Holding

Charging interest at 15% per annum on defaulted instalments, including interest on the interest component, is permissible, does not constitute compound interest, and the BDA's refusal to execute the sale deed until dues are paid does not amount to deficiency in service under the Consumer Protection Act, 1986.

Summary

The Bhubaneswar Development Authority (BDA) allotted a MIG house to Susanta Kumar Mishra under a lease‑cum‑sale agreement dated 6‑May‑1991, which required quarterly instalments to be paid from 1‑Sept‑1989 and stipulated interest of 15% per annum on any defaulted instalment. Mishra began paying instalments only from June 1991, leading the BDA to charge interest on the arrears dating back to September 1989 and to withhold execution of the sale deed until the amount of Rs 57,175 was paid. Mishra filed a complaint before the consumer forum alleging deficiency in service; the forum dismissed the complaint, but the State and National Consumer Commissions reduced the amount payable, holding that the BDA could not charge compound interest. The Supreme Court examined whether the interest clause amounted to compound interest and whether the BDA’s refusal to execute the deed constituted a deficiency in service under the Consumer Protection Act, 1986. The Court held that interest on the defaulted instalment, including interest on the interest component, is permissible, does not constitute compound interest, and that the BDA’s action does not amount to deficiency in service; consequently, the consumer forum had no jurisdiction. The appeal was allowed, setting aside the orders of the State and National Commissions and restoring the District Forum’s decision.

Issues considered

Whether charging interest from the original allotment date under the lease‑cum‑sale agreement amounts to compound interest prohibited by law
Whether the BDA's refusal to execute the sale deed until all dues are cleared constitutes a deficiency in service under the Consumer Protection Act, 1986
Whether a demand for payment under an unchallenged contractual term gives a cause of action before a consumer forum
Whether interest on the interest component of a defaulted instalment is to be treated as compound interest

Legislation cited

Consumer Protection Act, 1986s. 2(c)

Subjects

lease‑cum‑sale agreementinterest on defaultcompound interestConsumer Protection Actdeficiency in servicesale deeddevelopment authoritycontractual interestconsumer forum jurisdiction

Judgment

[2009] 2 S.C.R. 149

SECRETARY, BHUBANESWAR DEVELOPMENT A
AUTHORITY
V.
SUSANTA KUMAR MISHRA
Civil Appeal No. 605 Of 2009
JANUARY 30, 2009 . B
[R.V. RAVEENDRAN AND J.M. PANCHAL, JJ.]

Contract: Parties bound by terms of agreement - De-
mand for any qmount due in terms of the unchallenged terms C
of agreement does not furnish a cause of action to approach
the consumer forum - On facts, lease-cum-sale agreement
executed in 1991, two years after the original date of allotment
- Term of agreement was that lessee in case of default or de-
lay in payment of instalment dues would pay interest @ 15%
0
p.a. from the date when same fell due - Lessee started pay~
ing instalments from 1991 - Development authority charged
interest on the instalments amount for the period 1989-91 -
Justification of - Held: Justified - Charging of interest from
the original date of allotment was in accordance with the agree- E
ment -Lessee not entitled to contend that the instalments
should commence only prospectively
Consumer Protection Act, 1986: s.2(c) - Deficiency in
service - Refusal to execute sale deed by the Development
Authority, ·until amount due was paid - Held: Does not amount F
to deficiency in service.
Interest: Interest on interest - When the defaulted instal-
ment is subjected to interest, the interest component of de-
faulted instalments is also subjected to interest - Charging of G
such interest, on the interest part of the instalment, on default
1
in payment of the instalment, at a reasonable rate from the
date of default, cannot be termed as charging of compound
interest in regard to entire dues.
149 H
150 SUPREME COURT REPORTS [2009] 2 S.C.R.

