with
a view to obtaining any relief provided for by or under the Act, is a
`complaint' under section 2(1)(c) of the Act. 9.1) The terms 'consumer',
'deficiency', and 'service' defined in clauses (d), (g) and (o) of section 2(1)
of the Act as it stood at the time when the appellant approached the District
Forum in 1994 are extracted below:
"(d).
'Consumer' means any person who - (i) xxxxxx (ii) hires or avails of any
services for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any
beneficiary of such services other than the person who hires or avails of the
services for consideration paid or promised, or partly paid and partly
promised, or under any system of deferred payment, when such services are
availed of with the approval of the first mentioned person.* [*The above
definition was amended by Consumer Protection (Amendment) Act, 62 of 2002 by
adding the words 'but does not include a person who avails of such services for
any commercial purpose', at the end].
(g).
'Deficiency' means any fault, imperfection, shortcoming or inadequacy in the
quality, nature and manner of performance which is required to be maintained by
or under any law for the time being in force or has been undertaken to be
performed by a person in pursuance of a contract or otherwise in relation to
any service."
(o).
'Service' means service of any description which is made available to potential
users and includes the provision of facilities in connection with banking,
financing, insurance, transport, processing, supply of electrical or other
energy, board or lodging or both, housing construction, entertainment,
amusement or the purveying of news or other information, but does not include
the rendering of any service free of charge or under a x contract of personal
service."
x
[ The words 'the provision of' are substituted by the words 'but not limited
to, the provision of' by the Consumer Protection (Amendment) Act, 2002 (62 of
2002) with effect from 15.3.2003]
Contentions:
10. The appellant contends
that though the agreement is captioned as 'collaboration agreement', it is not
a joint venture as assumed by the State Commission and National Commission but
an agreement under which the builder agreed to make a housing construction for
the land owner and therefore, the activity of the builder squarely falls within
the definition of service. According to him, the fact that he entered into an
agreement making available the plot for construction of a three-storeyed
building and agreeing to share the building after construction and receive
towards his share the ground floor of the building plus Rs.8 lakhs did not
amount to entering into a joint venture to share the profits and losses. He
submitted that the basic scheme of the agreement was that the builder should
construct and deliver a house (ground floor of the building) to the owner and
if there was any deficiency in fulfilling the obligations undertaken in
connection with such construction, there would be a deficiency in service; and
that therefore, insofar as the term relating to construction of the ground
floor for his benefit, the builder was a service provider and he was a
consumer.
11. On the other hand, the
respondent contended that the agreement was for collaboration in the nature of
a joint venture which required the owner to contribute the land and the builder
to contribute the funds for construction of a building and thereafter share the
construction that is ground floor with corresponding undivided share to the
owner and upper floors with corresponding undivided share to the builder, and
that it was in the nature of a single business adventure under which the
parties agreed to share the benefits.
It
is also pointed out that the builder had paid a sum of Rs.8 lakhs to the owner
as consideration in addition to agreeing to give the ground floor of the new
building and therefore, the agreement was also in the nature of the agreement
of sale of undivided share in land by the owner to the builder. It was
contended that the two parties to the agreement were associates to carry out a
single enterprise or business adventure for mutual profit and such a venture
resulting in profit for both the parties was not an agreement for providing
service. The respondent submitted that there was no contract for `house
construction' as such, nor for sale of a house and therefore, it was not a
`serviceprovider'.
It
was also pointed out that it was not only the builder who had certain obligations
towards the owner, but the owner also had the following obligations towards the
builder:
a)
The owner shall execute all documents required for effecting transfer of
builder's share of the land.
b)
The owner shall not obstruct or interfere with the construction in any manner.
c)
The owner had to keep the property wholly free from encumbrances during the
currency of the agreement.
d)
If the owner's title was found to be defective, owner was liable to pay
damages, losses and costs to the builder and its nominees.
e)
Owner shall do all acts, deeds and things required to keep the rights in the
land subsisting.
f)
Owner shall not revoke or cancel the agreement or power of attorney. As each
party had to discharge and fulfill certain obligations towards the other in
consideration of the other party fulfilling some certain obligations, the
remedy in the event of any alleged breach, according to the builder, is to sue
for specific performance and/or damages in acivil court and a complaint under
the Act was not maintainable.
