A 3-member bench of the National Consumer Disputes Redressal Commission (NCDRC) has ruled that all buyers of a housing project will be made party to any case filed against the real estate developer by another buyer. A move that dramatically increases the scale of lawsuits filed against errant builders while benefitting thousands of homebuyers across the country.
What is this all about?
The NCDRC has recently made a judgment interpreting Section 12(1)(C) of the Consumer Protection Act, allowing home buyers who have invested in a project to be automatically made party to any case filed against a builder. Referred to as a representative lawsuit, this can only be done if their interest, complaint or grievance is common to that of the person who has filed the complaint. The order applies to all new cases as well as old ones.
What will this mean?
This essentially means that homebuyers will not have to file multiple cases against a developer who has defaulted on delivery timelines, quality of construction or any other complaint. A single lawsuit filed against the developer will be assumed to apply to all the buyers in a project in a representative sense. And if the representative lawsuit is won, the benefits will be applied to all homebuyers as well.
Is there a catch?
Yes. It is extremely tedious to claim an amount over and above what the original complainant has asked for in his lawsuit. It will require unanimous consent of all the buyers party to suit to bring any change in the lawsuit. But you can raise objections with the court if you think the person representing the case is not bonafide.
Isn’t that great news?
While this is great for homebuyers who won’t have to waste time and energy filing multiple lawsuits against a developer, there is a catch. Some experts are worried that the developer will not be able to handle the sheer number of complainants that will now automatically be brought on board a lawsuit. From dealing with 1 complainant, a developer may suddenly have to pay compensation to hundreds, potentially bankrupting him and delaying the project indefinitely. Developers are also worried that investors may come up with false pretenses to file a lawsuit and exit the project.
What if I don’t want to be a part of it?
Unfortunately, if the nature of your complaint is common to that filed in the other suit, you will have no option but to be part of it. Individual complaints filed before the ruling was made can choose to either continue with their lawsuit or be part of the representative lawsuit. The commission understands that this ruling is binding and so will give individual notices and public notices to all homebuyers about the fact that a complaint is being filed, the nature of the complaint and other details. The commission will also hear objections to this before granting permission for a representative lawsuit to be filed.
So what now?
For now, ordinary homebuyers can rest easy knowing that the NCDRC has handed them a powerful weapon in dealing with errant developers. The commission has also allowed homebuyers to approach the NCDRC if the aggregate value of the goods, services or the compensation mentioned in the combined complaint exceeds Rs 1 Crore. It won’t matter if the cost of an individual property is less than Rs 1 crore. If you are facing trouble with your developer, but have been hesitant to take legal action, go ahead and check to see if there is an existing lawsuit. If there is, then you too could be an eligible party under the new norms.
Rajeev Talwar of DLF said the financial burden on developers in the case of a payout would be tremendous, making them unable to execute projects. “The courts will have to decide whether they want a project to be completed or whether they want financial compensation to be given.”
Sahil Sethi, Senior Associate, Saikrishna & Associates, has doubts about the implementation of the case law. "The court has created a legal fiction by making all the affected buyers of the project party to one case filed by one buyer.”