A The appellant-authority allotted MIG house to the re-
spondent, as per letter of allotment dated 1.5.1991. A lease-
c um-sale agreement was entered between them on
6.5.1991. The agreement stipulated the price of the house
Jo be Rs.1.39. lacs. Aft.er deducting the amount paid by
B· the lessee towards the price (on 29.6.1990), it permitted
· the.lessee to pay the balance in 52 quarterly instalments
of Rs.1957/70 each commencing from 1.9.1989. The said
clause gave the option to the lessee to convert the lease
into a sale on completion of payment of all the instalments ' -
C · by paying a commitment· charge of Rs.200/-. The agree-
ment also required the lessee to pay an annual rent of
Rs.24/90 during the period of lease commencing from
1.9.1989. Clause (6) of the agreement further stipulated
that in the event of default in paying any instalment or
other dues on the due date, the lessee would pay interest
0 @ 15% per annum on the defaulted instalments/dues from
the date when the same fell due. ••
' On execution of the Lease-cum-Sale Agreement, the
respondent took possession of the house on 9.5.1991 and
E commenced paying the instalments from June, 1991. He
paid the last 12 instalments in a lump sum on 5.7.2001.
The appellant by letter dated 1.12.2001 informed the re-
spondent that he was still due in a sum of Rs.57,175/-. On
27 .12.2001, the respondent applied to the appellant for ex-
F ecutio·n and registration of a sale deed cl~iming that he ·
had paid all the instalments. The appellant informed the
respondent that until the sum which was due was paid,
the sale deed would not be executed.
· Respondent filed complaint before District Forum,
G which was dismissed holding that refusal to execute a
sale deed until the amount ·due was paid, was not a defi-
ciency in service. State Commission partly allowed the
appeal and directed the respondent to pay Rs.20,000/- to
the appellant in full and final settlement of the dues and
H directed the appellant to execute the sale deed on receipt
SECRETARY, BHUBANESWAR DEVELOPMENT 151
AUTHORITY V SUSANTA KUMAR MISHRA

of such amount. The said decision was upheld by Na- A
~
tional Commission.
In appeal to this Court, appellant-authority con-
tended that it charged interest strictly in accordance with
the terms of the lease· agreement and that charging of in-
terest @ 15% per annum on delayed instalments in terms 8
of the agreement was not illegal.
Allowing the appeal, the Court
' ' l

HELD: 1.1. There is no requirement in the lease-cum-
sale agreement to pay interest, if the instalments were paid c
on the due dates. Only if the lessee committed default in
paying any instalment or other dues, interest at 15% per
annum was payable by the lessee, on the defaulted
, instalments/dues from the date of default to date of pay-
ment under clause 6 of the agreement. Charging interest D
j under clause (6) from the date of default to date of pay-
ment on the defaulted amount is unexceptionable and
does not amount to charging of compound interest as
wrongly assumed by the State Commission and National
Commission. [Para 5] [ 157-8, C] E
1.2. When tbe defaulted instalment in entirety is sub-
jected to interest, the 'interest' component of the defaulted
instalment is also subjected to interest. To that limited
~
extent, there may be charging of interest upon interest.
Charging of such interest, on the interest part of the in- F
stalment, on default in payment of the instalment, at a rea-
sonable rate from the date of default, cannot be termed
as charging of compound interest in regard to the entire
dues. It i~ only a provision to ensure that the dues
(instalments) are paid promptly and avoid misuse of the G
-1 concession given by permitting payment in instalments.
But for such a provision, lessees/allottees who have al-
ready been given possession, will be tempted to delay
payments, thereby leading to continuous defaults. A statu-
';
tory development authority, working on no profit no loss H
152 SUPREME COURT REPORTS [2009] 2 S.C.R.

