K. Madhusudhan Rao v. Lodha Healthy Constructions
“Refund Goes Only to Whoever Actually Paid: Supreme Court Applies Unjust Enrichment to Home Buyer Refund Where a Bank Financed Most of the Price”
TL;DR
A non-resident Indian booked a Rs. 2.30 crore apartment in the "Lodha Bellezza" project in Hyderabad in 2009, paying about 22% himself and the rest through a Rs. 2 crore HDFC housing loan disbursed directly to the builder under a tripartite agreement. The builder failed to deliver possession. The NCDRC ordered refund of the entire Rs. 2,19,92,107 to the buyer with 9% interest and held the bank deficient in service (Rs. 2,00,000). The Supreme Court held that refunding the whole amount to the buyer while the bank loan remained unpaid would be unjust enrichment. The buyer is entitled to refund only of the Rs. 1,27,34,726 he actually paid from his own pocket, with simple interest at 12% per annum as per Clause 24 of the Agreement for Sale, plus Rs. 15,00,000 compensation as full and final settlement of rent, mental agony and litigation expense claims. The finding of deficiency against the bank was upheld, and the balance deposit was kept aside pending the bank's recovery appeal before the High Court.
The Bottom Line
When a home loan has funded most of a flat that the builder never delivers, the buyer cannot take back the bank's money as if it were his own. The Supreme Court ruled that the refund belongs to the buyer only to the extent he actually paid from his own funds, with interest at the contractual 12%, and that the rest of the deposit must be preserved until the bank's separate claim against the buyer is decided by the High Court. The Court also refused rent claimed for more than a decade, holding that it would amount to double compensation, but awarded a lump sum of Rs. 15,00,000 for the long delay and agony. The bank's Rs. 2,00,000 liability for not verifying construction progress before releasing loan tranches stands.
Case Timeline
The journey from FIR to Supreme Court verdict
Apartment Booked in Lodha Bellezza
The borrower, then a non-resident Indian, booked an apartment for Rs. 2,30,73,876 and paid a booking amount; he paid Rs. 51,11,576 (22%) from his own funds in total.
Apartment Booked in Lodha Bellezza
The borrower, then a non-resident Indian, booked an apartment for Rs. 2,30,73,876 and paid a booking amount; he paid Rs. 51,11,576 (22%) from his own funds in total.
Agreement for Sale Executed
An Agreement for Sale was executed between the borrower and the Builder. Clause 24 fixed possession by 30 June 2011 with a six-month grace period and provided for 12% per annum interest/compensation on default.
Agreement for Sale Executed
An Agreement for Sale was executed between the borrower and the Builder. Clause 24 fixed possession by 30 June 2011 with a six-month grace period and provided for 12% per annum interest/compensation on default.
Tripartite Agreement Signed
The borrower, the Builder and the Bank executed a Tripartite Agreement following the Bank's sanction of a Rs. 2 crore housing loan on 27 November 2009.
Tripartite Agreement Signed
The borrower, the Builder and the Bank executed a Tripartite Agreement following the Bank's sanction of a Rs. 2 crore housing loan on 27 November 2009.
Stipulated Possession Date Passes
Clause 24 required possession by 30 June 2011 (with a six-month grace period). Between February 2010 and July 2011 the Bank had disbursed Rs. 1,68,80,531 to the Builder in thirteen tranches, so that about 95% of the price had been paid. Possession was not delivered.
Stipulated Possession Date Passes
Clause 24 required possession by 30 June 2011 (with a six-month grace period). Between February 2010 and July 2011 the Bank had disbursed Rs. 1,68,80,531 to the Builder in thirteen tranches, so that about 95% of the price had been paid. Possession was not delivered.
Consumer Complaint Filed
The borrower filed Consumer Complaint No. 150 of 2013 before the NCDRC seeking refund, interest, rent and compensation.
Consumer Complaint Filed
The borrower filed Consumer Complaint No. 150 of 2013 before the NCDRC seeking refund, interest, rent and compensation.
