Holding

A development authority may revise the price of flats beyond the estimated cost only if it can satisfactorily explain the escalation and does not act arbitrarily; the High Court’s finding of arbitrariness was unwarranted.

Summary

The Indore Development Authority (IDA) advertised LIG and MIG flats on a hire‑purchase basis, stating only an estimated price that would be finalized at allotment. Over several years the Authority raised the price from the original estimates of Rs 45,000 (LIG) and Rs 70,000 (MIG) to Rs 60,000 and Rs 95,000, and later to Rs 1,16,000 and Rs 1,30,000, citing material cost inflation and an increase in flat area. The allottee‑allottees challenged the escalations as arbitrary and obtained a High Court order directing possession at the 1980 rates and rejecting the higher prices. IDA appealed to the Supreme Court, arguing it had no fixed final price and was merely adjusting for inflation. The Supreme Court held that while a development authority may revise prices, it must do so with a satisfactory explanation and not in an arbitrary or erratic manner; the High Court’s finding of arbitrariness was not justified. Consequently, the Court allowed the appeal, directing the respondents to pay the balance amount with simple interest at 6% per annum, and rejected the Authority’s claim of 15% interest. No costs were awarded.

Issues considered

Whether a development authority can increase the price of flats beyond the advertised estimated cost without acting arbitrarily.
Whether the High Court erred in holding the Authority’s price escalation to be arbitrary and dictatorial.
What quantum of interest, if any, is payable on the balance amount after possession.
Whether the Authority has a duty to explain the reasons for a substantial price escalation.

Legislation cited

M.P. Nagar Tatha Gram Nivesh Adhiniyam, 1973

Subjects

development authorityflat allotmenthire purchaseprice escalationestimated costarbitrarinessinterest rateLIGMIGconsumer protection

Judgment

INDORE DEVELOPMENT AUTHORITY A
v.
SMT. SADHANA AGARWAL AND ORS.

MARCH 7, 1995

[J.S. VERMA AND N.P. SINGH, JJ.) B

Hm~sing

Development Authority-Housing Scheme on hire purchase basi~Al
lotment of fiats-Declaration of initial cost as probabale-Subsequent escala- C
tion of cost of fiats-Development Authority should not act in Arbitrary or
erratic manner-It owes a duty to exptain to the Court reasons for the high
escalation-Escalation of costs on account of increase in cost of materials,
area of fiats and litigation held justified.

The appellant-Authority invited applications for allotment of LIG D
and MIG flats on hire purchase basis. The advertisement stated that the
price of fats was on estimated basis and the definite price will be intimated
at the time of allotment. By its letter dated S.11.1979 the authority in-
formed the resondent-allottees that the probable cost of MIG and LIG
flats is expected to be Rs. 70,000 and Rs. 45,000 respectively. However, vide E
Authority's letter dated 7.10.1980 respondents were informed of the revised
cost i.e. Rs. 60,000 for LIG and Rs. 95,000 for MIG flats. The respondent-
allottees paid money from time to time. Though the flats were ready for
allotment in 1982, possession was not given to the respondents because of
a dispute pending in the Court as a result of which also there was increase
in the cost of flats. · F
Once again vide Authority's letter dated 26.1.84 the respondent-al-
lottees were informed that on account of increase in prices of various
materials and increase in the area of flats, the cost of LIG flat would be
Rs. 1,16,000 while that of MIG flat would be Rs. 1,30,000. Iestead of paying
the balance amount the respondents challenged the increase in cost of flats G
before the High Court which held that (i) the appellant • authority had
.acted in arbitrary and dictatorial manner; (ii) the escalation at different
stages which amounted to 100% had not been explained to the satisfaction
of Court; and (iii) the respondents be given possession of Oats on the basis
of letter dated 7.10.1980 i.e. MIG Oats at the rate of Rs. 95,000 and LIG H
555
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556 SUPREME COURT REPORTS [1995) 2 S.C.R.

A flats at the rate of Rs. 60,000. The Development Authority preferred an
appeal to this Court challenging the decision of the High Court.

