COURT JUDGEMENTS TO QUOTE - Delays by builders

Courts and consumer commissions have ruled in favour of the buyer in many disputes with developers.Go through the list to figure out where your case fits in.It is easier to convince a court or commission if you can cite a precedence.

SUPREME COURT



1.Housing construction is a service under the Consumer Protection Act.

In 1993,the Supreme Court ruled in favour of MK Gupta in his case against the Lucknow Development Authority for not delivering his flat on time.This landmark judgement brought housing construction under the purview of the Consumer Protection Act,1986.The court observed: When a statutory authority develops land or allots a site,or constructs a house for the benefit of a common man,it is service by a builder or contractor... When possession of the property is not delivered within the stipulated period,the delay so caused is denial of service.Such disputes or claims are not with respect to the immovable property but deficiency in rendering of service of a particular standard,quality or grade 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 the nature of construction is covered under the expression service of any description.

2.Interest has to be paid for delay.

In the Ghaziabad Development Authority vs Balbir Singh,2005 CTJ 124,the apex court,observed: Normally,a case of delivery of possession,though belatedly,stands on a different footing from non-delivery of possession because in case of delivery of possession,though belatedly,the allottee also enjoys the benefit of a plot/flat.Generally,in such a situation,the rate of interest should not exceed 12%.However,no hard and fast rules can be laid down.In a specific case,where it is found that the delay was culpable and there is no contributory negligence by the allottee resulting in harassment/injury,both mental and physical,the forum would not be precluded from making an award in excess of 12% interest per annum.

NATIONAL CONSUMER COMMISSION



1.Buyer is entitled to opt out of a project if there is a delay in delivery.

A buyer is entitled to opt out of a housing project if there is delay in delivery of possession of the house by the real estate developers,the commission has held.It has also said that the buyer is entitled to a refund of the entire money with reasonable interest and any deduction on the said amount is unjustified.The commission passed the order on a petition of an Agra resident,Indira Gupta,seeking the quashing of UP State Commissions direction to deduct 20% from the amount to be refunded to the complainant.

2.Buyer is entitled to withhold payment if the construction does not proceed with payment.

In the Ansal Housing vs Renu Mahendr case (revision petition 1218 of 2006),the commission has held: If company has not apprised the respondent about the status of the project,which was associated with payments,the respondent withholding the payment was not at fault.The company,while making these communications,had been insisting on the respondent to release the payment,and did not adhere to the terms of the allotment letter,letting the respondent know about the progress of the construction.

3.A buyer is not constrained by the agreement for a court of his choice.

In the Neha Singhal vs Unitech case (first appeal no.426 of 2010),the commission has held: To emphasise,the clause relating to jurisdiction of courts in the agreement between the parties cannot by itself over-ride the statutory right of the appellant / complainant conferred by the abovementioned provision of the Act.That would defeat the purpose and object of the Act.This view is also in accordance with the provisions of Section 28 of the Indian Contract Act,1872 (as amended with effect from 8th January 1997).

4.Bank should call for original papers before sanctioning the loan.

In the revision petition 753 of 2006: Jagmohan Lal Mohan vs ICICI Home Finance,NCDRC observed: The bank should have called the original papers before sanctioning the loan,but once the loan had been sanctioned,the queries raised by the respondent bank have become irrelevant.In the present case,we find that the petitioner has been unduly harassed.The loan,after having been sanctioned,was not disbursed,which forced the petitioner to approach another bank to get the loan and incur additional expenses.Accordingly,in order to compensate the petitioner,we direct the respondents to pay,in addition to what has been awarded,a sum of 30,000 by way of compensation for mental agony and harassment caused to him.

5.It is the banks job to satisfy itself about the borrower before taking over the loan from another bank.

In the HSBC Limited vs Sridhar Gajula case (revision petition no.1383 of 2009),the NCDRC observed: When the petitionerbank had got the loan sanctioned by another bank transferred in its favour,it must have satisfied itself that all the requisite documents and securities were intact.Therefore,to ask for any further document was only an excuse not to release the sanctioned loan amount.