A basis, can ill afford to permit such continuous defaults
by lessees/allottees, which will paralyse their very func-
tioning, thereby affecting future developmental activities
for the benefit of other members of the general public.
Therefore a provision for interest as contained in clause
B 6 of the lease-cum-sale agreement is neither inequitable
nor in terrorem. Where the basic rate of interest is itself
very high, or where interest is charged on the entire price
instead of charging interest on the reducing balance,
when working out the equated instalments, or where the
C rate of interest on default is punitively excessive, the po-
sition may be different. But no such case is made out by
the respondent. [Para 6] [ 157-F, G, H; 158-A, B, CJ
1.3. If the facts are examined, it becomes evident that
the sum of Rs.57,175/- was not due on account of charg- ..
D ing compound interest. Though the allotment was made
on 1.5.1991 and the lease-cum-sale agreement was signed
on 6.5.1991, clause (2) of the lease-cum-sale agreement
contained a rather unusual condition that the quarterly
instalment of Rs.1957/70 would commence from 1.9.1989,
E which is a date 28 months prior to the date of allotment
and lease-cum-sale agreement. The reason for such a
provision was that the last date for.applications and allot-
ment of houses under the scheme had expired in the year
1989 and the allotment rate of the house had been worked
F out with reference to 1989. The respondent had applied
belatedly on 29.6.1990 and in the normal course, would
not have obtained any allotment. In fact, appellant, by let-
ter dated 19.12.1990, informed the respondent that no
house was available for allotment. But subsequently,
when some houses under the MIG scheme became avail-
G able on account of default or other reason, the appellant
issued an letter dated 1.5.1991 to the respondent allot-
ting MIG. Having regarding to the terms of the scheme, it
became necessary to require the lessee to pay the ear-
nest money deposit and the instalments with reference
H
SECRETARY, BHUBANESWAR DEVELOPMENT 153
AUTHORITY V. SUSANTA KUMAR MISHRA

to the original date stipulated for allotment, namely, A
1.9.1989. Therefore, when the lease-cum-sale agreement
was executed on 6.5.1991, the respondent was required
to pay the original allotment price in quarterly instalments
of Rs.1957 /70 with effect from 1.9.1989 to avoid revising
the allotment price. This meant that when the agreement B
was executed on 6.5.1991, the respondent had to pay the
initial payment and instalments which had fallen ~ue be-
tween 1:9.1989 and 6.5.1991 and also pay the interest
' I thereon at 15% per annum from the respective due dates,
under clause (6). But the respondent started paying the c
quarterly instalments of Rs.1957 /70 as if such instalments
commenced prospectively only after the agreement dated
6.5.1991, and not from 1.9.1989. He paid the first instal-
ment only on 25.6.1991. There was thus an accumulated
default in regard to the payments due between 1.9.1989
D
and 6.5.1991 on which interest was payable under clause
'J (6). There were also some delay in paying the subsequent
instalments. If the Development Authority charged inter-
est for the defaulted/delayed instalments, in accordance
with the lease-cum-sale agreement, the respondent could
not object to the same. Therefore, the orders of the State E
Commission and National Commission are not justified.
[Para 7] [ 158-E, F, G, H; 159-A, B, C, D, E]
I. 2. The case of the respondent in its complaint was
that the interest could not be charged from September,
F
1989 as the allotment was made only on 1.5.1991 followed
by the lease-cum-sale agreement on 6.5.1991 and deliv-
ery of possession on 9.5.1991. The respondent did not
protest against the provisions of clauses (2) and (6) of
the lease-cum-sale agreement requiring payment Qf
,, instalments with effect from 1.9.1989 and took posses- G
I
sion of the house in terms of the said agreement. There-
fore, he could not be heard to say that the instalments
should commence only prospectively. The District Forum
rightly held that charging of interest by the appellant from
H
154 SUPREME COURT REPORTS [2009] 2 S.C.R.

A 1.9.1989 in accordance with clause (6) of the agreement
and insisting upon payment of dues before executing the
sale deed, did not amount to deficiency in service. But
the State Commission and National Commission acted
on wrong assumptions. Further, any fora under the Con-
B sumer Protection Act, 1986 before granting any relief to a
complainant, should be satisfied that the complaint re-
lates to any of the matters specified in section 2(c) of the
Act, and that the complainant has alleged and made out
either unfair or restrictive trade practice by a trader, or ',
C defects in the goods sold, or any deficiency in a service
rendered, or charging of excessive price for the goods
sold, or offering of any goods hazardous to life and safety
without displaying information regarding contents etc. If
none of these is alleged and made out, the complaint will
have to be rejected. When a lessee signs without protest
D an agreement agreeing to pay interest at a given rate from
a given date in given circumstances, and does not con-
tend that the term relating to instalments or interest is in-
valid or inequitable, it is not open to the consumer forum
to grant any relief. A demand for any amount due in terms
E of the unchallenged terms of an agreement, does not fur-
nish a cause of action to the lessee/allottee to approach
the consumer forum. On payment of the balance amount
due, the appellant shall execute the sale deed, if it is not
already executed. [Para 8] [159-F, G, H; 160-A, B, C, D, E]
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No.605
of 2009
From the Judgement and Order dated 08.05.2007 passed
by the National Consumef Disputes Redressal Commission,
G New Delhi in Revision Petition No. 1431 of 2007
Janaranjan Das, Swetaketu, Mishra, P.P. Nayak for the
Appellant.
In-Person for the Respondent.
H
SECRETARY, BHUBANESWAR DEVELOPMENT 155
AUTHORITY V. SUSANTA KUMAR MISHRA
I