Allowing the appeal, this Court

HELD: 1. Although this Court has from time to time taking the
B special facts and circumstances of the cases in question has upheld the
l!Xcess charged by the development authorities, over the cost initially
announced as estimated cost, it should not be understood that this Court
has held that such development authorities have absolute right to hike the
cost of Oats_, initially announced as approximate or estimated cost for such
C flats. It is well known that persons belonging to Middle and Lower Income
Groups, before registering themseleves for such flats, have to take their
financial capacity into consideration and in some cases it results in great
hardhips when the development authorities announce an estimated or
approximate cost and deliver the same at twice or thrice the said amount•.
D The final cost should be proportionate to the approximate or estimated
cost mentioned in the offers or agreements. With the high rate of inflation,
escalation of the prices of constructJon materials and labour charges, if
the scheine is not ready within the time frame, then it is not poss'ible to
deliver. the flats or houses in question at the cost so announced. It will be
advisable that before offering the flats. to the public such development
E authorities should fix the estimated cost of the flats taking into considera·
tion the escalation of the cost during the period the scheme is to be
completed. [562·F·H, S63·A·B]

2. In the instant case the escalation is more than 100%. The High
p Court was justified in saying that in such circumstances, the Authority
owed a duty to explain and to satisfy the Court, the reasons for such high
escalation. This does not mean that the High Court in such disputes, while
ext:rcising the writ jurisdiction, has to examine every detail of the construe·
tion with reference to the cost incurred. But the High Court has to be
satisfied on the materials on record that the authority has not acted in an
G arbitrary or erratic manner. However, in the facts and circumstances of
the case, no interference was called for by the High Court. [563·C·D, G]

Bareilly Development Authority v.Ajay Pal Singh, [1989] 2 S.C.C. 166
and Delhi Development Authority v. Pushpendra Kumar Jain, JT (1994) 6
S.C. 292, referred to.
INDORE DEV. AUTHORITY v. S.AGARWAL[N.P.SINGH,J.) ./f}ss1
/3. As the responde.nts are in possession of the flats si~~·-':1~84 A
without payment of any rent to the appellant-authority, they should not
have any grievance in making payment of the balance amount with simple
interest at the rate of 6% per annum from the date of obtaining possession
of the flat until payment. [564-A-8] . <

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2734 of B
1985.

From the Judgment and Order dated 1.5.85 of the Madhya Pradesh
High Court in Misc. P.No. 83 of 1985.

A.M. Singhvi, A.K. Roy, ~.S. Shroff and Ms. Monika Sharma for the C
Appellant.

Sushil Kumar Jain for the Respondent.

B.S. Banthia for the State Madhya Pradesh.
D
The Judgment of the Court was delivered by

N.P. SINGH, J. The Appellant, Indore Development Authority
- (hereinafter referred to as the 'Development Authority') has been con-
stituted under the provisions of the M.P. Nagar Tatha Gram Nivesh
Adhiniyam, 1973 (hereinafter referred to as 'the Act'). The writ- E
petitioners/respondents (hereinafter referred to as 'the respondents') are
the intended, allottees of flats in the Navlakha Housing Complex Scheme
No. 31 in the town of Indore, en hire-purchase basis.

It appears that in the year 1977, an advertisement was issued by the F
Development Authority, inviting applications from the persons interested
in purchase of flats in multi-storeyed buildings on hire-purchase basis. As
per the said advertisement, a deposit of R.s 1,000 for Lower Income Group
(hereinafter referred to as 'the LIG') residential flat and a deposit of Rs.
2,000 for Middle Income Grouop (hereinafter referred to as 'the MIG')
residential flat was to be made. It was also said that the plinth area for the G
MIG Flat shall be 805 sq. ft. and that of the LIG flat shall be 500 sq. ft. It
was further said that at the time of the allotment of the flat a deposit of
Rs. 11,000 was to be made by the hire-purchaser for,the MIG flat and Rs.
7,500 for the LIG flat. The rest of the amount was to be paid in instalments.
Details of such instalments were mentioned. At the foot, it was said that H
J
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.. ,.. ,
558 .SUPREME COURT REPORTS. (1995) 2 S.C.R.
/
A the cost of the flats aforesaid was based on estimate and that the definite
cost would be intimated at the time of allotment. The estimated period
for completion of the said scheme was mentioned as two years.

