A homebuyer gets back what he paid himself, not the bank loan: the Supreme Court splits a Lodha Bellezza refund
Justices P.S. Narasimha and Alok Aradhe held that refunding the lender's money to the buyer would be unjust enrichment, capped interest at the agreed 12 per cent and awarded ₹15 lakh in place of rent.
Most buyers of under-construction flats pay partly from savings and partly through a housing loan that the lender sends straight to the builder under a tripartite agreement. When the builder fails to deliver and the buyer asks for his money back, Justice Alok Aradhe wrote, the question is not only whether the money must be returned, but to whom and in what proportion. On 15 October 2026 the Supreme Court answered that question for a buyer at Lodha Bellezza in Hyderabad. The National Consumer Disputes Redressal Commission had ordered the builder to refund the whole ₹2.19 crore to him. The Supreme Court held he is entitled only to the ₹1,27,34,726 he paid out of his own pocket, with 12 per cent interest, plus ₹15 lakh in compensation. The rest of the builder's deposit stays with the Commission until the bank's dispute with the buyer is decided.
Ninety-five per cent paid, no flat delivered
In 2009 Lodha Healthy Constructions and Developers launched Lodha Bellezza at Kukatpally, Hyderabad. On 8 August 2009 K. Madhusudhan Rao, then a non-resident Indian, booked a flat for ₹2,30,73,876. By September he had paid ₹51,11,576, about 22 per cent, from his own funds, and an agreement for sale was signed on 21 October 2009.
HDFC sanctioned a ₹2 crore housing loan on 27 November 2009. A tripartite agreement between the buyer, the builder and the lender followed on 30 January 2010, and a loan agreement with the buyer and his wife as co-borrowers on 1 February 2010. Between February 2010 and July 2011 the lender paid ₹1,68,80,531 to the builder in thirteen tranches. By then the builder had received about 95 per cent of the price.
Possession, due by 30 June 2011, was first pushed to April 2012. Between October and December 2012 the builder offered possession for fit-outs. The buyer asked whether the occupancy certificate and the fire no-objection certificate had been obtained, and on 25 March 2013 the builder told him the fire certificate was still awaited. Meanwhile the lender had started charging pre-EMI interest. By March 2013, ₹41,34,940 had been debited, of which the buyer paid ₹26,23,150.
He filed a consumer complaint on 13 May 2013 seeking a refund of ₹2,19,92,107 with interest, rent of ₹7,97,895 and continuing, reversal of the interest debited, and ₹15 lakh for mental agony. The lender recalled the loan in January 2015 and sued him and his wife in the commercial court for ₹2,51,15,774. In 2021 he paid the lender a further ₹50 lakh.
What the Commission ordered
On 1 July 2022 the Commission found the buyer to be a consumer, rejected the builder's force majeure plea as a list of obstacles routinely faced by developers, and held the lender deficient in service because it had produced no evidence that it verified construction progress before releasing money, as the tripartite and loan agreements required. It ordered the lender to pay ₹2 lakh, and the builder to refund the entire amount with 9 per cent interest, rising to 12 per cent if not paid within three months. It did not deal with the claims for rent and compensation. The lender's review petition was dismissed.
The builder accepted the order and deposited ₹4,43,24,510 with the Commission in February 2023, which with interest stood at ₹5,65,43,411 on 8 October 2026. The commercial court dismissed the lender's suit on 10 December 2024 as not maintainable in view of the Commission's findings, without deciding the other issues, and the lender's appeal is pending in the High Court. The buyer appealed for rent, compensation and higher interest. The lender appealed against the deficiency finding and the direction to refund everything to the buyer.
Whose money is it
The Court described the transaction as triangular. The builder took ₹2,19,92,107 and gave nothing in return, and rightly did not dispute that it must refund the money. The question was where the refund should go. Of that sum, ₹51,11,576 came from the buyer's savings. He had also paid the lender ₹76,23,150: ₹26,23,150 in interest up to March 2013 and ₹50 lakh in 2021. The remainder was the lender's money, paid to the builder and never repaid by the buyer.
