India: The Treatment Of Unfair Contract Terms Under The Consumer Protection Act 1986: IREO Grace Realtech Private Limited v. Abhishek Khanna & Ors [Civil Appeal No 5785 Of 2019]

The Supreme Court of India has confirmed that the consumer fora has the power under the Consumer Protection Act 1986 to set aside one-sided terms in contracts if this amounts to an unfair trade practice.

Facts

The plaintiff was developing a residential project called The Corridors in Gurgaon. Several purchasers filed complaints before the National Commission seeking a refund of the instalments they had paid, plus interest, because the plaintiff had failed to give possession within the agreed period of 42 months + 6 months grace period. However, the purchase agreements prevented a buyer from terminating until 12 months after the expiry of the 42 + 6 months period, and further restricted compensation for delayed delivery to ₹7.5 per square foot per month for a period of 12 months.

National Commission

The developer said the National Commission did not have the power under the Consumer Protection Act to nullify the terms of a contract alleged to be unfair or one-sided. This is evident from a comparison with the clauses of the Consumer Protection Act 2019 which specifically grant this power to the consumer fora. The National Commission disagreed and set aside the offending clauses in the purchase agreement as being one-sided and unfair. The National Commission directed the developer to refund the instalments it had received along with interest of 10% per annum.

Supreme Court

The Supreme Court referred to §2(1)(c) of the 1986 Act which says that a complaint can be filed in respect of an unfair trade practice, and to §2(1)(r) which provides an inclusive definition of an unfair trade practice. The Supreme Court held that the consumer fora are able to declare contractual terms as unfair or one-sided “as an incident of the power to discontinue unfair or restrictive trade practices”. While the 2019 Act specifically defines an “unfair contract” and says these can be declared null and void, this is only “a statutory recognition of a power which was implicit under the 1986 Act”.

The Supreme Court said that a delay in delivering possession amounts to a deficiency in service entitling the buyer to receive a refund of the moneys paid along with reasonable compensation. The compensation for delayed possession under the agreement of ₹7.5 per square foot per month equated to only 0.9% to 1% interest per annum, and was clearly inadequate. In cases where the buyer was entitled to a refund, the Supreme Court has directed the payment of interest at 9% from the stipulated delivery date till the actual date of refund to buyers.

Conclusion

This decision effectively brings the position under the 1986 Act to a similar standing with the 2019 Act, and the decision may not be restricted only to claims against developers. Aside from this, the specific inclusion of “unfair contract” provisions and the power to set the same aside under the 2019 Act may require sellers and service providers to revisit the practice of using standardised “take it or leave it” contracts in its dealings with consumers.

Originally Published by Tuli & Co, February 2021

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