The Supreme Court of India, in a recent case of Samruddhi Cooperative Housing Society , has held that failure in obtaining Occupancy Certificate (OC) on part of the Developer is a ``Deficiency in Service`` within the meaning of Section 2(1)(g) the Consumer Protection Act, 1986; and that continuous failure of such nature gives a continuing cause of action. This update briefly analyses this Supreme Court judgment.

FACTS:

• Members of the Appellant, i.e. Samruddhi Cooperative Housing Society Limited (Society) , had booked the flats in the building proposed by the Respondent, i.e. Mumbai Mahalaxmi Construction Private Limited (Developer) in the year 1993. Possession was offered by the Developer to the members of the Society in the year 1997. However, the Developer failed to obtain the OC from the municipal authorities which amounted to the breach of Section 6 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (MOFA) . Such failure was also in contravention of the agreements for sale which were executed between the Developer and the members of the Society.

• Owing to the said failure on part of the Developer, the Society was deprived of essential services such as water and electricity connections. Members of the Society then took the effort and obtained permission for temporary connections from the municipal authorities. However, in lieu of the same, the Society had to pay 25% more than the normal rate of property tax and 50% more than the normal rate of water charges to the municipal authorities. Immediately thereafter, i.e. on 8 July 1998, a complaint was filedby the Society against the Developer before the State Consumer Dispute Redressal Commission (SCDRC) for recovery of the excess charges paid by the Society. SCDRC, vide its order dated 20 August 2014, directed the Developer to obtain the OC within four months and to pay compensation towards the extra water charges which had been paid by the Society to the municipal authorities.

• While on the one hand the Society sought execution of the said order dated 20 August 2014, passed by the SCDRC, on the other hand, it also filed another complaint before the National Consumer Dispute Redressal Commission (NCDRC) , which was dismissed on the grounds of (i) limitation bar and (ii) non maintainability since the nature of the complaint was that of a recovery proceeding, not a Complaint as envisaged in the Consumer Protection Act, 1986.

• Said order of the NCDRC was challenged by the Society before the SC.

ISSUES:

• Whether the complaint was barred by limitation?

• Whether failure to obtain OC on part of the Developer amounts of Deficiency of Service within the meaning of Consumer Protection Act, 1986?

JUDGMENT:

• On the issue of limitation, the SC held that failure to obtain OC amounts to a continuing breach within the meaning of Section 22 of the Limitation Act, 1963, and thus the complaint is not barred by limitation. It held that the view taken by NCDRC in saying that - no prayer as to supply of OC has been made and thus the plea of continuing breach cannot be accepted - was narrow and against the objectives of Consumer Protection Act, 1986.

• On the issue of maintainability, the SC placed reliance of various previous judgments which have clearly stated that the failure to obtain OC amounts to deficiency in service and held that since the payment of higher taxes and charges was a consequence of the deficiency in service, the Society is well within its right as a Consumer within the meaning of Consumer Protection Act 1986, to pray for compensation as a recompense for the consequent liability, arising from the lack of an OC.

• On the basis of the above, the complaint was remanded back to the NCDRC for fresh consideration thereof on merits.

MHCO COMMENTS:

The Supreme Court has given effect to the provisions of the Consumer Protection Act 1986, a welfare legislation, so as to bring under its scope, not only the direct liabilities arising out of neglect or failure of the Developer in obtaining the OC, but also the consequences thereof. We believe this judgment will have same impact under the Consumer Protection Act 2019.

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Author: Bhushan Shah - Partner | Mohammed Lokhandwala - Associate

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This update was released on 19 Jan 2022.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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