12. On the contentions
raised, two questions arise for consideration:
(i)
Whether on the facts and circumstances, a complaint under the Consumer
Protection Act, 1986 is maintainable, in regard to the Agreement dated
17.5.1991 between the parties
(ii)
Whether a complaint is maintainable under the Act for a prayer seeking delivery
of completion certificate and C&D Forms in regard to a building and whether
the prayer for completion certificate/C&D Forms involves a prayer for
rectification of the deficiencies in the building so as to secure the
completion certificate and C&D Forms.
Re:
First Question:
13. The first question in
fact involves examination of the following issue: When the owner of a plot of
land enters into an agreement with a builder for development of the property by
construction of a building and sharing the constructed area between the owner
and the builder, and the developer commits any breach either by failing to
deliver owner's share of constructed area or by constructing the building
contrary to specifications, or by failing to fulfill the obligations relating
to completion certificate or amenities like water, electricity and drainage,
whether the owner can maintain a complaint under the Consumer Protection Act
and whether in such circumstances, the owner can claim that he is a consumer
and the builder is the service- provider.
14. In Lucknow Development
Authority vs. M. K. Gupta [1994 (1) SCC 243] referring to the nature and object
of the Act, this Court observed:
"To
begin with the preamble of the Act, which can afford useful assistance to
ascertain the legislative intention, it was enacted, 'to provide for the
protection of the interest of consumers'. Use of the word 'protection'
furnishes key to the minds of makers of the Act. Various definitions and
provisions which elaborately attempt to achieve this objective have to be
construed in this light without departing from the settled view that a preamble
cannot control otherwise plain meaning of a provision. In fact the law meets
long felt necessity of protecting the common man from such wrongs for which the
remedy under ordinary law for various reasons has become illusory. Various
legislations and regulations permitting the State to intervene and protect
interest of the consumers have become a haven for unscrupulous ones and the
enforcement machinery either does not move or it moves ineffectively,
inefficiently and for reasons which are not necessary to be stated. The
importance of the Act lies in promoting welfare of the society by enabling the
consumer to participate directly in the market economy. It attempts to remove
the helplessness of a consumer which he faces against powerful business,
described as, 'a network of rackets' or a society in which, 'producers have
secured power' to 'rob the rest' and the might of public bodies which are
degenerating into store house of inaction where papers do not move from one
desk to another as a matter of duty and responsibility but for extraneous
consideration leaving the common man helpless, bewildered and shocked. The
malady is becoming so rampant, widespread and deep that the society instead of
bothering, complaining and fighting for it, is accepting it as part of life.
The enactment in these unbelievable yet harsh realities appears to be a silver
lining, which may in course of time succeed in checking the rot. A scrutiny of
various definitions such as 'consumer', 'service', 'trader', 'unfair' trade
practice indicates that legislature has attempted to widen the reach of the
Act. Each of these definitions are in two parts, one, explanatory and the other
expandatory. The explanatory or the main part itself uses expressions of wide
amplitude indicating clearly its wide sweep then its 16 ambit is widened to
such things which otherwise would have been beyond its natural import."
This
Court next considered the meaning of the word 'service'. Thereafter, this Court
dealt with the question whether `service' included housing construction, even
before the inclusion of `housing construction' in the definition of `service'
by Act No.50 of 1993 with effect from 18.6.1993. This Court observed:
"What
is the meaning of the word 'service'? Does it extend to deficiency in the
building of a house or flat? Can a complaint be filed under the Act against the
statutory authority or a builder or contractor for any deficiency in respect of
given property. The answer to all this shall understanding of the word
'service'. The term has variety of meanings. It may mean any benefit or any act
resulting in promoting interest or happiness. It may be contractual,
professional, public, domestic, legal, statutory etc. The concept of service
thus is very wide. How it should be understood and what it means depends in the
context in which it has been used in an enactment. What remains to be examined
is if housing construction or building activity carried on by a private or
statutory body was service within meaning of Clause (o) of Section 2 of the Act
as it stood prior to inclusion of the expression 'housing construction' in the
definition of "service" by Ordinance No. 24 of 1993. As pointed out
earlier the entire purpose of widening the definition is to include in it not
only day to day buying and selling activity undertaken by a common man but even
to such activities which are otherwise not commercial in nature yet they
partake of a character in which some benefit is conferred on the consumer.