Pursuant to the aforesaid offer made by the Development Authority,
in resepct of MIG and LIG flats, the respondents and others got themsel-
B ves registered as prospective hire-purchasers and made the prescribed
deposits for the purpose of the allotment of the flats. After a lapse of about
two years, the Development Authority by its letter dated 5.11.1979 in-
timai~ that according to the plan approved for advance of loan by
HUDCO (a financing instituion) 162 MIG flats of plinth area of 750 sq.
C ft., 12 LIG flats of plinth area of 500 sq.ft. each would be constructed in
the four blocks from 3rd floor to 7th floor of the building in the Navlakha
·fl~using Scheme. The probable and estimated cost of MIG and LIG flats
···ll·;·rn.
wert:>wven out at Rs. 70,000 and Rs. 45,000 respectively. There was
modification also in respect of payment of instalments, so far the cost of
D flats on hire-purchase was concerned. The registration fee to be deposited
was also revised as Rs. 5,000 in place of Rs. 2,000 for MIG flat and Rs.
3,000 in place of Rs. 1,000 in respect of LIG flat.

Once again by letters dated 7.10.1980 and 25.10.1980 the respondents .
E were intimated that due to the increase in the prices of the materials the
estimated cost of LIG flats shall be Rs. 60,000 instead of Rs. 45,000 and
that of the MIG flats shall be Rs. 95,000 instead of Rs. 10,000. It was said
in the communication that the revision had been made on basis of the
prevailitig market rates of the construction materials. According to the
respondents, they had no option but to concede to the aforesaid arbitrary
F and unilateral demand made by the Development Authority. By letters
dated 26.1.1984 and 26.12.1984, the Development Authority again in-
timated to th(( respondents a further hike in the cost of the flats. It was
said that the cost of LIG flat had been raised to Rs. 1,16,000 and the cost
of MIG flat had been raised to Rs. 1,30,000. In the letter aforesaid dated
. G ·26.1.1984, respondents were informed that the area of the LIG flat which
had already been constructed was 714.94 sq.ft. in place of 500 sq.ft. as
initially intimated in the year 1977. From the records, it appears that the
construction of the building had been completed in the year 1982 and the
flats weie ready for allotment. But possession could not be delivered to the
H responden.~s because of a writ petition filed in respect of alleged irregular
}
INDORE DEV. AUTHORITY v. S.AGARWAL[N.P. SINGH,J.] 559

allotments of 56 flats. A
After receipt of communication dated 26.1.1984 the respondents filed
a writ petition challenging the increase of the cost of flats registered by the
respondents. The stand of the Development Authority, before the High
Court, was that the price of the flats had to be raised because of the hike
in the cost of construction. In respect of LIG flats, yet another defence was B
taken; saying that increase or the plinth area from 500 sq.ft. to 714.94 sq.ft.
was also a factor for the hike in the price of such LIG flats. The High Court
allowed the said writ petition on a finding that the appellant Development
Authority, had been dealing with the respondents in an arbitrary and
dictatorial manner. The escalation of the cost at different stages amounting C
to more than 100% had not been explained to the satisfaction of the Court.
On that finding a direction was given to the appellant to deliver the
possession of the flats to the respondents and other applicants on the basis
of the estimated cost conveyed to the respondents and others by letters
aforesaid issued in October, 1980 i.e. so far MIG flat is concerned at the
rate of Rs. 95,000 and LIG flat at the rate of Rs. 60,000, within one month D
from ·the date of the order.

On behalf of the appellant, it was pointed out that at no stage the
appellant had made any commitment in respect of the final cost of the flats
in quesiton. Since very beginning, they had given out only an estimated and E
probable cost of the flats and they have kept the respondents informed
from time to time about the rise in the price of the flats, due to several
intervening circumstances including escalation of the cost of the construc-
tion materials. In this connection, our attention was drawn to the adver-
, tisement and the application for registration. The particulars which were
issued in respect of the flats aforesaid gave the details of the area in respect F
of Middle Income Group and Lower Income Group. After the schedule
for payment of different instalments, Note(l) said:

"The above price is on estimated basis. Definite price will be
intimated at the time of allotment. Persons receiving flats will have G
to pay the service charges fixed. The probable period of completion
of the scheme is 2 years".

Reference was also made to a communication dated 5.11.1979, addressed
to the respondents. It was said in the said communication. that in Scheme
No. 31 Navlakha residential Complex, it had been proposed to build H
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560 SUPREME COURT REPORTS [199512 S.C.R.

