Introduction – Ghaziabad Development Authority Vs Union of India & Anr. AIR 2000 SC 2003
Ghaziabad Development Authority Vs. Union of India case involved a breach of contract where the Ghaziabad Development Authority promised to allot plots to the public, but failed to do so even after a considerable period had elapsed. The advertisement by the Authority was considered an offer and the public made applications, some of which were accepted, resulting in a contract between the applicants and the Authority.
Usually, damages in contract are not awarded for mental distress or loss of reputation caused by breach of contract. However, in this case, the contract was for the purpose of providing peace of mind and stability, making it an exception. The plaintiffs were awarded 50,000 rupees for the mental agony they faced due to the breach.
The High Court of Allahabad directed the Authority to return the amount paid by the claimants along with interest calculated at the rate of 12% per annum from the date of deposit to the date of refund. The brochure issued by the Authority was an invitation to offer and the applications made by the public were offers. The Authority’s failure to give possession of the plots resulted in a breach of contract, making it liable for the refund.
It is important to note that damages for mental agony are not awarded in every breach of contract, but only when the contract is specifically for the purpose of mental relaxation or when such damages were within the contemplation of the parties as a likely consequence of the breach
Legal facts of the case – Ghaziabad Development Authority Vs. Union of India
- In C.A. No.8316/1995, Ghaziabad Development Authority announced a scheme for the allotment of developed plots which was known as the Indirapuram Scheme. The Authority informed the claimants that a plot of 35 sq. meters was reserved for them, the estimated cost of which plot was Rs.4,20,000/- payable in specified instalments. An allotment of the plot was also informed. Then at one point in time, the claimants were informed that due to some unavoidable reasons and the development work not having been completed, there has been a delay in handing over possession. Having waited for an unreasonable length of time the claimants approached the MRTP Commission.
- When a development authority announces a scheme for the allotment of plots, the brochure issued by it for public information is an invitation to offer. Several members of the public may make applications for availing of the benefit of the scheme. Such applications are offered. Some of the offers having been accepted subject to rules of priority or preference laid down by the Authority result in a contract between the applicant and the Authority. The legal relationship governing the performance and consequences flowing from a breach would be worked out under the provisions of the Contract Act and the Specific Relief Act except to the extent governed by the law applicable to the Authority floating the scheme.
- The Authority has from time to time promoted and advertised several schemes for the allotment of developed plots for the construction of apartments and/or flats for occupation by the allottees. Several persons who had subscribed to the schemes approached different forums complaining of failure or unreasonable delay in accomplishing the schemes. Some have filed complaints before the Monopoly and Restrictive Trade Practices Commission and some have raised disputes before the Consumer Disputes Redressal Forum. In two cases civil writ petitions under Article 226 of the Constitution were filed before the High Court seeking a refund of the amount paid or deposited by the petitioners with the Authority.
- The ordinary heads of damages allowable in contracts for the sale of land are settled. A vendor who breaks the contract by failing to convey the land to the purchaser is liable to damages for the purchaser’s loss of bargain by paying the market value of the property at the fixed time for completion less the contract price. The purchaser may claim the loss of profit he intended to make from a particular use of the land if the vendor had actual or imputed knowledge thereof. For delay in performance, the normal nature of damages is the value of the use of the land for the period of delay, viz. usually its rental value.
What is a Breach Of Contract
- In case of breach of contract, damages may be claimed by one party from the other who has broken its contractual obligation in some way or the other. The damages may be liquidated or unliquidated. Liquidated damages are such that damages have been agreed upon and fixed by the parties in anticipation of the breach. Unliquidated damages are such damages as are required to be assessed.
- Broadly the principle underlying assessment of damages is to put the aggrieved party monetarily in the same position as far as possible in which it would have been if the contract would have been performed. Ghaziabad Development Authority constituted under Section 4 of the Uttar Pradesh Urban Planning and Development Act, 1973 is the appellant.
Questions arise before the court
- Whether compensation can be awarded for mental agony suffered by the claimants?
The court held that :
- Damages for injury to the plaintiff’s feelings or mental distress are usually not awarded in contract disputes. This includes damages for anguish, annoyance, loss of reputation, or social discredit caused by a breach of contract. However, there is an exception for contracts that provide peace of mind or freedom from distress such as booking a holiday abroad. Another exception is when such damages were within the contemplation of the parties at the time the contract was made.
- Whether in the absence of any contract or promise held out by the Ghaziabad Development Authority any amount by way of interest can be directed to be paid on the amount found due and payable by the Authority to the claimants?
The court held that :
The direction made by the MRTP Commission for payment of Rs.50,000/- as compensation for mental agony suffered by the claimants-respondents
- If so, the rate at which the interest can be ordered to be paid?
The court held that :
The rate of interest awarded in equity should neither be too high nor too low. We believe that a 12 per cent per annum interest rate would be fair and serve justice in the cases being considered. The Development Authority’s brochure provision that states it is not liable for paying interest in case of a refund should only apply if the claimant is responsible for the circumstances leading to the refund.. In the cases, under appeal, the fault has been found with the Authority. The Authority does not, therefore, have any justification for resisting refund of the claimant’s amount with interest.
Contentions of both of the parties:
- Damages for emotional distress or loss of reputation are not typically awarded in contract disputes. However, there are exceptions. For example, if the contract is meant to provide peace of mind or freedom from distress, or if both parties anticipated such damages as a likely consequence of a breach, then damages may be awarded. Examples of such contracts include booking a hotel, holiday, or watching a movie in the theatre.
