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Lata Construction And Others v. Dr. Rameshchandra Ramniklal Shah And Another
Factual and Procedural Background
The respondents, then residing in Libya, entered into a written agreement dated 27-01-1987 with M/s Lata Construction (the appellants) for purchase of Flat No. AG-2 (670 sq ft) in the building “Madhusudan” at Ville Parle, Bombay. They paid the bulk of the agreed consideration (Rs 3,38,000 in cash, Rs 32,000 by cheque, and later Rs 2,00,000). When they returned to India in June 1988, the building was largely complete, yet the appellants refused to accept the balance payment or hand over possession, claiming the building was still under construction. On a subsequent visit in April 1990, the respondents discovered a different nameplate on the flat door, indicating it had been allotted to someone else.
Because the appellants could not deliver possession, a second agreement dated 23-02-1991 was executed: the appellants undertook to pay the respondents Rs 9,51,000 in three instalments (by 30-05-1991) “without prejudice” to the respondents’ rights under the 1987 agreement. No instalment was paid. In July 1993 the respondents filed a complaint before the National Consumer Disputes Redressal Commission alleging “deficiency in service.” The Commission awarded:
- Rs 9,51,000 with 18% interest from 23-02-1991 until payment;
- Rs 1,00,000 as compensation for pain and suffering; and
- Rs 10,000 as costs.
The appellants appealed to the Supreme Court, challenging the Commission’s judgment dated 22-11-1995.
Legal Issues Presented
- Whether the complaint filed in July 1993 was barred by limitation under Section 24-A of the Consumer Protection Act, 1986, given the two-year period from the alleged default of 30-05-1991.
- Whether execution of the subsequent agreement dated 23-02-1991 constituted a novation that extinguished the 1987 agreement, thereby precluding a consumer complaint for “deficiency in service” and limiting the respondents to a civil suit for recovery of money.
Arguments of the Parties
Appellants’ Arguments
- The complaint was time-barred because it was filed more than two years after 30-05-1991, the final date for payment under the 1991 agreement, contrary to Section 24-A of the Act.
- The 1991 agreement substituted the 1987 agreement; hence only a money claim could lie, and the proper forum was a civil court, not the Consumer Commission.
Respondents’ Arguments
This information was not available in the provided opinion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243 | The Consumer Protection Act applies to builders and developers; compensation can be awarded for “deficiency in service.” | Relied upon by the National Commission—and affirmed by the Supreme Court—to hold that the complaint was maintainable despite the monetary nature of relief sought. |
Court's Reasoning and Analysis
Limitation: The Court agreed with the Commission that the cause of action was “continuing.” The 1991 agreement expressly preserved rights under the 1987 agreement until full payment of Rs 9,51,000. Because payment never occurred, the appellants’ obligation to deliver a flat (or, alternatively, pay the agreed sum) persisted; therefore, the complaint filed in 1993 was within time.
Novation under Section 62 Contract Act: Referring to the statutory principle of “novation,” the Court noted that complete substitution of a new contract is required to extinguish the original. Here, the 1991 agreement stated that the 1987 agreement would stand terminated only on full payment. As that condition was unmet, the original contract remained in force. Consequently, the respondents were entitled to invoke consumer-law remedies for deficiency in service.
Maintainability before Consumer Forum: Citing Lucknow Development Authority v. M.K. Gupta, the Court affirmed that developers provide “service” under the Act. Hence, even though monetary relief was sought, the respondents could approach the Commission.
Evidentiary Aspect: The appellants filed only a written statement and produced no evidence or affidavits. Their factual assertions thus lacked evidentiary support, reinforcing the Commission’s decision.
Holding and Implications
Appeal Dismissed. The Supreme Court upheld the National Commission’s award of Rs 9,51,000 with 18% interest, Rs 1,00,000 compensation, and Rs 10,000 costs. The parties acknowledged that the principal and interest have already been paid; the Court declined to interfere with the additional compensation.
