Compensation on Account of the Failure of the Builder to Obtain the Occupation Certificate
In the matter decided by the Hon’ble Apex Court on January 11, 2022 in Samruddhi Co-operative Housing Society Ltd. v. Mumbai Mahalaxmi Construction Pvt. Ltd. [Civil Appeal No 4000 of 2019] it was held that members of the appellant, a Cooperative Housing Society, are within their rights as ‘consumers’ to pray for compensation on account of the failure of the respondent, to obtain the occupation certificate. According to the Court, when the respondent was responsible for transferring the title of the flats to the members of the appellant along with the occupancy certificate and he failed to do so, such failure amounted to a deficiency in service. In such circumstances, the appellant has the locus to seek compensation for consequent liability which includes payment of higher taxes and water charges etc. paid to the municipal authorities by the owners i.e members of the appellant.
The respondent, a construction company, entered into agreements with the members of the Co-operative Housing Society/ appellant to sell flats to individual purchasers i.e. the members in accordance with the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1963 (“MOFA”). The members got the possession of the flats in 1997. However, the respondent did not obtain the occupancy certificate from the municipal authorities which made individual flat owners ineligible for electricity and water connections. The members somehow could arrange for temporary connections but then they were required to pay property tax at a rate 25% higher than the normal rate and water charges at a rate which was 50% higher than the normal charge.
The State Commission ordered in favour of the flat owners and directed the respondent to obtain the occupancy certificate and also pay, inter alia Rs. 1,00,000/- towards reimbursement of extra charges paid. The respondent however failed to comply with the demand from the members of the petitioner. The appellant approached the National Commission seeking, apart for damages on account of mental agony and inconvenience, a recompense for the excess charges and tax paid by the members of the appellant due to the deficiency in service of the respondent.
The National Commission, however, dismissed the complaint on the ground of limitation. As per the National Commission, the cause of action to file any complaint arose when the municipal authorities ordered the members to pay higher charges on temporary individual water and electricity connections. It was further held that complaint is not in nature of a consumer dispute since appellant would not fall under the definition of ‘consumer’ under Section 2(1)(d) of the Consumer Protection Act 1986 and the respondent was not the service provider of the services for which the property tax or water charges were levied. It was municipal authorities who were the service providers.
On appeal, the Hon’ble Supreme Court held that the cause of action of the appellants was founded on continuing wrong and therefore section 22 of the Limitation Act, 1963 shall be applicable. According to section 22, a fresh period of limitation begins to run at every moment of time during which the breach continues. The Court relied upon the judgment in Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan AIR 1959 SC 798 wherein the concept of continuous cause of action has been discussed in detail. It was held by the Hon’ble Court and quoted in the judgment as follows:
“It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues, then the act constitutes acontinuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that Section 23 can be invoked”.
The Court further borrowed the excerpts from CWT v. Suresh Seth (1981) 2 SCC 790 and M. Siddiq v. Suresh Das (2020) 1 SCC 1 which are again on the aspects of continuous cause of action.
The Court then went on to observe that the promoter of the construction company is responsible to obtain and provide the occupation certificate to the flat owners as per sections 3 and 6 of the MOFA. Promoter is further liable to make payments of outgoings such as ground rent, municipal taxes, water charges and electricity charges till the time the property is transferred to the flat-owners. The Court further reflected that the Agreement to Sell executed between the appellant and the respondent also stipulates that it is the responsibility of the respondent to obtain the occupancy certificate.
The respondent, however, repeatedly failed to fulfil its obligations, even after the directions of the State and National Commission wherein the respondent was directed to obtain the occupancy certificate. This resulted in levy of higher taxes and water charges by the municipal authority on the members of the appellant.
The Court therefore concluded by stating that “This continuous failure to obtain an occupancy certificate is a breach of the obligations imposed on the respondent under the MOFA and amounts to a continuing wrong. The appellants therefore, are entitled to damages arising out of this continuing wrong and their complaint is not barred by limitation.” While relying on judgments passed by the Hon’ble Supreme Court in Wing Commander Arifur Rahman Khan & Others v. DLF Southern Homes Private Limited & Others (2020) 16 SCC 512 and Pioneer Urban Land Infrastructure Limited v. Govindan Raghavan (2019) 5 SCC 725, the Court also added that failure to obtain an occupancy certificate or abide by contractual obligations amounts to a deficiency in service and respondent is therefore liable in the present case.
While granting the compensation, the Court distinguished the present case from the judgment in Treaty Construction v. Ruby Tower Cooperative Housing Society Ltd. (2019) 8 SCC 157, by highlighting that in the case, the Court declined to award damages “as there was no cogent basis for holding the appellant liable for compensation, and assessing the quantum of compensation or assessing the loss to the members of the respondent society.” However, in the present case, “members of the appellant society are well within their rights as ‘consumers’ to pray for compensation as a recompense for the consequent liability (such as payment of higher taxes and water charges by the owners) arising from the lack of an occupancy certificate”. Accordingly, the Court held the complaint by the appellant to be maintainable and directed the National Commission to decide the complaint on merits of the dispute.
