In the case of Venkatraman Krishnamurthy and Anr v Lodha Crown Buildmart Private Limited, the Supreme Court of India dealt with the issue of the extent to which a court can intervene in commercial contracts between the parties.
The dispute stemmed from a delay in the delivery of possession of apartments by the respondent, a construction company, to the appellants, a group of home buyers.
The apex court set aside an order of the National Consumer Dispute Redressal Commission (NCDRC), which had sought to rewrite the terms of the agreement by introducing subjective conditions to an absolute term of the contract. In its ruling, the court emphasised that the court can neither rewrite or create a new contract for the parties, nor apply conditions to a term of the contract when none exists in the contract.
The appellants sought to purchase an apartment from the respondent in 2013, and entered into an agreement to sell, dated 29 November 2013. As per the agreement, the respondent was obligated to hand over possession for fit-outs on or before 30 June 2016, with an additional grace period of 12 months expiring on 30 June 2017. Subsequently, within 12 months of possession for fitting out, the respondent was responsible for obtaining the occupation certificate marking the completion of delivery of possession.
In the event of the respondent’s failure to hand over possession within the grace period, clause 11.3 entitled the appellants to either proceed with or terminate the agreement and seek a refund.
As the respondent failed to hand over possession within time, including the grace period, the appellants sent a legal notice to the respondent terminating the agreement and demanding a refund of its amount. On the failure of the respondent to comply with the terms of the legal notice, the appellants approached the NCDRC.
NCDRC decision
The NCDRC’s decision diverged from the original terms of the agreement by providing alternative options for resolution and introducing its own criteria to determine the course of action. The NCDRC revised the timelines for completion of the project and handing over possession, and provided an alternative remedy of termination by the appellants subject to forfeiture of the security deposit and earnest money paid by the appellants.
It failed to consider that clause 11.3 conferred an absolute right on the appellants to terminate the agreement in case of default in delivery of possession.
Court decision
The court observed that the respondent failed to provide possession for fit-outs within the agreed timeframe, which included the grace period of 12 months. Consequently, this failure entitled the appellants to exercise their option to either continue with or terminate the agreement, as outlined in clause 11.3 of the agreement.
The court held that clause 11.3 conferred an absolute right of election on the appellants and it was not open for the NCDRC to decide that the possession delay was not unreasonable enough to entitle the appellants to terminate the agreement. It held that by doing so the NCDRC rewrote the agreement by applying its own subjective criteria contrary to the express term of the agreement.
The court emphasised the principle that contractual terms agreed on by the parties should be upheld, and it criticised the NCDRC for overstepping its jurisdiction. The court cited Assurance Society Limited v Chandmull Jain and Anr, and GMR Warora Energy Limited v Central Electricity Regulatory Commission and Ors, to highlight that courts should interpret contracts based on the explicit terms agreed on by the parties, and courts cannot implement new terms or standards in a contract if the same was not intended by the parties themselves.
The court therefore held in favour of the appellants, allowing them to terminate the contract as per the terms of the agreement to sell and set aside the decision of the NCDRC.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
