Failure To Provide Occupancy Certificate In A Deficiency Of Service

Whether Failure To Provide “Occupancy Certificate” Is Considered As Deficiency Of Service?

An appeal was filed by Samruddhi Co-operative Housing Society Ltd. (‘Appellant’) against Mumbai Mahalaxmi Construction Pvt. Ltd. (‘Respondent’) before the Hon’ble Supreme Court of India arising out of an impugned judgement passed by the Hon’ble National Consumer Dispute Redressal Commission (‘NCDRC’).

The Appellant contention before the Apex Court was that the NCDRC has erred in disposing of the complaint by holding that the complaint is not maintainable as it is not a consumer dispute and is grossly barred by limitation.

The Apex Court allowed the appeal vide its recent judgment dated January 11, 2022 and made various far impacting observations in the appeal.

FACTS OF THE CASE:

The Appellant is a co-operative housing society, whereas the Respondent is a real estate construction company. The Appellant entrusted the Respondent to construct ‘A’ and ‘B’ wings in a residential apartment/society owned and managed by the Appellants. The members of the Appellant booked the flats in 1993 and were granted possession in 1997. Before handing over the possession of wings ‘A’ and ‘B’, the Respondent failed to obtain the occupation certificate from the municipal authorities for the flats occupied by the members of the Appellant. Because of this failure on part of the Respondent, individual flat owners/members were not eligible for water and electricity connections and consequently, the members of the Appellant have been subjected to increased rates and charges, i.e., property tax at a rate 25% higher than the normal rate and water charges 50% higher than the normal rate.

JUDICIAL HISTORY OF THE CASE:

1. In July 1998, the Appellants instituted a consumer complaint against the Respondent before the State Consumer Dispute Redressal Commission Mumbai (“SCDRD”) seeking directions for obtaining the occupation certificate (‘OC’) by the Respondent. After adjudicating the matter for sixteen years, SCDRC passed an order dated August 20, 2014, in favour of the Appellant directing the Respondent to obtain OC within a period of four months and to pay compensation of Rs.1,00,000/- as reimbursement for extra water charges already paid by the members of the Appellant.

2. Thereafter the Appellant issued a legal notice upon the Respondent to make a payment of Rs.3,56,42,257/- as outstanding dues, which the Respondent failed to comply with. Subsequently, the Appellant filed an execution petition of the order of SCDRC and, also filed a complaint before the NCDRC against the Respondent for seeking payments of Rs.2,60,73,475/- and Rs.20,00,000/- as reimbursement for excess charges and tax paid by the members of the Appellant and the mental agony and inconvenience caused to the members of the Appellant due to the deficiency of services of the Respondent.

3. On December 3, 2018, NCDRC passed an order in favour of the Respondent and held that the complaint was barred by limitation stating that the complaint should have been filed within two years of the accrual of the cause of action i.e., when the municipal authorities asked the Appellant to pay higher charges in the first instance and that refund of the excess amount paid by the Appellant for water charges/services was not payable by the Respondent, as the services were not provided by the Respondent but by municipal authorities and thus the Appellant would not fall under the definition of a ‘consumer’.

ISSUES FRAMED AND ANALYZED BY THE HON’BLE APEX COURT OF INDIA:

The Supreme Court of India discussed two major issues arising out of the appeal filed by the Appellant against the NCDRC’s impugned order:

Issue 1- Whether the complaint filed by the Appellant before the NCDRC was barred by limitation?

Issue 2- Whether the complaint filed by the Appellant is valid and maintainable on account of the Appellant being termed as a ‘consumer’ and Respondent as a ‘service provider’?

ANALYSIS:

ISSUE 1

To address issue No. 1, the Hon’ble Supreme Court discussed that a continuing wrong occurs when a party continuously breaches an obligation imposed by law or agreement. In terms of the Consumer Protection Act 1986 (“Consumer Act”), a complaint to a consumer forum needs to be filed within two years of the date on which the cause of action has arisen. Further, in terms of Limitation Act 1963, a fresh period of limitation begins to run every moment of time during which the breach continues.

The Apex Court considered section 3 and section 6 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management, and Transfer) Act, 1963 (‘MOFA’).

SECTION 3 OF MOFA, imposes certain general obligations on the promoter like making disclosures on the nature of the title to the land, encumbrances, fixture, fittings, etc., and to not grant possession of a flat until an occupancy certification is given by the authorities.

SECTION 6 OF THE MOFA holds the promoter responsible for payments of outgoings till the property is transferred.

The Hon’ble Supreme Court held that both the sections indicate that the promoter has an obligation to provide the OC (Occupancy Certificate )to the flat owners and pay the relevant charges till such OC has been provided.

Owing to the failure of the Respondent to obtain the OC, the members of the Appellant have been constrained to pay higher charges and taxes to the municipal authorities. The Supreme Court held that the continuous failure on part of the Respondent to obtain the OC is a breach of the obligations prescribed in sections 3 and 6 of MOFA amounting to a continuing wrong.

Hence, the Respondent is liable for its continuing wrongs and the Appellant is entitled to damages arising out of continuing wrong and the complaint is not barred by limitation.

ISSUE 2

The Hon’ble Supreme Court discussed the nuances of ‘service’ and stated that the Consumer Act “defines a ‘consumer’ as a person that avails of any service for a consideration.

A ‘deficiency’ is defined as the shortcoming or inadequacy in the quality of service that is required to be maintained by law.’

The Court also referred to a few precedents, viz [Wing Commander Arifur Rahman Khan & Others vs. DLF Southern Homes Private Limited and Others and Pioneer Urban Land Infrastructure Limited vs. Govindan Raghavan], where the Supreme Court has ‘held that the failure to obtain an occupancy certificate or abide by contractual obligations amounts to a deficiency in service.’

The Supreme Court held that the Respondent was responsible for transferring the title of the flats to the society along with the OC to the Appellant, and the failure to do so amounts to deficiency in service. Thus, the members of the Appellant are well within their rights as ‘consumers’ to pray for compensation as a recompense for the continuing wrong caused to the Appellant by the Respondent. The appeal was allowed against the impugned judgement of NCDRC and held that the complaint is maintainable.

CONCLUSION:

The Decision of Apex Court has brought big relief for members of societies to which Occupancy Certificate has not been provided by the builders/ developers. These societies are required to pay high Property as well as water charges from the Municipal Corporation. In many societies builders have transferred the flats to the members of the societies. The decision of Apex Court is clear that non-providing Occupancy Certificate by builder /developer would be considered as deficiency in service and members of such societies will be considered as “Consumers” under the Consumer Protection Act, 1986.

DISCLAIMER: The Author provides this article on a complimentary basis solely for informational purposes. It is not intended to constitute, and should not be taken as, legal advice. The author shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained in this article. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.