A Higher/Middle/Lower income groups houses by taking loan from
HUDCO:- "according to scheme sanctioned by HUDCO now 162 and 12
houses of 750 sq. ft. and SOC sq.ft. in four blocks from third storey to
seventh storey with provision of lift will be. built whose probable cost is
expected to be respectively Rs. 70,000 and Rs. 45,000. Thereafter, the
B details of the payment to be made by the persons who had registered
themseleves for allotment of the flats, according to the scheme sanctioned
by the HUDCO was given out. In that communication, it was also said that
if any person wanted to have refund of the registration fee then the whole "
amount would be refunded without interest. Thereafter the appellant is-
sued the communication aforesaid dated 7.10.1980 in continuation of its '}...--
C earlier communication dated 5.11.1979 to all the respondents saying :
I
"The Authority had in ite earlier letter No. 14039 dated
5.11.1979 indicated the estimated cost of the above flat of Rs.
45,000. But as you know the market prices have increased very
much. Due to draught causing scarcity of cement, the scheme is
D delayed. Now the estimated cost of the flat at the ctirrent market
price has been estimated at Rs. 60,000" (emphasis supplied)

Thereafter, the details of the revised instalments which the respondents
were required to pay was mentioned. There is no dispute that pursuant to
E the said communication, the respondents have paid from time to time.
However, the communication dated 26.1.1984 aforesaid, which became the
subject matter of controversy said:

"In the above mentioned Navlakha Complex one MIG Flat was
F reserved in your name. In this connection, you were 8iven prelimi-
nary information by letter No. 14039 dated 5.11.79 about the
amount of instalment based on probable cost and other conditions.
Thereafter, in continuation, the Authority by letter No. 11969 dt.
7.10.1980, informed you for the reasons given in letter about the
probable cost estimated at the time. During this interval, increase
G in the price of various materials required in construction, sugges-
tion of Architect and use of the area _under construction, the area
of each flat increased and that due to inevitable reasons, the actual
cost of the flat has become Rs. 1,16,000 (in words Rupees one lac
sixteen thousand). On account cif the above reasons the area of
H the flat has become 714.94 sq.ft. in place of 500sq.ft."
I

~·

INDORE DEV. AUTHORITY v. S.AGARWAL[N.P.SINGH,J.) 561

Thereafter, a request was made by the appellant to the respondents to A
deposit the balance amount. A similar letter was addressed to the persons,
who had registered themseleves for MIG flats incorming them that the area
of the flat had become 808.12 sq.ft. and the actual cost of the flat was Rs.
1,30,000. '

It may be mentioned that the respondents were given possession of B.
the flats in the year 1984 itself, on basis of the direction given by the High
Court. Since then they are in possession thereof. Because of that the
appellant - Development Authority is claiming interest at the rate of 15%
\
..;..- from the respondents, since the date they have taken possessfon of the flats,
'
over the amount which are yet to be paid by the respondents. C

During the last decade, it has become a common feature not only
with the private builders, but with the builders, including Develop~ent
Authorities which can be held to be a State within the meaning of Article
12 of the Constitution; (1) to escalate the price of the flats booked (2) not D
to deliver such flats according to the schedule mentioned in the advertise-
ment inviting applications. In this process certainly the victims are the
citizens who have booked such flats for shelter. The people belonging to
the Lower Inconie Group, having estimated the total amount, which they
may have to pay for the flats in question are on many occasions put to great E
strain and stress because of the revision and escalation of the cost of such
flats. But the development authorities who construct such flats have their
own storey. According to them, under the existing circumstances it is very
, difficult, if not- impossible, to keep to the time schedule because o_f several
intervening factors, including litigations pending in courts from time to
time. Then the escalating price of the construction materials, Jabour char- F
ges etc. are the other contributory factors.

This Court in the case of Bareilly Development Authority v. Ajai Pal
Sir'gh, [1989] 2 SCC 116, had to deal with a similar situation in connection
with the Bareily Development Authority which had undertaken construe- G
tion of dwelling units for people belonging to different income groups
styled as 'Lower Income Group', 'Middle Income Group', 'Higher Income
Group', and the 'Economically Weaker Sections'. Th~ respondents to the
said appeal had registered themselves for allotment of the flats in accord-
ance with the terms and conditions contallied in the brochure issued by the H
j
I