The order of the Court was delivered by A
'--/

R. V. RAVEENDRAN J.,
Leave granted. The respondent who appears in person,
in response to the notice informing the hearing date, has re-
quested that his presence may be dispensed with and his writ-· B
ten submissions (reply with copies of the documents) may be
treated as his arguments and matter may be disposed of. We
have heard the learned counsel for appellant and considered
". the contentions of the respondent in his written submissions.

2. The appellant (Bhubaneshwar Development Authority) c
allotted MIG house bearing No. M-19, to the respondent, as per
letter of allotment dated 1.5.1991. A lease-cum-sale agreement
was entered between the appellant and the respondent on
6.5.1991. Clause (2) of the agreement stipulated the price of
the house to be Rs.139,215/40. After deducting the payment of D
Rs.37,415/- made by the lessee toward~ the price (on
>
29.6.1990), it permitted the lessee to pay the balance of
Rs.101,800/40 in 52 quarterly instalments of Rs.1957/70 each
commencing from 1.9.1989. The said clause gave the option
to the Lessee to convert the lease into a sale on completion of E
payment of all the instalments by paying a commitment charge
of Rs.200/-. Clause (3) of the agreement required the lessee to
pay an annual rent of Rs.24/90 during the period of lease com-
mencing from 1.9.1989. Clause (6) of the agreement stipulated
that in the event of default in paying any instalment or other dues F
on the due date, the lessee shall pay interest at the rate of 15%
per annum on the defaulted instalments/dues from the date when
the same fell due.

3. On execution of the Lease-cum-Sale Agreement, the
respondent took possession of the house on 9.5.1991 and com- G
11! menced paying the instalments from June, 1991. He paid the
,;
last 12 instalments (No.41 to 52) in a lump sum on 5.7.2001.
The appellant by letter dated 1.12.2001 informed the respon-
dentthat he was still due in a sum of Rs.57, 175/-. On 27.12.2001,
the respondent applied to the appellant for execution and reg- H
156 SUPREME COURT REPORTS (2009] 2 S.C.R.

A istration of a sale deed claiming that he had paid all the
instalments. The appellant seht a reply dated 30.1.2002 inform-
ing the respondent that until the sum of Rs.57, 175/- which was
due was paid, the sale deed could not be executed. A calcula-
tion sheet showing how Rs.57, 175/- was found to be due was
B ·also furnished.
4. Feeling aggrieved, the respondent approached the Dis-
trict Consumer Forum, Khurda alleging deficiency of service.
He sought a direction to the appellant to execute the sale deed
without insisting upon the payment of Rs.57, 175/-. He also
C claimed Rs.60,000/- as compensation from the appellant. The
District Forum by the order dated 27.10.2003 dismissed the
complaint holding that refusal to execute a sale deed until the
amount due was paid, was not a deficiency in service. The re-
spondent filed an appeal before the State Consumer Disputes
D Redressal Commission, Cuttack. The State Commission by its
order dated 21.12.2006 allowed the appeal in part and directed
the respondent to pay a lump sum of Rs.20,000/- to the appel- ·
lant in full and final settlement of the dues and directed the ap-
pellant to execute the sale deed on receipt of such amount. The
E appellant filed a revision before the National Consumer Dis-
putes Redressal Commission, New Delhi, challenging· the re-
duction in the amount payable, as arbitrary and contrary to the
terms of contract. The National Commission dismissed the re-
vision by a short order dated 8.5.2007 observing that the ap-
F pellant could not charge compound interest and therefore, the
order of the State Commission was just and equitable and did
not call for interference. Feeling aggrieved the appellant has
filed this appeal by special leave.
The appellant contends that it charged interest strictly in
G accordance with the terms of the lease agreement. It contends
that charging of interest at the rate of 15% per annum on de-
layed instalments in terms of clause (6) of the agreement was
not illegal.