Construction of a house or flat is for the benefit of person for whom it is
constructed. He may do it himself or hire services of a builder or contractor.
The latter being for consideration is service as defined in the Act.... If the
service is defective or it is not what was represented then it would be unfair
trade practice as defined' in the Act. Any defect in construction activity would
be denial of comfort and service to a consumer. When possession of property is
not delivered within stipulated period the delay so caused is denial of
service. Such disputes or claims are not in respect of immoveable property as
argued but deficiency in rendering of service of particular standard, quality
or grade. Such deficiencies or omissions are defined in Sub-clause (ii) of
Clause (r) of Section 2 as unfair trade practice. If a builder of a house uses
sub-standard material in construction of a building or makes false or
misleading representation about the condition of the house then it is denial of
the facility or benefit of which a consumer is entitled to claim value under
the Act. When the contractor or builder undertakes to erect a house or flat then
it is inherent in it that he shall perform his obligation as agreed to. A flat
with a leaking roof, or cracking wall or sub-standard floor is denial of
service. .............A person who applies for allotment of a building site or
for a flat constructed by the development authority or enters into an agreement
with a builder or a contractor is a potential user and nature of transaction is
covered in the expression 'service of any description'. It further indicates
that the definition is not exhaustive. The inclusive clause succeeded in
widening its scope but not exhausting the services which could be covered in
earlier part. So any service except when it is free of charge or under a
constraint of personal service is included in it. Since housing activity is a
service it was covered in the clause as it stood before 1993."
15. The predicament faced by
the persons who deal with builders and promoters, was noticed by this Court in
Friends Colony Development Committee vs. State of
"Builders
violate with impunity the sanctioned building plans and indulge deviations much
to the prejudice of the planned development of the city and at the peril of the
occupants of the premises constructed or of the inhabitants of the city at
large. Serious threat is posed to ecology and environment and, at the same
time, the infrastructure consisting of water supply, sewerage and traffic
movement facilities suffer unbearable burden and are often thrown out of gear.
Unwary purchasers in search of roof over their heads and purchasing
flats/apartments from builders, find themselves having fallen prey and become
victims to the design of unscrupulous builders. The builder conveniently walks
away having pocketed the money leaving behind the unfortunate occupants to face
the music in the event of unauthorized constructions being detected or exposed
and threatened with demolition. Though the local authorities have the staff
consisting of engineers and inspectors whose duty is to keep a watch on
building 18 activities and to promptly stop the illegal constructions or
deviations coming up, they often fail in discharging their duty. Either they
don't act or do not act promptly or do connive at such activities apparently
for illegitimate considerations. If such activities are to stop, some stringent
actions are required to be taken by ruthlessly demolishing the illegal
constructions and non-compoundable deviations. The unwary purchasers who shall
be the sufferers must be adequately compensated by the builder. The arms of the
law must stretch to catch hold of such unscrupulous builders. At the same time
in order to secure vigilant performance of duties, responsibility should be
fixed on the officials whose duty was to prevent unauthorized construction, but
who failed in doing so either by negligence or connivance." [Emphasis
supplied]
16. There is no dispute or
doubt that a complaint under the Act will be maintainable in the following
circumstances:
(a)
Where the owner/holder of a land who has entrusted the construction of a house
to a contractor, has a complaint of deficiency of service with reference to the
construction.
(b)
Where the purchaser or intending purchaser of an apartment/flat/ house has a complaint
against the builder/developer with reference to construction or delivery or amenities.
But we are concerned with a third hybrid category which is popularly called as `Joint-Venture
Agreements' or `Development Agreements' or `Collaboration Agreements' between a
land-holder and a Builder. In such transactions, the land-holder provides the land.
