What happened
In 2009 a buyer booked an apartment in a Lodha project. The purchase was financed the way most are: part savings, part housing loan, with a **tripartite agreement** between buyer, builder and bank under which the bank pays the builder directly. Between February 2010 and July 2011 the bank disbursed **₹1,68,80,531** to the builder in thirteen tranches. By July 2011 the builder had received about **95% of the sale consideration**. Possession was due on 30 June 2011. It did not come. In August 2011 the builder said April 2012; that passed too. Between October and December 2012 the builder asked the buyer to take possession "for fit-outs". The buyer declined and asked whether the Occupancy Certificate and the Fire Department's No-Objection Certificate had been obtained. In March 2013 the builder admitted the Fire NOC was still awaited — it came only in May 2013. Meanwhile the bank had started debiting **pre-EMI interest** on money lent for a flat that did not exist. By March 2013 ₹41,34,940 of interest had been debited, of which the buyer had paid ₹26,23,150. In May 2013 the buyer complained to the National Consumer Disputes Redressal Commission, asking for a refund of ₹2,19,92,107 with interest, reimbursement of the rent he was paying elsewhere, and ₹15,00,000 compensation. While the complaint was pending the bank recalled the loan and sued him for ₹2,51,15,774. He paid the bank a further ₹50,00,000 across 2021, taking his payments to the bank to ₹76,23,150. The Commission held he was a consumer, that the delay was established, rejected the builder's plea of force majeure, and ordered a refund. Everyone appealed — the buyer wanting more, the bank wanting the finding against it set aside.
What the court held
The Court framed four issues and the first is the one that matters most to anyone buying a flat on a loan. **Who gets the refund?** Not the buyer, for the whole of it. The Court held he is entitled in his own right only to **₹1,27,34,726 — the money he actually paid**, not the ₹1.68 crore the bank sent the builder. The reasoning is worth following, because the tripartite agreement says the opposite on its face. Under its Recital (H) and Clause 4, a disbursal to the builder is *deemed* to be a disbursal to the buyer. The Court held that fiction "serves a limited purpose. It fastens the obligation to repay the loan on the Borrower, though the money never passed through his hands. **It does not convert borrowed money, which remains unpaid, into the Borrower's own money.**" Handing him the entire sum while the loan is still outstanding and the bank's claim is in dispute would give him money he never paid — unjust enrichment, which the Court described crisply: *"Restitution restores. It does not redistribute. It returns value to the person at whose expense it was received. It does not confer value on a person merely because he has been wronged."* **At what rate of interest? 12%, not 18%.** Clause 24 of the Agreement for Sale fixed 12% both ways — the builder pays 12% for delay, and refunds at 12% on termination. The buyer argued for 18% relying on a case where this Court had enhanced the rate because the builder had kept a buyer waiting a decade while charging him 18% on late payments. The Court held that what is reasonable varies case to case, that the rate a builder charges cannot be handed to the buyer as a rule of thumb, and that **where the parties have themselves agreed what happens on delay, strong reasons are needed to depart from it**. Simple interest at 12% from the date of each payment. **No rent reimbursement — and the reason is a trap worth knowing.** Clause 24 gave the buyer a choice: stay in the project and take 12% compensation until possession, *or* terminate and take a refund with 12% interest. By filing for a refund he **elected the second**. Having given up the apartment, he could not also claim the rent he would have saved by living in it: "From the date of that election, the cost of housing himself is not a loss caused by the non-delivery of an apartment which he no longer wished to have." The Court added that rent on top of interest on the full refund would be **double compensation for the same default**, that the claim had ballooned far beyond what was pleaded, and that it contradicted his own earlier letter quantifying his loss as the rent he could have *earned* by letting the flat out — the same flat cannot be the source of both. Instead it awarded **₹15,00,000 compensation** in full and final satisfaction of rent, mental agony, harassment and litigation expenses, noting he had paid 95% of the price by July 2011 and been kept out of both the apartment and his money for over fifteen years, losing the benefit of the price escalation. **The bank was deficient, and that finding stands.** This is the part lenders will not like. The buyer had repeatedly asked the bank to verify construction progress; he told the builder in May 2011 that progress did not justify further payment, yet the last tranche went out in July 2011. The bank's own report in October 2012 put the building at 90% ready. The bank said its engineers inspected before every release — but **produced no inspection report**, its written version was not taken on record, it led no evidence, and its own witness said such reports were not required. Its sanction letter obliged it to verify. The ₹2,00,000 compensation against the bank was upheld. **What was left open.** The bank's own claim for repayment cannot be decided in a consumer complaint; it is pending before the High Court, which was told to decide on its merits uninfluenced by anything said here. The buyer's contentions about his liability under the loan are expressly left open.