5. We find considerable force in the submission of the ap-
H
SEC., BHUBANESWAR DEVELOPMENT AUTH. V 157
SUSANTA KUMAR MISHRA [R. V. RAVEENDRAN J.]
,...
pellant. The lease-cum-sale agreement shows the 'price' of the A
..., house as Rs.139,215/40. After adjusting Rs.37,415/- paid by
" the respondent, the balance of Rs.101,800/40 was made pay-
able in 52 quarterly instalments commencing from 1.9.1989.
There is no requirement to pay interest, if the instalments were
paid on the due dates. Only if the lessee committed default in B
paying any instalment or other dues, interest at 15% per annum
was payable by the lessee, on the defaulted instalments/dues
from the date of default to date of payment under clause 6 of the
... I agreement. Even when there was default, neither the instalments
that were already paid on the due dates, nor the instalments
/ which were yet to fall due, were subjected to interest under
c
clause (6) of the agreement. Charging interest under clause (6)
from the date of default to date of payment on the defaulted
amount is unexceptionable and does not amount to charging of
compound interest as wrongly assumed by the State Commis-
D
sion and National Commission.
r 6. Even if we assume that the price of Rs.139,215.40 stipu-
lated in the lease-cum-sale agreement included, in addition to
the cost of the plot and the construction of the house, interest
thereon, the position will be no different. Each equated instal- E
ment would then have a principal component and interest com-
ponent. As the equated instalments would include interest on
the principal only up to the due date of instalment, whenever
,_ there is a default, there can be no dispute that the 'principal'
part of the instalment could be subjected to interest from the
F
date of default to date of payment. It is no doubt true that when
the defaulted instalment in entirety is subjected to.interest, the
'interest' component of the defaulted instalment is also subjected
to interest. To that limited extent, there may be charging of inter-
est upon interest. Charging of such interest, on the interest part
G
of the instalment, on default in payment of the instalment, at a
i reasonable rate from the date of default, cannot be termed as
charging of compound interest in regard to the entire dues. It is
only a provision to ensure that the dues (instalments) are paid
promptly and avoid misuse of the concession given by permit-
H
158 SUPREME COURT REPORTS [2009] 2 S.C.R.

A ting payment in instalments. But for such a provision, lessees/
allottees who have already been given possession, will be 'r
tempted to delay payments, thereby leading to continuous de-
faults. A statutory development authority, working on no profit no
loss basis, can ill afford to permit such continuous defaults by
B lessees/allottees, which will paralyse their very functioning,
thereby affecting future developmental activities for the benefit
of other members of the general public. Therefore a provision
for interest as contained in clause 6 of th.e lease-cum-sale agree-
ment is neither inequitable nor in terrorem. Where the basic , ,,;
rate of interest is itself very high, or where interest is charged
c on the entire price instead of charging interest on the reducing ...
balance, when working out the equated instalments, or where
the rate of interest on default is punitively excessive, the posi-
tion may be different. But no such case is made out by the re-
.spondent.
D
7. If the facts are examined, it becomes evident that the
'>(_
sum of Rs.57, 175/- was not due on account of charging com-
pound interest. Though the allotment was made on 1.5.1991
and the lease-cum-sale agreement was signed on 6.5.1991,
E clause (2) of the lease-cum-sale agreement contained a rather
unusual condition that the quarterly instalment of Rs.1957170
would commence from 1.9.1989, which is a date 28 months
prior to the date of allotment and lease-cum-sale agreement.
The reason for such a provision was that the last date for appli- -J