The Builder puts up a building. Thereafter, the land owner and builder share
the constructed area. The builder delivers the `owner's share' to the
land-holder and retains the `Builder's share'. The land-holder sells/transfers
undivided share/s in the land corresponding to the Builder's share of the
building to the builder or his nominees. As a result each Apartment owner
becomes the owner of the Apartment with corresponding undivided share in the
land and an undivided share in the common areas of the building. In such a
contract, the owner's share may be a single apartment or several apartments. The
land-holder who gets some apartments may retain the same or may dispose of his share
of apartments with corresponding undivided shares to others. The usual feature
of these agreements is that the land-holder will have no say or control in the
construction. Nor will he have any say as to whom and at what cost the
builder's share of apartments are to be dealt with or disposed of. His only
right is to demand delivery of his share of constructed area in accordance with
the specifications. The builders contend that such agreements are neither
contracts for construction, nor contracts for sale of apartments, but are
contracts entered for mutual benefit and profit and in such a contract, they
are not `service-providers' to the land-owners, but a co-adventurer with the
land-holder in a `joint venture', in developing the land by putting up
multiple-housing (Apartments) and sharing the benefits of the project. The
question is whether such agreements are truly joint ventures in the legal
sense.
17. This Court had occasion
to consider the nature of `joint-venture' in New Horizons Ltd vs. Union of
India [1995 (1) SCC 478). This Court held:
"The
expression "joint venture" is more frequently used in the United
States. It connotes a legal entity in the nature of a partnership engaged in
the joint undertaking of a particular transaction for mutual profit or an
association of persons or companies jointly undertaking some commercial
enterprise wherein all contribute assets and share risks. It requires a
community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and duty, which may be
altered by agreement, to share both in profit and losses. [Black's Law
Dictionary; Sixth Edition, p. 839]. According to Words and Phrases, Permanent
Edition, a joint venture is an association of two or more persons to carry out
a single business enterprise for profit [P.117, Vol. 23]."
[Emphasis
supplied]
The
following definition of 'joint venture' occurring in American Jurisprudence [2nd
Edition, Vol. 46 pages 19, 22 and 23] is relevant:
"A
joint venture is frequently defined as an association of two or more persons formed
to carry out a single business enterprise for profit. More specifically, it is in
association of persons with intent, by way of contract, express or implied, to engage
in and carry out a single business venture for joint profit, for which purpose
such persons combine their property, money, effects, skill, and knowledge,
without creating a partnership, a corporation or other business entity, pursuant
to an agreement that there shall be a community of interest among the parties
as to the purpose of the undertaking, and that each joint venturer must stand
in the relation of principal, as well as agent, as to each of the other coventurers
within the general scope of the enterprise. Joint ventures are, in general,
governed by the same rules as partnerships. The relations of the parties to a
joint venture and the nature of their association are so similar and closely
akin to a partnership that their rights, duties, and liabilities are generally
tested by rules which are closely analogous to and substantially the same, if
not exactly the same as those which govern partnerships. Since the legal
consequences of a joint venture are equivalent to those of a partnership, the
courts freely apply partnership law to joint ventures when appropriate. In
fact, it has been said that the trend in the law has been to blur the
distinctions between a partnership and a joint venture, very little law being
found applicable to one that does not apply to the other. Thus, the liability
for torts of parties to a joint venture agreement is governed by the law
applicable to partnerships."
"A
joint venture is to be distinguished from a relationship of independent contractor,
the latter being one who, exercising an independent employment, contracts to do
work according to his own methods and without being subject to the control of
his employer except as to the result of the work, while a joint venture is a
special combination of two or more persons where, in some specific venture, a
profit is jointly sought without any actual partnership or corporate designation."
(emphasis supplied)
To
the same effect is the definition in Corpus Juris Secundum (Vol. 48A pages
314-315):
"Joint
venture," a term used interchangeably and synonymous with 'joint adventure',
or coventure, has been defined as a special combination of two or more persons
wherein some specific venture for profit is jointly sought without any actual
partnership or corporate designation, or as an association of two or more
persons to carry out a single business enterprise for profit or a special combination
of persons undertaking jointly some specific adventure for profit, for which
purpose they combine their property, money, effects, skill, and knowledge........
