The Supreme Court on Tuesday ruled that a real estate builder is under an obligation to provide occupancy certificates to flat owners and failure to do so amounts to deficiency of service for which those aggrieved can seek compensation.

The court said the two-year cut-off set under the Consumer Protection Act, 1986, for seeking remedy may not be applicable as such a relief can be demanded even after that citing the doctrine of “continuing wrong”.

The ruling is likely to offer hope to thousands of flat owners who are fighting legal battles in courts alleging breach of contract, including failure of builders to furnish occupancy certificates.

“In the present case, the respondent (builder) was responsible for transferring the title to the flats to the society along with the occupancy certificate. The failure of the respondent to obtain the occupancy certificate is a deficiency in service for which the respondent is liable,” a bench of Justices D.Y. Chandrachud and A.S. Bopanna said.

“Thus, the members of the appellant society are well within their rights as ‘consumers’ to pray for compensation as a recompense for the consequent liability (such as payment of higher taxes and water charges by the owners) arising from the lack of an occupancy certificate,” the bench added.

An occupancy certificate, issued by the local authorities, certifies that a building is fit for occupation and has been constructed as per the approved plan and in compliance with local laws. It is required to apply for water, sanitation and electricity connections.

The apex court passed the verdict while allowing an appeal filed by Samruddhi Cooperative Housing Society Ltd in Mumbai challenging a 2018 judgment of the National Consumer Disputes Redressal Commission (NCDRC) that had held that the builder, Mumbai Mahalaxmi Construction Pvt Ltd, was not under an obligation under the Consumer Protection Act.

The NCDRC had cited two reasons for rejecting the compensation plea — that the flat owners could not be considered consumers as the matter involved tax and other arrears and that the petition had been filed after the two-year window had lapsed.

Samruddhi Cooperative had in 1993 entered into an agreement with Mumbai Mahalaxmi for the construction of flats. The appellants were granted possession in 1997. According to the appellants, the builder failed to take steps to obtain occupancy certificates from the civic authorities.
In the absence of the occupancy certificate, the individual flat-owners were not eligible for electricity and water connections.

They were granted temporary water and electricity connections by the civic authorities.

The members of Samruddhi Cooperative have had to pay for the past 24 years property tax at a rate 25 per cent higher than the normal charge and water charges at a rate 50 per cent higher than the normal rate. Before the NCRDC, the appellants had sought a cumulative compensation of Rs 2 crore from the builder.

Setting aside the NCDRC order and telling it to consider the matter afresh, Justice Chandrachud, who authored the judgment, said Section 22 of the Limitation Act, 1963, provided for the computation of the cut-off period for seeking legal remedy if there was a continuing breach of contract.

The bench noted that the promoter is responsible for payments of “outgoings” till the property is transferred. A property will not be considered transferred until an occupancy certificate is issued, the court noted.