F cations and allotment of houses under the scheme had expired
in the year 1989 and the allotment rate of the house had been
worked out with reference to 1989. The respondent had ap-
plied belatedly on 29.6.1990 and in the normal course, would
not have obtained any allotment. In fact, appellant, by letter dated
19.12.1990, informed the respondent that no house was avail-
G
able for allotment. But subsequently, when some houses under
the MIG scheme became available on account of default or other r
reason, the appellant issued an letter dated 1.5.1991 to the re-
spondent allotting MIG House No.M-19. Having regarding to the
'I-
terms of the scheme, it became necessary to require the les-
.H /
SEC., BHUBANESWAR DEVELOPMENT AUTH. V. 159
SUSANTA KUMAR MISHRA [R. V. RAVEENDRAN J.]

see to pay the earnest money deposit and the instalments with A
reference to the original date stipulated for allotment, namely,
1.9.1989. Therefore, when the lease-cum-sale agreement was
executed on 6.5.1991, the respondent was required to pay the
original allotment price in quarterly instalments of Rs.1957/70
with effect from 1.9.1989 to avoid revising the allotment price. B
This meant that when the agreement was executed on 6.5.1991,
the respondent had to pay the initial payment and instalments
which had fallen due between 1.9.1989 and 6.5.1991 and also
... -I pay the interest thereon at 15% per annum from the respective
due dates, under clause (6). But the respondent started paying C
the quarterly instalments of Rs.1957 /70 as if such instalments
commenced prospectively only after the agreement dated
6.5.1991, and not from 1.9.1989. He paid the first instalment
only on 25.6.1991. There was thus an accumulated default in
regard to the payments due between 1.9.1989 and 6.5.1991
on which interest was payable under clause (6). There were D
also some delay in paying the subsequent instalments. If the
Development Authority charged interest for the defaulted/de-
layed instalments, in accordance with clause (6) of the lease-
cum-sale agreement, the respondent could not object to the
same. We are therefore of the view that the orders of the State E
Commission an~ National Commission are not justified.
8. The case of the respondent in its complaint was that the
interest could not be charged from September, 1989 as the al-
lotment was made only on 1.5.1991 followed by the lease-cum- F
sale agreement on 6.5.1991 and delivery of possession on
9.5.1991. He also contended that there was no provision for
payment of any interest by the lessee as clause (6) of the agree-
ment was applicable only in the event of default and he had not
committed any default. It should be noted that the respondent
did not protest against the provisions of clauses (2) and (6) of G
the lease-cum-saleI" agreement requiring payment of instalments
with effect from. 1.9.1989 and took possession of the house in
terms of the said agreement. Therefore, he could not be heard
to say that the instalments should commence only prospectively.
H
160 SUPREME COURT REPORTS [2009] 2 S.C.R.

A The District Forum rightly held that charging of interest by the
appellant from 1.9.1989 in accordance with clause (6) of the \-
agreement and insisting upon payment of dues before execut-
ing the sale deed, did not amount to deficiency in service. But
the State Commission and National Commission acted on wrong
B assumptions. Further, any fora under the Consumer Protection
Act, 1986 ('Act' for short) before granting any relief to a com- I-
r-
plainant, should be satisfied that the complaint relates to any of
the matters specified in section 2(c) of the Act, and that the com-
plainant has alleged and made out either unfair or restrictive ....
c trade practice by a trader, or defects in the goods sold, or any
deficiency in a service rendered, or charging of excessive price
for the goods sold, or offering of any goods hazardous to life
and safety without displaying information regarding contents etc.
If none of these is alleged and made out, the complaintwill have
to be rejected. When a lessee signs without protest an agree-
D
ment agreeing to pay interest at a given rate from a given date
in given circumstances, and does not contend that the term re-
lating to instalments or interest is invalid or inequitable, it is not
open to the consumer forum to grant any relief. A demand for
any amount due in terms of the unchallenged terms of an agree-
E ment, does not furnish a cause of action to the lessee/allottee
to approach the consumer forum.
9. Consequently, we allow this appeal, set aside the or-
ders of the State Commission and National Commission and
..(

F restore the order of the District Forum. We, however, make it
clear that on payment of the balance amount due, the appellant
shall execute the sale deed, if it is not already executed.
D.G. Appeal allowed.