The National Consumer Disputes Redressal Commission has clarified that developers cannot evade liability for breach of contractual undertakings in housing redevelopment by hiding behind technicalities of registration. This judgment establishes that when a developer fails to deliver promised flats and alienates alternative accommodations offered as security, the consumer is entitled to monetary compensation based on the value at the time of breach, not the inflated market value years later.
Background & Facts
The Dispute
The complainants, tenants of two flats in Madhav Baug, Andheri (East), Mumbai, entered into a registered Agreement for Permanent Alternative Accommodation dated 20.09.2013 with Sahaj Ankur Realtors. Under the agreement, the developer undertook to redevelop the property and allot them Flat No. 801 (700 sq. ft. carpet area) within 24 months of the Commencement Certificate, with a six-month grace period. The complainants paid Rs. 6,00,000 as additional consideration and agreed to purchase 50 sq. ft. extra at Rs. 22,800 per sq. ft.
Due to prolonged delays in obtaining approvals and commencing construction, the developer executed a Deed of Indemnity-cum-Undertaking dated 10.01.2015. Under this deed, the developer undertook to obtain approval for Flat No. 801 within six months (by 10.07.2015), failing which it would allot two alternative flats - Nos. 301 and 302 (650 sq. ft. and 667 sq. ft. respectively) - free of cost. These allotment letters were placed in escrow with a solicitor, to be released upon default. The deed further stipulated that if neither Flat 801 nor the alternate flats could be provided, the developer would pay the market value for 1317 sq. ft. plus 25% compensation, while payment for the additional 50 sq. ft. would remain suspended until approved plans were furnished.
Procedural History
- 2013: Registered Agreement for Permanent Alternative Accommodation executed
- 2015: Deed of Indemnity-cum-Undertaking executed after delay in project commencement
- 2017: Alternate flats (301 and 302) sold to third party via registered agreement, despite escrow arrangement
- 2018: Approved plans for Flat 801 showed it as a refuge area; rent and compensation payments ceased
- 2019: Consumer Complaint filed before NCDRC seeking allotment of flats or compensation
- 2025: NCDRC delivered judgment after extensive evidence and legal arguments
Relief Sought
The complainants sought: (a) allotment of Flats 301 and 302 with parking; (b) alternatively, payment of Rs. 4.6 crore as market value plus 25% compensation; (c) restraint on third-party encumbrances; (d) monthly rent from January 2019; (e) arrears of Rs. 2.5 lakh with interest; and (f) litigation costs.
The Legal Issue
The central question was whether an unregistered Deed of Indemnity-cum-Undertaking, which creates obligations relating to immovable property, can be relied upon to establish liability for deficiency in service under the Consumer Protection Act, 1986, when the relief sought is monetary compensation for breach, not specific performance.
Arguments Presented
For the Appellant/Petitioner
The complainants argued that the Deed of Indemnity was not intended to transfer title but to define consequences of non-performance. They relied on the Supreme Court’s observation in Pushpa Jagannath Shetty v. Sahaj Ankur Realtors (2025) 7 SCC 168 that the complaint was within limitation and merited adjudication. They emphasized that the developer’s failure to obtain approvals, submission of contradictory plans, and sale of the escrow flats constituted clear deficiency in service. The circle rate for 2015-16, not the inflated 2025 market value, was the appropriate benchmark for compensation.
For the Respondent/State
Opposite Party No. 1 contended that the Deed of Indemnity was unenforceable under Sections 17 and 49 of the Registration Act, 1908, as it created rights in immovable property without registration. It cited Shyam Narayan Prasad v. Krishna Prasad (2018) 7 SCC 646 to argue that unregistered instruments are inadmissible. It further claimed the complainants were not consumers since no relief was sought for deficiency in the original agreement, and that the flat was completed by 2021, which the complainants refused to accept. Opposite Parties 2 and 3 argued they had no privity of contract and were improperly impleaded.
The Court's Analysis
The Commission rejected the argument that the Deed of Indemnity was unenforceable merely because it was unregistered. It held that the purpose of the deed was not to transfer ownership but to define the consequences of breach, which falls squarely within the ambit of service deficiency under the Consumer Protection Act, 1986. The court distinguished Shyam Narayan Prasad, noting that case dealt with title transfer, whereas here the relief sought was compensation for non-performance.
"The Deed is relied upon not to convey title, but to reveal the obligations undertaken and the agreed consequence of non-performance, which is permissible in law."
The Commission found that the sale of Flats 301 and 302 to a third party in 2017, while the indemnity obligation was still subsisting, was a fundamental breach. The developer’s failure to obtain approvals for Flat 801, coupled with the misleading depiction of the flat as a refuge area, further confirmed the deficiency in service. The court emphasized that the complainants had surrendered their existing premises and paid consideration, thereby qualifying as consumers.
Regarding compensation, the court declined to use the 2025 market value, noting that the complainants had delayed filing the complaint for nearly four years after the breach crystallized in 2015. To prevent unjust enrichment, the circle rate for 2015-16 - Rs. 19,829 per sq. ft. - was adopted. The total built-up area was calculated as 1580.4 sq. ft., yielding a base value of Rs. 3,13,37,751.60. Adding 25% compensation (Rs. 78,34,437.90) resulted in a total of Rs. 3,91,72,189.50.
The Verdict
The complainants won. The NCDRC held that the developer’s breach of the Deed of Indemnity-cum-Undertaking constituted deficiency in service under the Consumer Protection Act, 1986. The court awarded compensation of Rs. 3,91,72,189.50 based on 2015-16 circle rates, plus 6% interest from the date of filing, and Rs. 50,000 as litigation costs. The complaint against Opposite Parties 2 and 3 was dismissed for lack of privity of contract.
What This Means For Similar Cases
Unregistered Indemnity Deeds Are Admissible for Compensation Claims
- Practitioners may now rely on unregistered indemnity deeds to prove contractual obligations in consumer complaints, provided the relief sought is monetary compensation for breach, not specific performance
- The doctrine of prima facie enforceability applies to service obligations, even if the instrument would otherwise require registration for title transfer
- This removes a major procedural hurdle for consumers in redevelopment disputes
Compensation Must Reflect Value at Time of Breach, Not Current Market
- Courts will not permit consumers to benefit from speculative market appreciation after unreasonable delay in filing
- Circle rates or valuation at the time of contractual default are the preferred benchmarks
- Practitioners must advise clients to file complaints promptly to avoid reduction in quantum of relief
Privity of Contract Remains Paramount Against JV Partners
- Joint venture partners who are not signatories to consumer agreements cannot be held liable unless direct service obligations are established
- Developers must ensure contractual clarity in JV structures to avoid improper impleadment
- Claims against JV entities must be supported by evidence of direct service provision, not mere association with the primary developer
