Supreme Court Allows Appeal in Consumer Dispute Over Flat Booking - Reduction of Booking Amount to 15% Upheld as Valid Novation. Developer's Failure to Execute Agreement and Cancellation of Allotment Amounts to Deficiency of Service Under Consumer Protection Act, 1986.

Consumer dispute regarding cancellation of allotment of a residential flat and failure to execute agreement to sell.

The appellants sought execution of the agreement to sell and possession of the flat, or alternatively, refund of the amount paid with interest.

The respondent developer cancelled the allotment of flat X 903 (a) and (b) on the ground that the appellants failed to pay 25% of the total cost as booking amount, despite the appellants having paid in excess of the reduced booking amount of 15% as agreed upon.

The Karnataka State Consumer Disputes Redressal Commission (SCDRC) dismissed the complaint, holding that the appellants were not 'consumers', had not paid the booking amount, and could seek refund. The National Consumer Disputes Redressal Commission (NCDRC) affirmed this order.

Whether the reduction of the booking amount from 25% to 15% constituted a valid novation. Whether the developer's cancellation of allotment and failure to execute the agreement amounted to deficiency of service. Whether the subsequent sale of the flat to a third party defeats the appellants' rights.

Appellants argued that there was a novation reducing the booking amount to 15%, evidenced by email exchange, and they paid in excess of that amount. They also argued that the developer was statutorily obliged under Section 4 of the Karnataka Ownership Flats Act to execute an agreement before accepting advance payment, and the failure to do so constituted deficiency of service. Respondent argued that the original booking amount was 25%, and the appellants failed to pay it, justifying cancellation. They also contended that after the NCDRC dismissal, the flat was sold to a third party, so at best the appellants are entitled to refund with interest.

The reduction of the booking amount from 25% to 15% constituted a valid novation as evidenced by the email exchange between the parties. The developer's failure to execute the agreement to sell despite statutory obligation under Section 4 of the Karnataka Ownership Flats Act, 1972, and the subsequent cancellation of allotment, amounted to deficiency of service. The subsequent sale to a third party does not defeat the prior contractual rights of the appellants.

The clear picture which emerges from the documentary material on the record is that by the letter of allotment dated 28 February 2005, the respondent agreed to allot flat X 903 (a) and (b) to the appellant for an agreed consideration of Rs.40.95 lakhs. Though the booking amount was to be 25% of the agreed sale consideration, the correspondence between the parties indicates that there was an agreement to reduce this to 15%. Section 4 casts an obligation on the developer, while receiving advance payment, to enter into a written agreement for sale. The insistence of the appellants on the developer doing so was, therefore, consistent with the statutory obligation cast on the respondent. An agreement to sell with the third party cannot defeat the rights of the appellants under a prior contract in respect of the residential flat in question.

The appellants filed a consumer complaint before the Karnataka State Consumer Disputes Redressal Commission (SCDRC), which dismissed it. The appellants appealed to the National Consumer Disputes Redressal Commission (NCDRC), which affirmed the dismissal. The appellants then filed a Special Leave Petition before the Supreme Court, which was converted into Civil Appeal No 4284 of 2019.

• Consumer Protection Act, 1986:
• Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1972: Section 4