Rewarding Injustice : Refund After Thirty Years Rewards the Defaulting Builders

The recent decision of the Maharashtra State Consumer Disputes Redressal Commission directing a refund of ₹25 lakh together with interest at 12% per annum and compensation of ₹2 lakh, undoubtedly reaffirms the principle that builders cannot indefinitely retain purchasers’ money without either delivering possession or making restitution.

As a matter of legal principle, the decision correctly recognizes a deficiency in service and unfair trade practice.

Yet, viewed through the lens of finance and economics, the judgment raises deeper questions regarding the adequacy of monetary remedies in long-delayed real estate disputes.

The premise of the judgment, that a refund with contractual interest adequately compensates the purchaser, deserves careful economic scrutiny.

Whether it is legally sustainable is one question; whether it truly restores the purchaser to the financial position he would have occupied had the contract been performed is quite another. A remedy that appears generous in nominal rupee terms may still be economically inadequate after three decades of inflation, currency depreciation, opportunity costsEconomic LossThe loss of potential gain from other alternatives when one alternative is chosen, representing the value of the next best option foregone., and appreciation in real assets.

The central issue is not whether the complainant should receive a refund. The real question is whether a refund, even with contractual interest, truly restores the purchaser to the economic position he occupied in 1995.

A legal remedy that ignores the time value of money, appreciation of real assets, and opportunity costs risks producing what economists describe as “nominal justice but real injustice.”

Gold: A Measure of Preserved Purchasing Power

Gold has historically served as one of the best indicators of long-term purchasing power.

Historical data shows that during 1995-96, the average price of 24-carat gold in India was approximately ₹4,958 per 10 grams. Today, comparable prices are approximately ₹1.45 lakh to ₹1.50 lakh per 10 grams, nearly a thirty-fold increase.

Accordingly :

• Amount invested in 1995 : ₹25,00,000
• Gold price (1995) : about ₹4,958 per 10 grams
• Quantity of gold purchasable with that sum in 1995: approximately 5.04 kilograms
• To purchase the same quantity of gold today would require approximately ₹7.3 to ₹7.6 crore, depending upon prevailing bullion prices.

The legal award therefore restores nominal rupees but not equivalent purchasing power measured against a stable store of value.

Opportunity Cost of Capital

The complainant was not merely deprived of ₹25 lakh. He was deprived of thirty years of business expansion;

• rental income from eleven commercial units; appreciation in commercial property;
• leverage available through ownership of appreciating assets;
• reinvestment opportunities;
• business goodwill attached to a permanent commercial establishment.

Every year that possession was denied represented a continuing economic loss extending far beyond interest calculations.

Wealth Creation Lost

If ₹25 lakh had been invested prudently in diversified productive assets over thirty years, the resulting wealth would have been dramatically different.

Illustratively:

At an annual compound capitalisation return of:

• 10%: approximately ₹4.36 crore
• 12%: approximately ₹7.49 crore
• 15%: approximately ₹16.54 crore

These figures exclude any entrepreneurial returns the complainant might have earned by operating his intended business from the commercial premises.

Thus, even a seemingly generous interest award cannot fully compensate for the destruction of three decades of investment opportunity.

The Builder’s Economic Incentive

Perhaps the most troubling implication lies in the ” incentivise the default structure” created by such remedies.

A developer who receives ₹25 lakh in 1995 acquires immediate access to capital without borrowing from banks.

For thirty years the builder: bears no interest servicing burden during litigation; enjoys the use of purchasers’ capital; benefits from inflation; benefits from appreciation of underlying land; often benefits from regulatory changes enhancing development potential like increased FAR/FSI, relaxations in norms, etc.

If, after decades of litigation, the ultimate liability is merely repayment with contractual interest, the developer has effectively enjoyed decades of inexpensive finance. More, rolling that finance in his business he would have created wealth many many times more than any award against him would direct him to pay.

The complainant, meanwhile, loses purchasing power, business opportunity, asset appreciation, commercial growth, and irreplaceable time.

The builder therefore exits with the benefit of having utilised another person’s capital for decades, whereas the purchaser receives delayed compensation that cannot recreate the lost economic trajectory.

Law vs. Economics

Consumer law traditionally aims at restitution. Economics, however, distinguishes between restoring nominal money and restoring an economic position. The latter requires recognition of inflation, appreciation in real assets, lost opportunity, entrepreneurial loss, and deprivation of capital over time. Moreover contract law as regards compensation requires that the aggrieved party be put in the position in which he would have been had the default not been committed : an aspect that is completely lost sight of by judgements such as the one discussed here.

A purely interest-based approach often under-compensates long-term victims because it measures loss only in terms of simple financial cost rather than destroyed wealth.

Towards More Realistic Remedies

Consumer jurisprudence in prolonged real estate disputes must require courts to consider remedies beyond contractual interest alone.

Possible approaches include :

• market-value-based compensation where possession has become impossible;
• damages reflecting appreciation of comparable commercial property;
• compensation for loss of business opportunity where self-employment is proved;
• restitution measured by purchasing power rather than nominal currency.

Such approaches would more closely fulfil the fundamental objective of restitutio in integrum: placing the injured party, so far as money can do it, in the position he would have occupied had the wrong never occurred.

The judgment correctly condemns the builder’s conduct. However, the economic consequences of the chosen remedy deserve serious reflection.

A purchaser who parted with ₹25 lakh in 1995 did not merely lose money. He lost decades of compounding, commercial opportunity, appreciating assets, and purchasing power. The same capital could then acquire more than five kilograms of gold; today, replacing that quantity requires well over ₹7 crore. Likewise, ordinary long-term compounding could have transformed that investment into several crores of wealth.

Justice measured only in nominal rupees may satisfy legal doctrine, but justice measured in economic reality tells a different story. Unless courts increasingly account for real purchasing power and long-term opportunity costs, delayed restitution may inadvertently reward defaulting developers while leaving successful consumers economically worse off than if the contract had been honoured.

In Egypt, when a construction boom resulted in shoddy construction causing collapses of several buildings, the Egyptian Civil Code introduced the Decennial Liability rule, which made it mandatory for the builder to be held accountable for any damage within 10 years regardless of the the reason.

Adjudicators and legislators must be willing to innovate to bring the law in line with commercial realities in order to ensure that the process remains relevant and beneficial rather than standing converted to a tool of oppression.

Adjudicators must also visualise how the decisions will operate in the process of implementation and what the eventual consequences will be, as, absent that, adverse financial consequences of a judicial proceeding can end up as a very disturbing case of miscarriage of justice.

Jai Hind