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Builder’s Failure to provide Occupancy Certificate is Deficiency of Services- SC

February 14, 2022

By Lucy Rana and Nihit Nagpal

An occupancy certificate is a document permitting the occupation of a building which provides access to civic utilities such as water, electricity, and sewage connections[1]. Occupancy certificates are issued to builders by the local authority under whose jurisdiction a building falls, such as a municipal corporation in a city. They are a prerequisite for legally taking possession of a flat in a building. In Samruddhi Co-operative Housing Society Ltd. v Mumbai Mahalaxmi Construction Pvt. Ltd., the Hon’ble Supreme Court held that a builder’s failure to provide the Occupancy Certificate (“OC”) to flat owners is deficiency of service under the Consumer Protection Act, 1986[2].

Brief Facts

Samruddhi Co-operative Housing Society Ltd. (“the Appellant”) is a co-operative housing society in Mumbai, which entered into an agreement with Mumbai Mahalaxmi Construction Pvt. Ltd. (“the Respondent”) to construct two wings of flats meant for sale to individual buyers. The flat buyers (members of the Appellant Society) took possession of their flats in 1997, before the OC had been obtained by the Respondent. Therefore, the residents were ineligible for water and electricity connections. The Appellant managed to obtain utility connections from the municipal authorities however, the residents were required to pay a 25% higher than normal rate of property tax and 50% more than the normal charge for their water connections.

In 1998, the Appellant moved the State Consumer Disputes Redressal Commission (“SCDRC”) praying for an order directing the Respondent to obtain the OC. The SCDRC issued the direction in 2014 however, the Respondent neglected to act on the direction. The Appellant then approached the National Consumer Disputes Redressal Commission (“NCDRC”) seeking INR 26,073,475 as compensation for excess property taxes and water charges paid by the residents, and INR 2,000,000 as compensation for the mental agony and inconvenience suffered by them.

The NCDRC dismissed the complaint on two grounds. Firstly, the complaint was barred by limitation, as the cause of action arose in 1997, and the Consumer Protection Act, 1986 requires complaints to be filed within two years of the accrual of the cause of action. Secondly, the complaint was not maintainable as it was essentially an action for recovery of excess charges which were paid to the municipal authorities and not to the Respondent. Therefore, the Appellant would not be considered a consumer under the Consumer Protection Act, 1986. The NCDRC’s order was challenged before the Hon’ble Supreme Court.

Builder’s failure to provide Occupancy Certificate is a deficiency of service

The Hon’ble Supreme Court first discussed the law on continuing causes of action. The Court referred to the case of M. Siddiq v Suresh Das[3], where the Supreme Court held that a continuing wrong occurs when a legal or contractual obligation is continuously breached. The Court observed that the Respondent is obligated to obtain the OC from the municipal authorities by the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management, and Transfer) Act, 1963, as well as the contract entered into by the Appellant and Respondent[4]. The Court also referred to Section 6 of the Maharashtra Ownership Flats Act, which makes builders liable to pay property taxes and civic infrastructure charges until they have obtained the OC. The Hon’ble Court held that the Respondent had continually neglected its obligation to obtain the OC, which is a continuing wrong, therefore, the cause of action was also continuing and the complaint was not barred by limitation.

The Hon’ble Court then dealt with the issue of whether the Appellant could be considered a consumer under the Consumer Protection Act, 1986. The Court noted that any person availing a service in exchange for consideration is a consumer under the Act[5]. The Court also relied on its decisions in Wing Commander Arifur Rahman Khan & Others v DLF Southern Homes Pvt Ltd and Pioneer Urban Land Infrastructure Ltd v Govindan Raghavan, where it had held that the builder’s failure to obtain the OC or carry out contractual obligations is a deficiency in service[6]. Therefore, in the present case, the Hon’ble Court held that the Respondent’s failure to provide the OC to the Appellant amounted to a deficiency in service, and the members of the Appellant were well within their rights as consumers to seek compensation for the excess utility charges and property taxes paid by them as a consequence of the Respondent’s wrong.

Conclusion

Many of the homebuyers have to pay excessive taxes and utility charges because of the laxity of builders of not obtaining the OC. The Real Estate (Regulation and Development) Act, 2016 does allow flat buyers to file a complaint with their state’s Real Estate Regulatory Authority if they are not granted the OC[7]. However, this avenue is not available when the building in question was completed before the Act came into force, like the residential project in this case. This judgement ensures that a remedy is available even to flat buyers who cannot have recourse to the Real Estate Regulatory Authority. More importantly, it recognises not just the builders’ obligation to obtain the OC, but also the residents’ right to receive compensation for excess charges and taxes paid.

[1] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, §2(zf).

[2] Civil Appeal No. 4000 of 2019.

[3] (2020) 1 SCC 1.

[4] Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management, and Transfer) Act, 1963, Maharashtra Act No. 45 of 1963, §3.

[5] Consumer Protection Act, 1986, No. 68 of 1986, §2(1)(d).

[6] (2020) 16 SCC 512, (2019) 5 SCC 725.

[7] The Real Estate (Regulation and Development) Act, 2016, No. 16 of 2016, §§19, 31.

Manmeet Singh Marwah, Associate at S.S. Rana & Co. has assisted in the research and drafting of this article.

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