How project delays can hurt taxpayers

The cancelled projects in Noida highlight the risks in real estate,but even delayed projects can lead to losses for taxpayers.

When Rajeev Bansal sold a house four years ago,he made huge capital gains of over 40 lakh.However,the 38-year-old Pune-based manager in an MNC claimed tax exemption under Section 54F by booking an apartment in a newly launched project on the outskirts of Pune.Under this Section of the Income Tax Act,there is no tax liability if the entire proceeds from the sale of a house are used to buy another residential property.
The new property can be bought up to one year before or two years after the sale of the house.In case the house is being constructed,there is a three-year window.The taxman is lenient because real estate is not something you can purchase over the counter.It takes time to identify a suitable property,arrange the funds and get the paperwork done.
In Bansals case,the property was to be handed over to him in June 2009,a year-and-a-half after the sale.I thought it was a comfortable margin of close to six months, he says.He was wrong.Buffetted by the slowdown of 2008 and the severe cash crunch that followed,the builder was not able to complete the project on schedule.The possession was handed over only this year.
The delay has landed Bansal in a quandary.He got a notice from the Income Tax Department,demanding a tax of 8.25 lakh for the 41.25 lakh capital gains he had made on the sale of the house.The department contends that merely booking a flat has not made Bansal 100% owner of the property and,therefore,he cannot claim exemption under Section 54F.I have been slapped with a huge tax liability because the builder was not able to finish the construction on time, he says.
There have been several such cases in the past where delays have led to tax notices.However,in most cases,the taxpayer has been allowed the exemption.If substantial construction work has been done and the entire proceeds from the sale have been invested in the new property,the assessee is deemed to have complied with the provisions of Section 54F, says Minal Agarwal,partner in Delhi-based firm Mahesh K Agarwal and Co.She points out that the taxpayer cannot be denied the exemption merely because the builder failed to hand over possession within the stipulated period.
Bansal has appealed against the tax demand and hopes that the tribunal will rule in his favour.However,he could have avoided this mess by investing in a ready-to-move-in property.If you are looking for the Section 54F exemption,buy a property that is ready for possession.Dont buy in a project that has just been launched and could take more than the window of 36 months to complete, advises Sudhir Kaushik,co-founder and CFO of Taxspanner.com.
It is always best to buy property from a reputed builder.If you buy in a project that gets scrapped after a legal row,you can be in serious tax trouble.At least Bansal can argue his case that the capital gains have been reinvested in residential property.
The other option is to invest in the capital gains bonds issued by government agencies.You can invest a minimum of 10,000 and a maximum of 50 lakh in these bonds in a financial year to save the capital gains tax under Section 54EC.However,this has to be done within six months of selling the property.

Before signing a contract with the developer...

... make sure to scan it for all costs,charges and penalties you are likely to incur and the final product you will receive.

When you buy property,you will be required to sign a legal contract with the real estate developer.This forms the basis of the agreement between you and the developer and outlines the rights and obligations of both the parties.
Given that most of these contracts are skewed in favour of the developer and you have very little bargaining power to change it,make sure that you read the contract carefully.Ask the developer for a sample contract much before you make the booking and check for the following:

PAYMENT:

Ensure that the contract you sign is with the same entity in whose name you are writing the cheques and giving the follow-on instalments.If not,then get a clear documentation trail to establish the relationship between these two entities.

EARNEST MONEY:

If the project is cancelled or the developer backs out due to some financial difficulty,find out how much of your earnest money will be refunded.Also check whether you will be entitled to any interest payment on the money that you have paid the developer.

ESCALATION COST:

Confirm that the cost of the apartment is escalation-free.This ensures that any increase in the cost of raw materials does not impact you and the costs are absorbed by the developer.