Among the acts or conduct which are indicative of a joint venture, no single
one of which is controlling in determining whether a joint venture exists, are:
(1) joint ownership and control of property; (2) sharing of expenses, profits
and losses, and having and exercising some voice in determining division of net
earnings; (3) community of control over, and active participation in,
management and direction of business enterprise; (4) intention of parties, express
or implied; and (5) fixing of salaries by joint agreement." (emphasis supplied)
Black's
Law Dictionary (7th Edition, page 843) defines `joint venture' thus:
"Joint
Venture: A business undertaking by two or more persons engaged in a single
defined project. The necessary elements are: (1) an express or implied agreement;
(2) a common purpose that the group intends to carry out; (3) shared profits
and losses; and (4) each member's equal voice in controlling the project."
An
illustration of joint venture may be of some assistance. An agreement between
the owner of a land and a builder, for construction of apartments and sale of
those of apartments so as to share the profits in a particular ratio may be a
joint venture, if the agreement discloses an intent that both parties shall
exercise joint control over the construction/development and be accountable to
each other for their respective acts with reference to the project.
18. We may now notice the
various terms in the agreement between the appellant and first respondent which
militate against the same being a `joint venture'. Firstly, there is a categorical
statement in clause 24, that the agreement shall not be deemed to constitute a partnership
between the owner and the builder. The land-owner is specifically excluded from
management and is barred from interfering with the construction in any manner (vide
clause 15) and the Builder has the exclusive right to appoint the Architects, contractors
and sub-contractors for the construction (vide 23 clause 16). The Builder is entitled
to sell its share of the building as it deemed fit, without reference to the
land owner. (Vide clauses 7 and 13). The builder undertakes to the landowner
that it will construct the building within 12 months from the date of sanction
of building plan and deliver the owner's share to the land owner (vide clauses
9 & 14). The Builder alone is responsible to pay penalties in respect of
deviations (vide clause 12) and for payment of compensation under the Workmen's
Compensation Act in case of accident (vide clause 10). Secondly, there is no
community of interest or common/joint control in the management, nor sharing of
profits and losses. The land owner has no control or participation in the
management of the venture. The requirement of each joint venturer being the
principal as well as agent of the other party is also significantly absent. We
are therefore of the view that such an agreement is not a joint venture, as
understood in law.
19. What then is the nature
of the agreement between the appellant and the first respondent? Appellant is
the owner of the land. He wants a new house, but is not able to construct a new
house for himself either on account of paucity of funds or lack of expertise or
resources. He, therefore, enters into an agreement with the builder. He asks the
builder to construct a house and give it to him. He says that as he does not
have the money to pay for the construction and will therefore permit the
builder to construct and own additional floor/s as consideration. He also
agrees to transfer an undivided share in the land corresponding to the
additional floor/s which falls to the share of the builder. As a result,
instead of being the full owner of the land with an old building, he becomes a
coowner of the land with a one-third share in the land and absolute owner of
the ground floor of the newly constructed building and agrees that the builder
will become the owner of the upper floors with corresponding two-third share in
the land. As the cost of the undivided two-third share in the land which the
land owner agrees to transfer to the builder, is more than the cost of
construction of the ground floor by the builder for the landowner, it is also
mutually agreed that the builder will pay the landowner an additional cash
consideration of Rs.8 lakhs. The basic underlying purpose of the agreement is
the construction of a house or an apartment (ground floor) in accordance with
the specifications, by the builder for the owner, the consideration for such
construction being the transfer of undivided share in land to the builder and
grant of permission to the builder to construct two floors. Such agreement
whether called as a `collaboration agreement' or a `joint-venture agreement',
is not however a `joint-venture'. There is a contract for construction of an
apartment or house for the appellant, in accordance with the specifications and
in terms of the contract. There is a consideration for such construction,
flowing from the landowner to the builder (in the form of sale of an undivided
share in the land and permission to construct and own the upper floors). To adjust
the value of the extent of land to be transferred, there is also payment of
cash consideration by the builder. But the important aspect is the availment of
services of the builder by the land-owner for a house construction
(construction of owner's share of the building) for a consideration. To that
extent, the land-owner is a consumer, the builder is a service-provider and if
there is deficiency in service in regard to construction, the dispute raised by
the land owner will be a consumer dispute. We may mention that it makes no
difference for this purpose whether the collaboration agreement is for construction
and delivery of one apartment or one floor to the owner or whether it is for construction
and delivery of multiple apartments or more than one floor to the owner. The
principle would be the same and the contract will be considered as one for
house construction for consideration. The deciding factor is not the number of
apartments deliverable to the land owner, but whether the agreement is in the
nature of a jointventure or whether the agreement is basically for construction
of certain area for the landowner.
