Homebuyer cannot claim builder refund of unpaid bank loan; Supreme Court awards 12% interest on his own payments

The Borrower booked an apartment in the Builder’s Hyderabad project for approximately ₹2.31 crore and paid ₹51,11,576 from his own funds. The Bank sanctioned a ₹2 crore housing loan and disbursed ₹1,68,80,531 to the Builder in tranches under a tripartite arrangement.

The Builder failed to deliver possession by the contractual deadline, despite receiving about 95% of the consideration. The Borrower paid a further ₹76,23,150 to the Bank, including interest and later repayments, and sought a refund, interest, rent reimbursement and compensation before the National Consumer Disputes Redressal Commission (“Commission”).

The Commission ordered the Builder to refund the amount with 9% interest, found the Bank deficient in service and directed it to pay ₹2 lakh, but did not address the Borrower’s rent and compensation claims.

The Borrower and the Bank appealed; the Builder did not challenge the Commission’s order and deposited the amount directed by it.

1. Whether the Borrower was entitled to a refund of the entire amount paid to the Builder, including loan proceeds disbursed by the Bank, and, if so, at what rate of interest.

2. Whether the Borrower was entitled to compensation, including reimbursement of claimed rent.

3. Whether the Bank was deficient in rendering service to the Borrower.

4. What relief, if any, the Bank was entitled to in these proceedings.

The Court applied the doctrine of unjust enrichment, reflected in Sections 64, 65, 70 and 72 of the Indian Contract Act, 1872, under which restitution restores a benefit to the person at whose expense it was received but does not permit a claimant to recover money that remains unpaid borrowed funds [*Mahabir Kishore v. State of Madhya Pradesh*, (1989) 4 SCC 1; *Mafatlal Industries Ltd. v. Union of India*, (1997) 5 SCC 536].

Clause 24 of the Agreement for Sale provided for a 12% rate upon delay and, on termination, refund with simple interest at 12% per annum.

Under Sections 14(1)(d) and 22 of the Consumer Protection Act, 1986, compensation must correspond to proved loss or injury; interest and rent cannot both be awarded for the same deprivation, and compensation is not a windfall [*Ghaziabad Development Authority v. Balbir Singh*, (2004) 5 SCC 65; *DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda*, (2020) 16 SCC 318].

Section 73 of the Contract Act limits damages to loss naturally arising from breach, taking account of available means of remedying the resulting inconvenience.

Section 2(1)(g) of the 1986 Act defines deficiency in service, and the complainant bears the initial burden of proving it [*Ravneet Singh Bagga v. KLM Royal Dutch Airlines*, (2000) 1 SCC 66].

The Builder’s receipt of the consideration without delivering the apartment justified restitution, but the Borrower had personally paid only ₹1,27,34,726, including amounts paid directly to the Builder and the Bank. The remaining amount was unpaid loan money; the tripartite agreement’s deeming provision did not convert it into the Borrower’s own funds. A refund of that balance to the Borrower while the loan remained outstanding would unjustly enrich him. Clause 24 therefore supported 12% simple interest on the Borrower’s own payments from their respective dates.

The Court declined the claimed rent: the claim had expanded beyond the complaint and lacked adequate supporting evidence; awarding rent in addition to interest would compensate twice for the same loss; and the Borrower elected to terminate and seek a refund. Nevertheless, given the prolonged deprivation of both the apartment and the Borrower’s money, the Court awarded ₹15 lakh as full and final compensation for rent, mental agony, harassment and litigation expenses.

As to the Bank, the Borrower’s requests for construction-progress verification discharged his initial burden. The Bank produced no inspection reports despite asserting that inspections had occurred; the Court therefore upheld the finding of deficiency and the ₹2 lakh award.

The Bank’s recovery claim was left for determination in its pending appeal before the High Court.

The remaining deposited amount was to be kept in an interest-bearing account pending the Bank’s appeal; the High Court was directed to decide that appeal on its own merits, without being influenced by the Supreme Court’s observations.

The Bank’s deficiency finding and the ₹2 lakh award against it were upheld.