TRANSFER CHARGES:

Find out about the charges that will be levied if you transfer the property in someone elses name.Note that any change in name under which the booking is made,even if the transfer is to a family member,is treated as a transfer.

COMPENSATION AND PENALTY:

If there is a delay in construction,are you entitled to some compensation In case of delay in payment of instalments by you,what will be the rate of interest charged by the developer This can be as high as 18% per annum.Understand whether this penal interest will be on the outstanding amount or full instalment.

AMENITIES:

Check the amenities that are included in the project (club house,swimming pool,common rooms,tennis courts,etc).These should be clearly mentioned in the contract.

SUPER AREA:

The total area of the unit being bought should be clearly mentioned in the contract.Also understand whether this is super area or carpet area.Usually,its the super area that is mentioned in the contract.

CHANGES IN PLAN:

Be clear about the maximum deviation that is allowed in the super area.Sometimes the contractor or the architect make some last-minute changes to the floor plan during construction,which results in an adjustment in the final area you get in your apartment.Its common for contracts to specify a 10% deviation.In case the change is more than 10%,the buyer should have an option to back out of the project and claim a refund of the amount paid so far (with interest,if possible).In case of a reduction in the area,the excess amount paid to the builder should be refunded with interest.

FLOOR PLAN:

Ensure that you sign on the floor plan layout,specification details and payment schedule.The sections should be part of the contract as annexures.If possible,get the site plan layout signed as part of this legal contract.
Finally,it is your responsibility to know what you are signing.In case of a dispute,you will not be able to use the defence that you didnt read the contract and signed where you were asked to.

Did you miss the tax filing deadline? Not to worry

The last-minute rush of filing tax returns is over. Hounded by the 31 July deadline, most people manage to scrape through, filing their returns on time. Yet, there are some who, for one or the other reason, fail to do so. If you are among the latter and worried about breaching the law or facing a heavy penalty, don't press the panic button just yet. You can still file your returns and chances are you won't have to pay a penalty. "About 10% of the people end up filing their returns after the due date," says Mehul Sheth, a Mumbai-based chartered accountant.

Adds Sunil Talati, former president of the Institute of Chartered Accountants of India ( ICAI): "The return for income earned in the financial year ending on 31 March 2011 should ideally be filed by 31 July for non-business taxpayers. But if the taxpayer has missed the deadline in spite of having four months in hand, he can do so till 31 March 2013."

In such a case, the penalty to be levied would depend on the status of the tax to be paid.

 

If tax has been paid

If you have paid your taxes, there's little to worry because you can file the returns before 31 March 2012 without paying a penalty. "But if you push the new deadline and file the return only after 31 March 2012, the assessing officer may impose a penalty of Rs 5,000," says Sheth. This amount may depend on the discretion of the assessing officer.

 

If tax has not been paid

If you have not cleared the taxes, you will have to pay a penalty at the rate of 1% per month for the period after 31 July. If the tax due is more than Rs 10,000, you are supposed to pay an advance tax on your income in three tranches (see table). In such a case, the 1% penalty per month will be applicable from the period you have not paid the tranche.

If Form 16 has an error

 

If your employer has made an error in Form 16 and this has crept into your returns, it will have to be corrected. Says Talati: "In case a rectification is required, you should go ahead and file the return anyway. Subsequently, you can request your employer to correct the mistake, and after you receive the fresh Form 16, you can file the revised return."

Talati cautions against taking an initiative to file the return by using the correct information instead of the wrong one in Form 16. "You should not file the return using details that were missed out by the employer as the computerised system is such that if there is a mismatch, you won't get credit," he informs.

You can file the revised returns after you have convinced your employer and rectified the mistake."Don't delay filing your returns because of rectifications in Form 16 as there is a possibility that the assessing officer may not believe your claims," says Sheth.