20. It is however true that
where the contract is a true joint venture the scope of which has been pointed
out in para 17 above, the position will be different. In a true joint venture
agreement between the land-owner and another (whether a recognized builder or fund
provider), the land-owner is a true partner or co-adventurer in the venture
where the land owner has a say or control in the construction and participates
in the business and management of the joint venture, and has a share in the
profit/loss of the venture. In such a case, the land owner is not a consumer
nor is the other co- adventurer in the joint venture, a service provider. The
land owner himself is responsible for the construction as a co-adventurer in
the venture. But such true joint ventures are comparatively rare. What is more
prevalent are agreements of the nature found in this case, which are a hybrid agreement
for construction for consideration and sale and are pseudo joint-ventures. Normally
a professional builder who develops properties of others is not interested in sharing
the control and management of the business or the control over the construction
with the land owners. Except assuring the land owner a certain constructed area
and/or certain cash consideration, the builder ensures absolute control in
himself, only assuring the quality of construction and compliance with the requirements
of local and municipal laws, and undertaking to deliver the owners' constructed
area of the building with all certificates, clearances and approvals to the
land owner.
21. Learned counsel for the
respondent contended that the agreement was titled as "collaboration
agreement" which shows an intention to collaborate and therefore it is a joint
venture. It is now well settled that the title or caption or the nomenclature
of the instrument/document is not determinative of the nature and character of
the instrument/document, though the name may usually give some indication of
the nature of the document. The nature and true purpose of a document has to be
determined with reference to the terms of the document, which express the
intention of the parties. Therefore, the use of the words `joint venture' or
`collaboration' in the title of an agreement or even in the body of the
agreement will not make the transaction a joint venture, if there are no
provisions for shared control of interest or enterprise and shared liability
for losses.
22. The State Commission and
National Commission have proceeded on an assumption, which appears to be
clearly baseless, that wherever there is an agreement for development of a
property between the property owner and builder under which the constructed
area is to be divided, it would automatically amount to a joint venture and there
is no question of the landholder availing the service of the builder for
consideration. Reliance was placed on two decisions, the first being that of
the National Commission in C Narasimha Rao v. K R Neelakandan - I (1994) CPJ
160 and the second being that of the Delhi State Commission in Har Sarup Gupta
v. M/s. Kailash Nath & Associates – II (1995) CPJ 275. In C Narasimha Rao,
there was an agreement between the landowners and a builder for construction of
a building and sharing of the constructed area. The old building was
demolished, but the builder failed to complete the construction of a new building
and hand over the owner's share of flats. The landowners preferred a complaint claiming
Rs.94,000/- as the value of the malba (retrievable valuables from the debris of
the old building) that had been removed by the builder. The National Commission
held that as the claim was for recovery of the money being value of the malba
removed by the builder, it does not amount to a claim based on deficiency of
service and therefore such a claim would fall outside the scope of the Consumer
Protection Act. The said decision is wholly inapplicable, as it dealt with a
different question. In Har Swarup Gupta, the State Commission was concerned
with a claim of the landowners for compensation alleging that the builder had
not built the flats in terms of the contract under which the landowners were
entitled to 36% and the builder was entitled to 64% of the built up area. The
State Commission held that the complaint was not maintainable on the ground
that on similar facts the National Commission in Narasimha Rao's case (supra)
had held that the for a case under the Consumer Protection Act it did not have
jurisdiction. But Narasimha Rao (supra), as noticed above, was not similar on
facts, nor did it lay down any such proposition. Har Swarup Gupta is clearly
wrongly decided.