NCDRC Orders Refund
The NCDRC directed the Builder to refund the entire amount with 9% interest and the Bank to pay Rs. 2,00,000 for deficiency in service. The Bank's review was dismissed on 7 December 2022.
NCDRC Orders Refund
The NCDRC directed the Builder to refund the entire amount with 9% interest and the Bank to pay Rs. 2,00,000 for deficiency in service. The Bank's review was dismissed on 7 December 2022.
Commercial Court Dismisses Bank's Suit
The Commercial Court dismissed the Bank's recovery suit as not maintainable in view of the Commission's findings, without deciding the remaining issues. The Bank's appeal is pending before the High Court.
Commercial Court Dismisses Bank's Suit
The Commercial Court dismissed the Bank's recovery suit as not maintainable in view of the Commission's findings, without deciding the remaining issues. The Bank's appeal is pending before the High Court.
Supreme Court Judgment
The Supreme Court modified the NCDRC order, limiting the refund to Rs. 1,27,34,726 with 12% simple interest, awarding Rs. 15,00,000 compensation and upholding the Bank's deficiency finding.
Supreme Court Judgment
The Supreme Court modified the NCDRC order, limiting the refund to Rs. 1,27,34,726 with 12% simple interest, awarding Rs. 15,00,000 compensation and upholding the Bank's deficiency finding.
The Story
In 2009, M/s Lodha Healthy Constructions and Developers Private Limited (the Builder) launched a residential project called "Lodha Bellezza" at Kukatpally, Hyderabad. On 8 August 2009, the borrower, K. Madhusudhan Rao (now Madhu Kudapa), then a non-resident Indian, booked an apartment for Rs. 2,30,73,876. He paid Rs. 51,11,576, about 22% of the sale consideration, from his own funds, and an Agreement for Sale was executed on 21 October 2009.
For the balance, he approached Housing Development Finance Corporation Limited (the Bank). The Bank sanctioned a Rs. 2 crore housing loan on 27 November 2009. A Tripartite Agreement between the borrower, the Builder and the Bank followed on 30 January 2010, and a Loan Agreement dated 1 February 2010 was executed with the borrower and his wife as co-borrower. Between February 2010 and July 2011, the Bank disbursed Rs. 1,68,80,531 to the Builder in thirteen tranches, so the Builder had received about 95% of the sale consideration.
Under Clause 24 of the Agreement for Sale, possession was due by 30 June 2011, with a six-month grace period. The Builder missed it, later offered possession for "fit-outs" in late 2012 and informed the borrower on 25 March 2013 that the Fire Department NOC was awaited. Meanwhile the Bank debited pre-EMI interest; the borrower paid Rs. 26,23,150 towards it.
On 13 May 2013, the borrower filed Consumer Complaint No. 150 of 2013 before the NCDRC seeking refund of Rs. 2,19,92,107 with interest, house rent of Rs. 7,97,895 and compensation of Rs. 15,00,000. The Bank recalled the loan on 19 January 2015 and sued for Rs. 2,51,15,774 (COS No. 96 of 2017) before the Commercial Court. During the proceedings the borrower paid the Bank a further Rs. 20,00,000 and Rs. 30,00,000 in June and July 2021, bringing his total payments to the Bank to Rs. 76,23,150.
By order dated 1 July 2022, the NCDRC held the borrower a consumer, rejected the Builder's force majeure plea, ordered refund of the entire amount with 9% interest (12% on default), and directed the Bank to pay Rs. 2,00,000 for deficiency in service. The Bank's review was dismissed on 7 December 2022. The Builder did not appeal and deposited Rs. 4,43,24,510 with the Commission, which with interest stood at Rs. 5,65,43,411 on 8 October 2026. On 10 December 2024 the Commercial Court dismissed the Bank's suit as not maintainable in view of the Commission's findings, and the Bank's appeal is pending before the High Court. The borrower appealed over denial of rent, compensation and the rate of interest; the Bank appealed against the refund order and the finding of deficiency.
