By Legum Pacific Editorial ·
Suppose you book an under‑construction flat. You pay some money from your savings. The rest is paid directly to the builder by your bank under a tripartite loan. Years pass and the builder does not give possession. Who should get the refunded money?
What does the law say?
Indian contract and consumer law prevent one party from being unjustly enriched at another’s expense. If a builder fails to deliver possession, the buyer may seek return of the money paid and compensation for the loss suffered. When the buyer, builder and bank are linked by a tripartite loan agreement, the documents often fix what happens if possession is delayed. Courts will look to those contract terms and to whether money actually came from the buyer or from the lender.
What did the Supreme Court decide?
The matter was decided by a Bench comprising Justices Pamidighantam Sri Narasimha and Alok Aradhe. The Court recorded the facts found by the consumer forum and made three main rulings.
First, the Court held that the buyer (the appellant) had actually paid Rs.1,27,34,726 from his own funds. The remainder of the sale price had been disbursed to the builder by the bank. Applying the principle against unjust enrichment, the Court directed that the buyer is entitled to a refund only of the sums he himself paid. The Court directed the Commission to release that amount to the buyer with simple interest at the rate of 12% per annum from the date of each payment. The 12% rate follows from Clause 24 of the Agreement for Sale, which fixes the consequence for delayed delivery when the purchaser elects to terminate and seek refund.
Second, the Court awarded Rs.15,00,000 as compensation to the buyer. That sum was described as full and final satisfaction of the buyer’s claims for rent, mental agony and litigation expenses. The Court explained that awarding interest on a full refund and then a separate large rent claim could lead to double recovery for the same loss. The Court also noted that the buyer had elected refund in 2013 and that later, larger rent claims were not pleaded or proved before the consumer forum.
Third, on the bank’s role the Court upheld the Commission’s finding of deficiency of service against the bank and the modest award of Rs.2,00,000. The Court recorded that the bank had asserted that its engineers inspected the site, but that no inspection reports were produced before the Commission. The Court found the Commission’s factual conclusion to be sustainable on the record.
Finally, the Court recognised that the bank has independent rights to recover the loan. The Court observed that those claims arise in separate civil proceedings. The bank’s suit and the appeal in the High Court must decide the bank’s entitlement to recover from the buyer. The remaining amount deposited by the builder before the Commission was ordered to be kept in an interest‑bearing account pending the outcome of those proceedings.
What does this mean for ordinary people?
If you have paid part of a flat’s price from your savings and the bank paid the rest under a tripartite loan, a consumer forum or court will look at who actually paid what. If most money to the builder came from the bank, a refund ordered to the buyer will generally be limited to the sum he personally paid. A sale agreement clause that fixes the rate of interest or compensation for delay will carry weight. Claims that were not pleaded and proved before the forum may not be allowed later on appeal.
What about the bank’s claim?
The Court left the bank’s right to recover the loan from the buyer to the separate civil proceedings. That means the bank’s suit and the pending appeal in the High Court must be decided on their own facts. The Commission was directed to keep the balance deposit in an interest‑bearing account until the bank’s claim is finally decided.
Key points
- The buyer was ordered to be refunded the sums he personally paid: Rs.1,27,34,726 with simple interest at 12% p.a. from each payment date.
- The Court awarded Rs.15,00,000 as compensation, to cover rent, mental agony and litigation costs.
- The Commission’s finding of deficiency against the bank was upheld; Rs.2,00,000 was awarded against the bank.
- The bank’s separate rights to recover the loan remain to be decided in the pending civil proceedings and appeal.
- The Court directed the Commission to keep the remaining deposited amount in an interest‑bearing account pending the bank’s appeal.
Source: Supreme Court of India (official judgment) (opens in a new tab) · Madhu Kudapa (Formerly Known As K. Madhusudhan Rao) v. M/s Lodha Healthy Constructions And Developer Private Limited & Anr., Civil Appeal No.8994 of 2022, 2026 INSC 1131