The tripartite agreement treats a disbursal to the builder as a disbursal to the borrower. The Court held that this fiction serves a limited purpose. It makes the borrower liable to repay the loan even though the money never passed through his hands. It does not turn borrowed money that remains unpaid into the borrower's own money. Paying the whole sum to the buyer while the loan is outstanding and the lender's claim is disputed would put in his hands money he never paid, and that is unjust enrichment. Relying on the doctrine as recognised in Indian law, the Court said that the law of contract compensates and does not enrich.
Twelve per cent, and no rent on top
On interest, clause 24 of the agreement for sale gave the buyer a choice: stay in the project and receive 12 per cent a year as compensation until possession, or terminate and take a refund with 12 per cent simple interest. The parties had fixed the rate themselves, and the buyer's own complaint had claimed 12 per cent up to the date of filing. The Court refused his request for 18 per cent, noting that higher interest cannot be awarded against a builder as a rule of thumb.
In this Court, the rent claim had grown to ₹38,000 a month from July 2011 to July 2013 and ₹65,000 a month from August 2013 to October 2022, plus ₹35 lakh in litigation costs. The Court rejected it for several reasons. The Consumer Protection Act has no specific provision for rent. Rent on top of interest on the full refund would compensate twice for the same default. The claim went beyond what had been pleaded and proved. Most fundamentally, by filing for a refund in 2013 the buyer had chosen to give up the flat. After that, the cost of housing himself was not a loss caused by the failure to deliver a flat he no longer wanted. His own claim was also inconsistent: in a letter of 3 November 2012 he had put his loss at about ₹1,50,000 a month in rent he could have earned by letting the flat out, and the same flat cannot be the source of both rent he would have received and rent he had to pay.
The Court nonetheless recognised that he had paid 95 per cent of the price by July 2011 and had been kept out of both the flat and his money for over fifteen years, losing the benefit of any rise in its price. Compensation therefore had to be more than the return of his money. To avoid a prolonged further inquiry, it awarded ₹15 lakh in full and final settlement of his claims against the builder for rent, mental agony, harassment and litigation costs.
The lender was deficient
The lender's challenge to the deficiency finding failed. The buyer had discharged the initial burden. He asked the lender for its own assessment of construction in March 2010, told the builder in May 2011 that progress did not justify further payment, after which the last tranche was still released in July 2011, and in 2012 asked for inspection reports and a third-party inspection. By the time possession was due, the builder had 95 per cent of the price, yet on 30 October 2012 the lender itself reported the building as only 90 per cent ready.
The burden then shifted to the lender, because whether it checked construction before each disbursal was a fact especially within its knowledge. It claimed in May 2012 that its engineers had inspected the site before each release, but produced no inspection report, led no evidence, and its witness in the suit said such reports were not required. That the tranches matched the instalment schedule showed only that it paid what was demanded, not that it verified the stage of construction as its own sanction letter required. The finding of deficiency, and the ₹2 lakh award, were upheld.
The lender's claim against the buyer could not be decided in these appeals. It belongs to the appeal pending in the High Court, which will decide it on merits with all contentions, including the buyer's arguments about his liability under the loan, left open. The Court also allowed the buyer to record his change of name from K. Madhusudhan Rao to Madhu Kudapa in the cause title, but declined his proposed changes to how the respondents were described.
Order
The Commission must release to the buyer ₹1,27,34,726 with 12 per cent interest from the date of each payment to the builder and the lender until payment, and a further ₹15 lakh as compensation out of the deposit within a month. The rest of the deposit will stay in an interest-bearing account with the Commission until the lender's appeal is decided, and the High Court will decide that appeal uninfluenced by these observations. The Commission's order was modified accordingly, with no order as to costs. Mr Amit Anand Tiwari, senior advocate, appeared for the buyer, and Mr Gaurav Agarwal, senior advocate, with Mr Rahul Kripalani for the builder.