Implications: The decision reinforces that (1) where a subsequent agreement preserves earlier contractual rights, a “continuing cause of action” keeps limitation alive, and (2) builders’ failures can still be pursued under consumer-protection forums even when alternate monetary arrangements are contemplated. The ruling does not create new precedent but affirms existing principles on limitation, novation, and consumer jurisdiction.
S. Saghir Ahmad, J.— This appeal is directed against the judgment and order dated 22-11-1995 passed by the National Consumer Disputes Redressal Commission, New Delhi (for short “the National Commission”).
2. The respondents had approached the Commission with the complaint that the appellants who were developers and had promised, under a written agreement dated 27-1-1987, to provide a flat to them, had failed to do so and, therefore, they were guilty of “deficiency in service”. It was indicated in the complaint that the respondents who were, at that time, in Libya and wanted to settle in India, had entered into an agreement dated 27-1-1987 with M/s Lata Construction, Appellant 1, which stipulated that the appellants would develop, construct and hand over possession of Flat No. AG-2 on the ground floor with an area of 670 sq ft situated in a building named “Madhusudan”, on Plot No. 138, TPS 11 and CTS Nos. 1166 and 1166(1) in Ville Parle, Bombay 400 057. It was indicated that the appellants had earlier entered into a development agreement on 9-12-1985 with the owners in respect of the said property to develop, construct and to sell flats in the proposed building which was to be constructed on ownership basis. On 27-1-1987, the respondents had paid a sum of Rs 3,38,000 to the appellants in cash but without any receipt and a sum of Rs 32,000 by cheque against receipt. The respondents also paid to the appellants on various dates, as and when demanded by them, a further sum of Rs 2,00,000 against receipt. In June 1988 when the respondents returned from Libya, they requested the appellants to deliver, on payment of balance amount of sale consideration, possession of the flat to them as the construction of the building was complete but the appellants refused to accept the payment and deliver possession on the plea that the building was still under construction particularly as the electricity, plumbing, tiling and fencing work was in progress. The appellants, however, assured the respondents that as and when the building would be completed in all respects, they would accept the balance amount of sale consideration and deliver possession to them. In April 1990, when the respondents again came back from Libya on a short visit to India and visited the building, they found that the flat was locked and outside the main door of the flat, a name plate of “Indira Joshi” had been put up. The respondents returned from Libya in January 1991 and when they demanded the possession of the flat, the appellants expressed their inability to give possession of the flat to the respondents in compliance with the agreement dated 27-1-1987. The appellants, however, entered into a fresh agreement with the respondents on 23-2-1991 agreeing to pay to the respondents a sum of Rs 9,51,000 in lieu of the flat in three instalments on or before 30-5-1991 as under:
1. Rs 3,00,000 on or before 20-3-1991 2. Rs 3,00,000 on or before 20-4-1991 3. Rs 3,51,000 on or before 30-5-1991
The respondents had entered into a fresh agreement with the appellants without prejudice to their rights under the earlier agreement dated 27-1-1987. Since the appellants did not honour the commitments under both the agreements, the respondents approached the National Commission which decreed the claim of the respondents for a sum of Rs 9,51,000 together with interest at the rate of 18% per annum with effect from 23-2-1991 till the date of payment. Another sum of Rs 1,00,000 was allowed as compensation for pain and suffering undergone by the respondents. The Commission also allowed a sum of Rs 10,000 to the respondents as costs of the proceedings.
3. Learned counsel appearing on behalf of the appellants has contended that the claim instituted by the respondents before the Commission was beyond time inasmuch as it was filed beyond the period of two years prescribed under Section 24-A of the Consumer Protection Act, 1986 (for short “the Act”). It is contended that since the respondents had entered into a fresh agreement with the appellants under which the entire amount of Rs 9,51,000 had to be paid on or before 30-5-1991, the respondents, if the amount was not paid, could have instituted the claim petition before the Commission within the period of limitation starting from 31-5-1991, and since the claim was filed in July 1993, it was clearly beyond time. This plea has been negatived by the Commission on the ground that since the right under the agreement of 1987 had not been given up by the respondents, there was a continuing cause of action running against the appellants and the claim was, therefore, not beyond time.