The law behind it
The complaint was filed in 2013, so the judgment runs on the Consumer Protection Act, 1986 — the appeal itself was under Section 23 of that Act, the power to award compensation under Section 14(1)(d), and "deficiency" defined in Section 2(1)(g) as any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance required under a law or undertaken under a contract.
If you are complaining today, the 1986 Act no longer applies. It was replaced by the Consumer Protection Act, 2019. The equivalents are Section 39 (findings and the reliefs a Commission may order) and Section 67 (appeal to the Supreme Court against an order of the National Commission); "deficiency" is defined in Section 2 of the 2019 Act. The reasoning in this judgment is about restitution and contract, not about machinery, so it carries across — but cite the 2019 Act's sections, not the 1986 Act's.
On the money, the Court rested on the doctrine of unjust enrichment, whose statutory home it located in Chapter V of the Indian Contract Act, 1872, and on Section 73 of that Act — compensation for loss naturally arising in the usual course of things from the breach, with the Explanation requiring the court to take into account the means that existed of remedying the inconvenience caused by non-performance.
The document that decided the rate was not a statute at all: it was Clause 24 of the Agreement for Sale. Read your own builder agreement's delay clause before arguing about interest.
Statutory text is in our legal codes reference.
What this means for you
If you are buying an under-construction flat with a housing loan disbursed directly to the builder, this decision changes what a refund looks like. **You get back what left your pocket.** The deemed-disbursal clause in your tripartite agreement makes you liable to repay the bank; it does not make the bank's money yours to reclaim. Expect a refund of your own contribution, with the loan sorted out separately between you and the lender. **Your builder agreement sets the interest rate.** If it names a figure for delay — very often 12% — that is the number a court will start from, and asking for 18% because another buyer got it will not work. Read that clause before you pick a lawyer's strategy, not after. **Choosing a refund closes off the rent claim.** Where the agreement offers you either compensation-until-possession or termination-plus-refund, picking the refund is an election. You cannot later ask for the rent you paid while waiting. If you want the flat and the delay compensation, say so; if you want out, understand what you are giving up. **Your lender is not a bystander.** A bank that releases tranche after tranche without verifying construction, when its own sanction letter requires it to, can be held deficient in service. Ask your bank in writing for its inspection reports before each disbursal — in this case the absence of any such report is precisely what made the finding stick. One caution: every figure here turns on this buyer's documents and this builder's clauses. The principles travel; the numbers do not.
What to do
1. **Find your tripartite agreement and your Agreement for Sale, and read the delay clause.** The rate of interest and the remedies open to you are usually fixed there, and the Court treated that clause as decisive. Note whether it offers you a choice between staying and terminating. 2. **Separate the two sums.** Work out exactly what you paid from your own funds, and what the bank disbursed to the builder. After this judgment they are not the same claim and are unlikely to come back to the same person. 3. **Write to your bank now, in writing, asking for the construction-stage inspection report behind each disbursal.** If the bank cannot produce them, that is the evidence that establishes deficiency. Email is fine; keep the thread. 4. **Decide your remedy before you file, and be consistent.** Seeking a refund is an election. Claiming rent on top of interest on a full refund is likely to be read as double compensation for the same default. 5. **Plead everything you intend to claim, with proof, at the start.** The rent claim here failed partly because it grew after the complaint was filed and travelled beyond the pleadings. 6. **File under the Consumer Protection Act, 2019**, before the District, State or National Commission according to value. If cost is a barrier, the District Legal Services Authority provides free legal aid under the NALSA framework.
Source
Supreme Court of India, Justices P. S. Narasimha and Alok Aradhe, 15 October 2026. Citation: 2026 INSC 1131. Read the full judgment .
This explainer was written from the primary judgment text, not from news reports.