- The Authority has advertised schemes for allotting developed plots for building apartments and flats. However, some subscribers have complained of failure or delay in completing the schemes. They have approached different forums, including the Monopoly and Restrictive Trade Practices Commission and the Consumer Disputes Redressal Forum. Two cases were filed before the High Court, seeking refunds of deposits. The Authority must improve its processes and complete schemes on time to regain trust and maintain its reputation.
- There was no contract regarding payment of interest on delayed deposit or delay in service by the opposite party. Interest cannot be claimed under Section 34 of the Civil Procedure Code. The provisions of Section 34 have not been specifically made applicable to proceedings under the Act.
Provisions and Acts highlighted in this case
– The Contract Act
The Indian Contract Act, of 1872 prescribes the law relating to contracts in India. The Act is based on the principles of English Common Law. It is applicable to all the states of India except the state of Jammu and Kashmir. It determines the circumstances in which promises made by the parties to a contract shall be legally binding.
– The Consumer Protection Act, 1986
Consumer Protection Act, 1986 is an Act enacted in 1986 to protect the interests of consumers in India. It makes provision for the establishment of consumer councils and other authorities for the settlement of consumers’ disputes and for matters connected therewith also. The act was passed in Assembly in October 1986.
– The Monopolies and Restrictive Trade Practices Act, 1969
On the basis of the recommendation of Dutt Committee, MRTP Act was enacted in 1969 to ensure that:
– The operation of the economic system does not result in the concentration of economic power in hands of few rich.
– To provide for the control of monopolies
– To prohibit monopolistic and restrictive trade practices.
– U.P. Urban Planning and Development Act, 1973
– The Specific Relief Act
The Specific Relief Act, 1963 is an Act that provides remedies for persons whose civil or contractual rights have been violated. It replaced an earlier Act of 1877. The following kinds of remedies may be granted by a court under the provisions of the Specific Relief Act:
- Recovery of possession of the property
- Specific performance of contracts
- Rectification of instruments
- Rescission of contracts
- Cancellation of Instruments
- Declaratory decrees
Judgment – Ghaziabad Development Authority Vs. Union of India
Ghaziabad Development Authority has received complaints from its scheme subscribers regarding the delay in allotment of developed plots or non-performance of promised actions. Various forums such as courts, commissions, and consumer disputes redressal forums have found the Authority guilty of delay or breach of contract.
Unconscionable and Arbitrary Term
The Authority’s brochure stated that no interest would be payable to claimants in case of withdrawal or surrender. The High Court of Allahabad found this term to be unconscionable and arbitrary, violating Article 14 of the Constitution. The Court directed the Authority to refund the amount due with interest calculated at 12% per annum.
Orders for Payment with Interest
Orders have been passed by forums and commissions directing the Authority to pay the amount due with interest at 18% per annum. In one case, the MRTP Commission found the Authority liable to pay Rs. 50,000 in compensation for the mental agony suffered by claimants due to its failure to provide a plot as promised.
Damages for Emotional Distress
Normally, damages for emotional distress or anguish caused by a breach of contract are not awarded. Although except in cases where performance is meant to provide peace of mind. However, damages may be awarded for nervous shock or anxiety if it was foreseeable at the time of contract formation.
Statutory Obligation for Compensation
When a citizen seeks compensation from a public authority for injuries caused by its capricious exercise of power, and the National Commission finds it duly proved, it has a statutory obligation to award compensation. The Court directed that officers responsible for causing harassment and agony be held accountable. As ll as compensation be recovered from their salaries.
Interest Rate for Refund
The Court found the interest rate of 12% inadequate, given the appellant was deprived of Rs. 1 lakh for over seven years and suffered winding-up proceedings under the Companies Act due to financial crunch. The Court believed that interest at 15% per annum would serve the ends of justice. While the possibility of alternative flat allotment was explored, the claimant was not agreeable to accept the flat offered by the Authority. Citing its location in a deserted area and high price. Thus, the Commission’s direction for refund of the amount stands, but the interest rate will be 12% instead of 18%.
Case analysis and Opinions – Ghaziabad Development Authority Vs. Union of India
In India, the Constitution ensures that there is equality before the law, meaning that everyone is equal in the eyes of the law, regardless of their background or status. The law exists to safeguard the rights and beliefs of citizens. Moreover has been amended several times over the years to ensure that it remains relevant to the current era.
Damages for Mental Distress
Damages for mental distress are generally not awarded in contracts, except when the contract aims to provide peace of mind or freedom from distress. For instance, a travel agent’s failure to deliver on promised arrangements may entitle a customer to damages for mental distress caused by the breach of contract.
Similarly, if a development authority announces a scheme for the allotment of plots, the brochure issued by it for public information is an invitation to offer. Several members of the public may make applications to avail the benefits of the scheme, and these applications are offers. Acceptance of some offers may be accepted by the Authority, results in a contract between the applicant and the Authority.
If the Authority breaches the contract by failing to give possession of the house to the claimants within a reasonable period of time, it is liable to pay back the amount taken along with interest, but not damages for mental agony unless it falls within one of the exceptions.
It is important to note that laws shall be updated as the world changes. Laws that were made 60 years ago may not be relevant or effective in today’s society. Therefore, it is crucial to keep the laws up to date to ensure that they continue to protect and uphold the rights of citizens.
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Ghaziabad Development Authority vs Union Of India & Anr ,Indian kannon , Available at :https://indiankanoon.org/doc/44904152/(last seen on Feb19,2019)
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Ghaziabad Development Authority vs Union Of India & Anr , Available at : https://indiancaselaws.wordpress.com/2014/08/19/ghaziabad-development-authority-vs-union-of-india-anr/ (last seen on Mar15,2019 )