The Supreme Court has established a significant precedent for homebuyer refunds in delayed project cases, ruling that buyers can only seek refund of money paid from their own pockets, not bank loan amounts. A Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that homebuyers are entitled to money paid from personal funds with 12% simple interest, while loan amounts remain the responsibility of the original lender. This ruling provides crucial clarity for thousands of homebuyers across India who have been waiting for possession of their properties.
Madhu Kudapa (formerly K. Madhusudhan Rao), a Non-Resident Indian, booked an apartment in the Lodha Bellezza project in Hyderabad for approximately ₹2.30 crore in 2009. According to Supreme Court records, he paid ₹51.11 lakh from his own funds and ₹76.23 lakh to the bank under a tripartite agreement. HDFC sanctioned a ₹2 crore loan, which was released in 13 installments by July 2011, but possession never materialized. The buyer approached the National Consumer Disputes Redressal Commission in 2013 seeking refund, interest, rent and compensation.
The Supreme Court relied on Clause 24 of the sale agreement, which fixed 12% per annum interest, rejecting the builder's claim for higher rates. The Court awarded ₹15 lakh as compensation due to the buyer being kept waiting for over fifteen years. As reported by the Supreme Court, the transaction was triangular, with the real question being who should receive the refund based on the principle of unjust enrichment. The Court noted that while under the tripartite agreement a disbursal to the builder is deemed to be a disbursal to the borrower, this fiction does not convert borrowed money into the borrower's own money.
In July 2022, the National Consumer Disputes Redressal Commission had ordered the builder to refund the entire amount with 9% interest and found the bank deficient in service, directing it to pay ₹2 lakh. The Commission also found that the bank had not verified construction progress before releasing funds. However, both the buyer and the bank appealed against this decision, leading to the Supreme Court's recent ruling. The Court upheld the Commission's finding that the bank had not shown it verified construction progress before releasing funds, while leaving all contentions on loan liability open.
The Supreme Court has directed the Commission to release ₹1,27,34,726 to the buyer with 12% simple interest from each payment date, along with ₹15 lakh as compensation within one month. The balance of the deposited amount will remain in an interest-bearing account until the bank's appeal in the High Court is decided. This ruling establishes important precedent for homebuyer refund cases across India, clarifying that buyers can only seek refund of money paid from their own pockets while loan amounts remain the responsibility of original lenders. The Court's reliance on unjust enrichment principles provides crucial guidance for similar cases involving delayed project deliveries.
