One Sided Clauses In Builder-Buyer Agreements Is An Unfair Trade Practice: SC

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"A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder." The Supreme Court has held that the incorporation of one-sided clauses in a builder-buyer agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986. The bench comprising Justice UU Lalit and Justice Indu Malhotra also observed that a builder could not seek to bind a flat buyer with one-sided contractual terms. The bench was considering an appeal against National Consumer Commission order that held that the Clauses relied upon by the Builder to resist the refund claims made by the complainant buyer, were wholly one-sided, unfair and unreasonable, and could not be relied upon.

Perusing the agreement, the bench found that there are stark incongruities between the remedies available to both the parties to the agreement. For instance, the Agreement entitles the Builder to charge Interest @18% p.a. on account of any delay in payment of installments from the Respondent – Flat Purchaser. Whereas, the Builder is liable to pay Interest @9% p.a. only for delay in delivering possession of flats.

One Sided Clauses In Builder-Buyer Agreements Is An Unfair Trade Practice In the judgment upholding the consumer commission's order, the bench referred to Section 2 (r) of the Consumer Protection Act, 1986 which defines 'unfair trade practices' in the following words : "'unfair trade practice' means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice …", The bench observed that this definition is not exhaustive and observed: "A term of a contract will not be final and binding if it is shown that the flat purchasers had no option but to sign on the dotted line, on a contract framed by the builder. The contractual terms of the Agreement dated 08.05.2012 are ex-facie one-sided, unfair, and unreasonable. The incorporation of such one-sided clauses in an agreement constitutes an unfair trade practice as per Section 2 (r) of the Consumer Protection Act, 1986 since it adopts unfair methods or practices for the purpose of selling the flats by the Builder." 

The bench also referred to Law Commission of India 199th Report which recommended that legislation be enacted to counter such unfair terms in contracts. "A contract or a term thereof is substantively unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of the parties.", the report had stated. The bench held that the builder, in this case, failed to fulfill his contractual obligation of obtaining the Occupancy Certificate and offering possession of the flat to the Purchaser within the time stipulated in the Agreement, or within a reasonable time thereafter. Purchaser could not be compelled to take possession of the flat, even though it was offered almost 2 years after the grace period under the Agreement expired, it said. It also directed the builder to refund the amount to the buyer within three months.