 

If you don't have money to pay tax

For those who delayed filing the return because they could not afford to pay the heavy tax, borrowing and paying might be a good idea. "The rate of interest payable to the Income Tax Department is higher compared with the market rate. Besides, you should avoid being blacklisted as a late taxpayer," adds Talati. "Although the IT Department enforces similar norms for those who file their returns on time and those who delay these, it is likely to pick your returns for scrutiny if you are a habitual late filer to find out whether the delay is a bid to conceal income," says Talati.

While you have the option to file your tax returns after the due date, you must avoid doing so. This is because you could lose out on a major benefit. If you have suffered a capital loss in a particular year and want to set it off in another year, it needs to be carried forward. "However, you will not be able to claim this benefit if you have not filed the returns by 31 July," warns Sheth.

Medical Insurance – Premium increased after just one claim

Problem: Medical Insurance – Premium increased after just one claim

Solution: Premium should increase only on recurring claims and not on the possibility of recurring claims. Talk first to the insurer through letters. If no reply, contact insurance ombudsman. Decision of insurance ombudsman is binding

 

Detail

Q: I have a family floater policy since the last 6 years, renewable every 2 years, for 5 Lakh. Three years ago, I made a claim for my wife. At that time the premium was around 1200 per month for our 4 member family including me (52), wife (49) and two kids (15,9). In January 2010, when the renewal was due, the company increased the premium to around 2000 per month. I have not made any claim in the last two years. Will the premium reduce now?

Solution:

It is wrong on the part of the insurance company to load the premium after the first claim. Insurers generally load the premium if there are recurring claims and not if there is a possibility of recurring claims.

 

You should write to the insurer asking it to reduce your premium to the amount mentioned in its charts. In case you do not receive a reply, which I doubt you will, write another letter mentioning that you will take up the matter with the insurance ombudsman if the insurer does not correct the anomaly. Subsequently, you should take up the matter with the insurance ombudsman and lodge a complaint. Send all communication by registered address.

 

I feel the ombudsman will direct the insurer to reduce the premium. The ombudsman's decision is binding on the insurer.

You can exchange your property with another property owner

If you want a bigger house to accommodate your growing family, while your aging neighbours do not need all that space, you can actually exchange your property with your neighbours. In fact, exchange of property need not be in the neighbourhood alone, but in any part of the country.

 

What is exchange of property?

 

As per section 118 of the Transfer of Property Act, 1882, when two people mutually transfer the ownership of one immovable property for the ownership of another, without the involvement of sale through money, it is called an exchange.

 

How is it done?

Before getting into an agreement for exchange, both parties involved in the exchange need to frame a deed of exchange. This deed is very similar to a sale deed. Besides the normal details of a sale deed, an exchange deed also mentions the provisions of penalty against any fraud and the date of exchange. The exchange can be implemented by either one deed/document for both properties or by execution of two separate documents for the properties. However, the former practice of making a single document is more common.

 

How is the difference in price sorted out?

In general, no two properties can have the saame market rate. Therefore, the value of each property is mentioned in the deed of exchange at the time of signing. At the time of exchange, the owner of the property that has lower value pays the difference to the owner of the property with the hgiher market value. This difference is also mentioned in the document. However, there is room for negotiation in such deals too.

 

The final transfer

The deed of exchange is registered under the Indian Registration Act, 1908, after payment of the stamp duty on the transfer, as per the applicable rates. Once the deed is executed, the rights over the property and its title also gets transferred to the respective parties. The rights & liabilities of the parties in an exchange are the same as those of sellers and buyers of immovable properties.

 

Steer clear of frauds

It has been seen in the past that fraudulent deals are common in the exchange deeds. And perhaps that is why there is a provision for cases of fraud in exchange deeds. To safegaurd your interests, section 119 of the Transfer of Property Act, 1882 holds the person involved in the exchange or the person claiming to be the owner responsible for the loss that you may have suffered in the exchange. If you get into a fraudulent exchange deal, you have two remedies – either seek damages for the loss caused, or claim the return of the property transferred.