4. A perusal of the agreement dated 23-2-1991 would show that it was specifically stipulated therein that the rights under the agreement dated 27-1-1987 would remain unaffected. It was for this reason that in the claim petition filed before the Commission, it was clearly mentioned that their rights under the agreement dated 27-1-1987 as also those under the agreement dated 23-2-1991 may be enforced. It was also specifically mentioned in the second agreement that the first agreement of 1987 would be treated as terminated only on full payment of the stipulated amount of Rs 9,51,000 to the respondents. Since the rights under the agreement of 1987 had not been given up and the appellants were constantly under an obligation to provide a flat to the respondents and deliver possession thereof to them, the Commission rightly treated “cause of action” to be a “continuing cause of action” and came to the right conclusion that the claim was not beyond time.
5. Moreover, under the terms of the agreement dated 23-2-1991, it was stipulated that if the entire amount of Rs 9,51,000 was not paid by 30-5-1991, the whole of the amount would become payable at once and it would be open to the respondents to claim payment of full amount together with interest after giving seven days' notice to the appellants. It was further stipulated that in case of default, the amount already paid by the appellants shall stand forfeited. Since the whole of the amount had not been paid to the respondents who could recover the whole of the amount together with interest from the appellant on giving seven days' notice, the rights under the old agreement did not come to an end and they could legally claim specific performance of that agreement for a flat being provided to them. Their claim was, therefore, not barred by time.
6. It was next contended that the agreement dated 27-1-1987 having been substituted by a fresh agreement dated 23-2-1991, under which the respondents themselves had agreed to receive Rs 9,51,000 as compensation for the flat not having been provided to them under the earlier agreement, they could only approach the civil court for recovery of that amount but could not legally institute the claim petition before the Commission for compensation on the ground of “deficiency in service”.
7. This plea has been rejected by the National Commission by placing reliance upon the decision of this Court in Lucknow Development Authority v. M.K Gupta (1994) 1 SCC 243.
8. We have already held above that the rights under the earlier agreement of 1987 were kept alive even after the second agreement. The rights under the first agreement had not been given up and there was no substitution of the earlier agreement in its entirety by the new agreement.
9. We may, at this stage, refer to the provisions of Section 62 of the Indian Contract Act which provides as under:
“62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.”
This provision contains the principle of “novation” of contract.
10. One of the essential requirements of “novation”, as contemplated by Section 62, is that there should be complete substitution of a new contract in place of the old. It is in that situation that the original contract need not be performed. Substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract, has to be by agreement between the parties. A substituted contract should rescind or alter or extinguish the previous contract. But if the terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of the earlier contract.
11. In the instant case, the rights under the original contract were not given up as it was specifically provided in the subsequent contract that the rights under the old contract shall stand extinguished only on payment of the entire amount of Rs 9,51,000. Since the amount was not paid by the appellants as stipulated by the subsequent contract, the rights under the original contract were still available to the respondents and they could legally claim enforcement of those rights. Obviously, under the original contract, the appellants were under an obligation to provide a flat to the respondents. This right would come to an end only when the appellants had, in pursuance of the subsequent contract, paid the entire amount of Rs 9,51,000 to the respondents. Since they had not done so, the respondents could legally invoke the provisions of the earlier contract and claim before the Commission that there was “deficiency in service” on the part of the appellants.
12. We may also point out that the appellants had filed only a written statement before the Commission but had not produced any evidence in support of their pleas. Even an affidavit in support of what they had stated in the written statement was not filed before the Commission. Their case, thus was not supported by any evidence and the Commission, in the facts and circumstances of the case, was justified in decreeing the claim of the respondents.
13. Learned counsel for the parties have stated before us that in terms of the judgment passed by the Commission, the entire amount due from the appellants has already been paid to the respondents including interest at the rate of 18 per cent per annum on the principal amount of Rs 9,51,000. That being so, we are not prepared to entertain the plea of the appellants that the decree passed by the Commission in respect of Rs 1 lakh as compensation on account of the pain and suffering undergone by the respondents may be reversed.
14. We find no merit in the appeal and the same is accordingly dismissed with no order as to costs.
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