2014 (4) TMI 1324 - HC - Indian Laws

Developer shows ability to repay apartment dues despite incomplete project and bank possession claims

Mr. Mayank Pincha, S/o. Mohan Lal Pincha Versus M/s. Skyline Construction and Housing Private Limited, Bangalore

Karnataka HC dismissed a petition seeking refund of amounts paid for an incomplete apartment project. The respondent company demonstrated it was not ... Refund of the amount paid with interest due to the alleged non-completion of the project - secured claim or not - failure of respondent company to complete the construction and hand over the apartment to the petitioner as per the agreement - HELD THAT:- The petitioner is not confident about the respondent’s commitment made under the memorandum. It is also pointed out that the actual loss suffered by the petitioner is far greater if amounts paid under other accounts are taken into consideration. And further, that the bank which claims to be in symbolic possession of the apartment in question, pursuant to an order passed under the provisions of the SARFAESI Act and hence, the question of the matter being settled on payments now assured by the respondent is impractical. It is also claimed that the Bank cannot claim to have any right over the property in question and it cannot be brought to sale by the bank, it has neither a contractual or statutory right to do so. It is the claim of the respondent that it cannot be said that it is unable to pay its debts and would assert that the monies due to the respondent have even been repaid to an extent of Rs. 10.00 lakh and the balance sum of money in a sum of Rs. 47.22 lakh is sought to be repaid - In the alternative it is suggested that if the petitioner insists on an immediate and total repayment of the money with interest at least at the rate of 10% per annum, it would be possible if the apartment is permitted to be sold to a third party. The proceeds from such sale could not only satisfy the dues of the Bank, it would also satisfy the dues payable to the petitioner. This would however, require the petitioner to agree to give a quietus to all matters arising out of the transaction pending elsewhere, secondly, it would require the Bank to restrict its claim to interest on the principal amount at a reasonable rate and not as per the terms of the loan agreement. It would also be required of the petitioner and the Bank, to cooperate with the petitioner to bring the property in question to sale and permit the transfer in favour of a third party. It is evident that the respondent has sufficiently demonstrated that it is not incapable of paying its debts - The dismissal of the petition would not however, be fair without resolution of the dispute which is attempted to be resolved by the respondent even making a part payment even during the course of these proceedings - Petition disposed off. Issues Involved:1. Whether the respondent company failed to complete the construction and hand over the apartment to the petitioner as per the agreement.2. Whether the petitioner is entitled to a refund of the amount paid with interest due to the alleged non-completion of the project.3. Whether the petitioner's claim for refund is maintainable given the tripartite agreement with the bank and actions under the SARFAESI Act.4. Whether the respondent is financially capable of settling the debts owed to the petitioner and the bank.Issue-wise Detailed Analysis:1. Failure to Complete Construction:The petitioner entered into an agreement with the respondent for the purchase of an apartment, which was to be completed and handed over by April 2009, with a grace period extending to April 2010. Despite making substantial payments amounting to Rs. 62,22,600/-, the petitioner alleged that the respondent failed to complete the construction. The respondent attributed the delay to external factors such as securing water and electricity connections and material shortages, asserting that these were beyond their control. The respondent also argued that the agreement allowed a grace period, implying that time was not of the essence.2. Entitlement to Refund:The petitioner demanded a refund with interest due to the respondent's failure to deliver the apartment. The respondent contended that the petition was essentially for recovery of money paid under an agreement, not a debt, and that the petitioner had not paid the full amount due under the agreement. The respondent further argued that without additional payments for legal, documentation, and other charges, the petitioner could not claim a delay in construction or seek a refund.3. Maintainability of the Petition:The respondent argued that the petition was not maintainable due to the tripartite agreement with the bank, which had financed the petitioner's purchase. Under the SARFAESI Act, the bank had initiated recovery proceedings and taken possession of the apartment. The respondent contended that the petitioner had assigned his rights to the bank, and thus lacked locus standi to seek a refund. The bank's actions under the SARFAESI Act meant that any refund would be legally impermissible without the bank's consent.4. Financial Capability of the Respondent:The respondent demonstrated financial capability by offering a payment plan to settle the outstanding amount, including interest, suggesting a willingness to resolve the dispute. The respondent proposed selling the apartment to a third party to satisfy both the bank's and the petitioner's claims, contingent on cooperation from both parties. The court acknowledged this proposal, emphasizing that the respondent was not incapable of paying its debts and suggesting a resolution through the sale of the apartment.Conclusion:The court, considering the respondent's financial capability and the complexities arising from the tripartite agreement and SARFAESI proceedings, directed a resolution involving the sale of the apartment. The sale proceeds were to be used to settle the bank's dues first, with the remaining amount payable to the petitioner, both with interest. The petition was disposed of with these directions, aiming to resolve the dispute amicably and equitably.