23. We may notice here that
if there is a breach by the landowner of his obligations, the builder will have
to approach a civil court as the landowner is not providing any service to the
builder but merely undertakes certain obligations towards the builder, breach
of which would furnish a cause of action for specific performance and/or
damages. On the other hand, where the builder commits breach of his
obligations, the owner has two options. He has the right to enforce specific
performance and/or claim damages by approaching the civil court. Or he can approach
the Forum under Consumer Protection Act, for relief as consumer, against the
builder as a service- provider. Section 3 of the Act makes it clear that the
remedy available under the Act is in addition to the normal remedy or other
remedy that may be available to the complainant.
24. The District Forum, the
State Commission and the National Commission committed a serious error in
wrongly assuming that agreements of this nature being in the nature of joint
venture are outside the scope of consumer disputes.
Re:
Second Question
25. Under the agreement, the
builder is required to construct the ground floor in accordance with the
sanctioned plan, and specifications and the terms in the agreement and deliver
the same to the owner. If the construction is part of a building which in law requires
a completion certificate or C&D forms (relating to assessment), the builder
is bound to provide the completion certificate or C&D forms. He is also
bound to provide amenities and facilities like water, electricity and drainage
in terms of the agreement. If the completion certificate and C&D forms are
not being issued by the Corporation because the builder has made
deviations/violations in construction, it is his duty to rectify those
deviations or bring the deviations within permissible limits and secure a
completion certificate and C&D forms from MCD. The builder can not say that
he has constructed a ground floor and delivered it and therefore fulfilled his
obligations. Nor can the builder contend that he is not bound to produce the
completion certificate, but only bound to apply for completion certificate. He
cannot say that he is not concerned whether the building is in accordance with
the sanction plan or not, whether it fulfills the requirements of the municipal
bye-laws or not, or whether there are violations or deviations. The builder
cannot be permitted to avoid or escape the consequences of his illegal acts.
The obligation on the part of the builder to secure a sanctioned plan and construct
a building, carries with it an implied obligation to comply with the
requirements of municipal and building laws and secure the mandatory
permissions/certificates.
26. The surviving prayer is
no doubt only for a direction to the builder to furnish the completion
certificate and C&D forms. It is not disputed that a building of this
nature requires a completion certificate and building assessment (C&D
forms). The completion certificate and C&D forms will not be issued if the
building constructed is contrary to the bye-laws and sanctioned plan or if the
deviations are beyond the permissible compoundable limits. The agreement
clearly contemplates the builder completing the construction and securing
completion certificate. The agreement, in fact, refers to the possibility of
deviations and provides that if there are deviations, the builder will have to pay
the penalties, that is do whatever is necessary to get the same regularized.
Even if such a provision for providing completion certificate or payment of
penalties is not found in the agreement, the builder cannot escape the
liability for securing the completion certificate and providing a copy thereof
to the owner if the law requires the builder to obtain completion certificate
for such a building.
27. A prayer for completion
certificate and C&D Forms cannot be brushed aside by stating that the
builder has already applied for the completion certificate or C&D Forms. If
it is not issued, the builder owes a duty to make necessary application and
obtain it. If it is wrongly withheld, he may have to approach the appropriate
court or other forum to secure it. If it is justifiably withheld or refused,
necessarily the builder will have to do whatever that is required to be done to
bring the building in consonance with the sanctioned plan so that the municipal
authorities can inspect and issue the completion certificate and also assess
the property to tax. If the builder fails to do so, he will be liable to
compensate the complainant for all loss/damage. Therefore, the assumption of
the State Commission and National Commission that the obligation of the builder
was discharged when he merely applied for a completion certificate is
incorrect.
Conclusion
28. The District Forum and
National Commission did not examine the matter with reference to facts. The
State Commission held that the complaint was not maintainable but purported to
consider the factual question in a half-hearted and casual manner. The matter
will now have to go back to District Forum for deciding the matter on merits.
We, accordingly, allow this appeal as follows:
a)
The orders of the National Commission, State Commission and District Forum are
set aside.
b)
The appellant's complaint is held to be maintainable.
c)
The District Forum is directed to consider the matter on merits and dispose of
the matter in accordance with law, within six months from the date of receipt
of this order.
d)
The respondents shall pay costs of Rs.25,000/- to the appellant.
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