562 SUPREME COURT REPORTS [1995) 2 S.C.R.

A Authority. Subsequently, the respondents of that appeal, received notices
from the Authority intimating the revised cost of the houses/flats and the
monthly instalment rates which were almost double of the cost and rate of
instalments initially stated in the General Information Table. But taking all
facts and circumstances into consideration, this Cour~ said that it cannot
B be held that there was a mis-statement or incorrect statement or any
fraudulent concealment, in the brochure published by the Authority. It was
also said that the respondents cannot be· heard to say that the authority
had arbitrarily and unreasonably changed the terms and conditions of the '-..
brochure to the prejudice of the respondents. In that connection, it was
pointed out that the most of the respondents had accepted the changed ~.
C and varied terms. Thereafter they were not justified in seeking any direc-
tion from the Court to allot such flats on the original terms and conditions.
Recently, the same question has been examined in the case of Delhi ,
Development Authority v. Pushpendra Kumar Jain, IT (1994) 6 SC 292. In
respect of hike in the price of the flats, it was said :-
D
"Mere identification or selection of the allottee does not clothe
the person selected with a legal right to allotment at the price
prevailing on the date of drawal of lots. The ·scheme evolved by
the appellant does not say so either expressly or by necessary
E implication. On the contrary, clause (14) thereof says that "the
estimated prices mentioned in the brochure are illustrative and are
subject to revision/modification depending upon the exigencies of
lay out, cost of construction etc.".

p Although, this Court has from time to time taking the special facts and
circumstances of the cases in question has upheld the excess charged by
the development authorities, over the cost initially announced as estimated
cost, but it should not be understood that this Court has held that such
development authorities have absolute right to hike the cost of flats, initially
announced as approximate or estimated cost for such flats. It is well known
·G that persons belonging to Middle and Lower Income Groups, before
registering themselves for such flats, have to take their financial capacity
into consideration and in some cases it results into great hardship when
the development authorities announce an estimated or approximate c:ost
and deliver the same at twice or thrice of the said amount. The final cost
H should be proportionate to the approximate or estimated cost mentioned
INDORE DEV.AUTHORITY v. S.AGARWAL[N.P.SINGH,J.) 563

in the offers or agreements. With the high rate of inflation, escalation olA
the prices of construction materials and labour charges, if the scheme is
not ready within the time frame, then it is not possible to deliver the flats
or houses in question at the cost so announced. It will be advisable that
before offering the flats to the public such development authorities should
fix the estimated cost of the flats taking into consideration the escalation B
of the cost during the period the scheme is to be completed. In the instant
case, the estimated cost for the LIG flat was given out at Rs. 45,000. But
by the impugned communication, the appellant informed the respondents
that the actual cost of the flat shall be Rs. 1,16,000 i.e. the escalation is
more than 100%. The High Court was justified in saying that in such
circumstances, the Authority owed a duty to explain and to satisfy the C
Court, the reasons for such high escalation. We may add that this does.not
mean that the High Court in such disputes, while exercising the writ
jurisdiction, has to examine every detail of the construction with reference
to the cost incurred. The High Court has to be satisfied on the materials
on record that the authority has not acted in an arbitrary or erratic manner. D

J So far the facts of the present case are concerned, it is an admitted
position that in the proforma attached to the application for registration,
the appellant said that the price mentioned by them was a probable and
estimated cost, the definite price shall be intimated at the time of the
allotment. Thereafter, the appellant had been informing the respondents E
and others who had got themselves registered, from time to time regarding
the escalation in the cost of the flat. On of the reasons for the rise of the
price for the LIG flat from Rs. 60,000 to Rs. 1,60,000 appears to be the
, increase in the area of the flat itself from 500 sq.ft. to 714.94 sq.ft. From
1982 to 1984, possession of the flats could not be delivered because of the F
dispute pending in the Court which also contributed to the increase in the
cost of the flat. Admittedly, the respondents came in possession of the flats
in the year 1984. In the facts and circumstances of the case, we are satisfied
that no interference was called for by the High Court.
G
We are informed that respondents.have not paid the balanee amount
as demanded by the appellant from them, because of the pendency of the
writ application before the High Court and appeal before this Court. The
appellant has claimed the said amount with interest at the rate of 15% since
the date the possession was delivered, till the balance amount is paid. As H
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\ I
564 SUPREME COURT REPORTS [1995) 2 S.C.R.

A the respondents are in possession of the flats since 1984 without payment
of any rent to the appellant, they should not have any grievance in making
payment of the balance amount with interest. S.till taking all facts and
circumstances into consideration, we direct the respondents to make pay-
ment of the balance amount along with simple interest at the rate of 6%
B per annum from the date of obtaining possession of the flat until payment.

Accordingly, the appeal is allowed. However, in the facts and cir-
cumstances of the case, there shall be no orders as to cost.

T.N.A. \"' IL • Appeal allowed. . I
't--

'";--