The Allahabad High Court, Lucknow Bench, has held that a real estate developer is liable to pay interest to a homebuyer for delayed possession at the same rate of interest that the developer could have charged the allottee for default under the builder-buyer agreement.
In a significant ruling concerning interest for delayed possession under the Real Estate (Regulation and Development) Act, 2016 (RERA), the Court rejected the builder’s contention that its liability should be restricted to MCLR plus 1%. It upheld the award of 24% per annum, observing that the agreement between the parties expressly prescribed 24% interest in case of default by the allottee.
The judgment was delivered by Justice Prashant Kumar in Aims Max Gardenia Developers Pvt. Ltd. through Authorized Signatory v. Mrs. Pratibha Gupta, RERA Appeal No. 1 of 2023.
Dispute Over Delayed Possession
The dispute arose from the booking of a residential flat in the builder’s Golf City project at Sector-75A. The builder-buyer agreement was executed on April 9, 2011, with the total consideration fixed at approximately ₹34.44 lakh.
Under the agreement, possession was required to be delivered by June 2013. The allottee, however, paid approximately ₹35.90 lakh, but the builder failed to hand over possession within the promised period.
The homebuyer subsequently approached the Real Estate Regulatory Authority, Gautam Budh Nagar. By its order dated July 26, 2018, the Authority directed the builder to hand over possession and pay interest at 24% per annum from June 30, 2013, being the date by which possession was contractually due.
Despite the order, the builder neither delivered possession nor complied with the monetary direction. Consequently, execution proceedings were initiated and a recovery certificate amounting to approximately ₹41.21 lakh was issued on June 6, 2019.
Builder’s Challenge and Prolonged Litigation
The dispute thereafter travelled through several rounds of litigation. The builder approached the U.P. Real Estate Appellate Tribunal and also sought judicial intervention against recovery proceedings.
The appeal before the Tribunal was eventually dismissed for want of prosecution on July 10, 2020. The builder had earlier suffered similar dismissals, which had subsequently been restored.
The homebuyer, meanwhile, continued pursuing enforcement of the recovery certificate. After obtaining directions from the High Court, she also initiated contempt proceedings when the recovery remained unenforced. A fresh recovery certificate was subsequently issued on April 8, 2022.
The builder eventually sought recall of the Tribunal’s July 2020 dismissal order on August 28, 2022, resulting in a delay of approximately 721 days. The Tribunal rejected the restoration application, holding that sufficient cause had not been demonstrated and that the requirements of Section 43(5) of RERA had also not been complied with.
After attachment of its bank accounts, the builder deposited approximately ₹67.77 lakh in December 2022 and thereafter approached the High Court under Section 58 of RERA.
24% Interest Upheld by High Court
One of the principal issues before the High Court was the rate of interest payable for the builder’s failure to deliver possession.
The builder argued that its liability should be restricted to the rate prescribed under the applicable regulatory framework, namely MCLR plus 1%, rather than the contractual rate of 24%.
The High Court rejected this contention.
The Court relied upon Section 2(za) of RERA, which defines the expression “interest” with reference to the rate payable by the promoter to the allottee and the rate chargeable from the allottee in case of default.
The Court found that Clause 19 of the builder-buyer agreement specifically provided for 24% interest in the event of default by the allottee. Therefore, the same rate could be applied while determining the builder’s liability for delayed possession.
The Court observed that the statutory framework seeks to maintain parity between the interest payable by the promoter and the interest recoverable from an allottee who defaults.
RERA Interest Can Apply to Pre-RERA Delay
The builder also questioned the applicability of RERA interest to a delay that commenced before the enactment of the 2016 legislation.
The High Court rejected this objection by relying upon the Supreme Court’s ruling in Newtech Promoters & Developers (P) Ltd. v. State of U.P.
The Court observed that interest payable under Section 18 of RERA is compensatory in nature. Consequently, applying the statutory mechanism for determining interest to a continuing delay that originated before RERA came into force could not, by itself, be treated as retrospective or arbitrary.
Accordingly, the Court upheld the direction requiring payment of 24% interest from June 30, 2013, the original promised date of possession.
Pandemic Period Did Not Justify 721-Day Delay
The builder sought to rely upon the disruption caused by the COVID-19 pandemic to explain its failure to pursue the restoration application within time.
The High Court was not persuaded.
Even after excluding the period covered by the Supreme Court’s orders extending limitation between March 15, 2020 and February 28, 2022, the Court found that the builder had failed to demonstrate reasonable diligence.
According to the Court, the builder’s explanation that the matter had escaped its attention until a recovery officer arrived at its office was insufficient to constitute “sufficient cause”.
The Court also held that the Tribunal had complied with Section 44(4) of RERA, which requires orders to be communicated to the parties. The Tribunal had issued notices regarding resumption of proceedings after the lockdown, communicated the dismissal order through email and maintained case status on its portal.
₹2.5 Lakh Costs Imposed on Builder
The High Court expressed serious concern over the prolonged litigation faced by the homebuyer.
It noted that the objective of RERA is to ensure transparency, accountability and speedy resolution of disputes involving real estate projects and allottees. In the present matter, however, the homebuyer was compelled to participate in repeated proceedings to secure the benefit of an order that was already in her favour.
The Court observed that the builder had initiated seven rounds of litigation, while the homebuyer was required to undertake approximately four rounds merely to enforce the orders obtained by her.
Finding no legal infirmity in the Tribunal’s decision, the High Court dismissed the builder’s appeal and imposed costs of ₹2,50,000, directing the builder to pay the amount to the homebuyer within four weeks.
Key Takeaway for Homebuyers and Builders
The ruling reinforces an important principle under RERA: a promoter cannot necessarily seek a lower rate of interest for its own delay when the agreement permits it to charge a substantially higher rate from the allottee for default.
The judgment also highlights that repeated litigation and lack of diligence cannot be used indefinitely to delay enforcement of a homebuyer’s rights.
For homebuyers facing delayed possession, the decision strengthens the argument that compensation and interest under RERA should reflect the statutory framework as well as the contractual terms governing default.
Case: Aims Max Gardenia Developers Pvt. Ltd. through Authorized Signatory v. Mrs. Pratibha Gupta
Case No.: RERA Appeal No. 1 of 2023
Court: Allahabad High Court, Lucknow Bench
Judge: Justice Prashant Kumar
Key Provisions: Sections 2(za), 18, 43(5), 44(4) and 58 of RERA, 2016
Result: Builder’s appeal dismissed; 24% interest upheld; ₹2.5 lakh costs imposed.