Legal Issues
Click each question to reveal the Supreme Court's answer
Arguments
The battle of arguments before the Supreme Court
Petitioner
Vihaan Kumar
Borrower: full refund, 18% interest, rent and compensation
Senior counsel for the borrower argued that the loan was to be disbursed in step with construction but about 80% was released when the Builder lacked construction permission, that the Bank and Builder acted in collusion, that he should receive the entire amount (and repay the Bank if it succeeds), 18% interest, rent from 30 June 2011 to 1 July 2022 (at Rs. 38,000 per month and later Rs. 65,000 per month) and Rs. 35,00,000 of litigation expenses. He also argued that the Bank's appeal was barred by res judicata.
Bank: no deficiency and refund violates the Tripartite Agreement
The Bank argued that refund of the entire Rs. 2.19 crore to the borrower violated Clauses 16 and 17 of the Tripartite Agreement, that by cancellation of the allotment it had been reduced from a secured to an unsecured creditor, and that the finding of deficiency was unsupported. It said res judicata did not apply because the suit was dismissed only on maintainability and its appeal was pending, and that its recovery rights could not be adjudicated in a consumer complaint.
Respondent
State of Haryana
Builder: accepted the NCDRC order and proposed a split
The Builder did not challenge the Commission's order. It submitted that out of the deposit, Rs. 1.27 crore paid by the borrower from his own pocket be refunded to him with such interest as the Court deemed fit, and the remainder with accrued interest be paid to the Bank. Alternatively it supported the order, saying 9% interest was adequate and that the borrower had himself quantified rent loss in a letter dated 3 November 2012.
Court's Analysis
How the Court reasoned its decision
The Court examined refund through the doctrine of unjust enrichment (nemo debet locupletari ex aliena jactura), noting its statutory footing in Sections 64, 65, 70 and 72 of the Indian Contract Act, 1872. It characterised the transaction as triangular: the Builder must refund what it received, but the money came from two sources. The deemed-disbursement fiction in the Tripartite Agreement fastens repayment liability on the borrower but does not make unpaid borrowed money his own. On interest, the parties' own Clause 24 fixed 12% and Rajnesh Sharma does not make 18% a rule of thumb. On compensation, the Court rejected rent as double compensation, outside the pleadings and proof, inconsistent with the borrower's election to take a refund and with his own earlier case, but awarded Rs. 15,00,000 as a lump sum. It upheld the finding of deficiency against the Bank and left the Bank's recovery claim to the High Court.
Restitution restores. It does not redistribute.
Para 25
Summarises the Court's approach to unjust enrichment as a doctrine of correction and not reward.
The law of contract compensates, it does not enrich.
Para 26
Frames the limit on compensation in buyer-builder disputes, cautioning against windfall gains.
It does not convert borrowed money, which remains unpaid, into the Borrower's own money.
Para 28
Explains why the deemed-disbursement clause in the tripartite agreement does not entitle the buyer to the bank's share of the refund.
cannot award interest and/or compensation by applying rule of thumb
Para 37
Quoting D.S. Dhanda, the Court reiterates that consumer fora must tie interest and compensation to the loss caused.
The Verdict
Relief Granted
Limited refund to the amount actually paid by the buyer, with 12% interest and Rs. 15,00,000 compensation; the rest preserved for the Bank's claim.
Directions Issued
- The Commission shall release to the borrower Rs. 1,27,34,726 with interest at 12% per annum from the dates of the respective deposits made by him to the Builder and the Bank till payment.
- The Commission shall release a further Rs. 15,00,000 to the borrower as compensation out of the deposit within one month, in full and final satisfaction of claims against the Builder for rent, mental agony, harassment and litigation expenses.
- The remaining amount shall be kept by the Commission in an interest-bearing account to abide by the decision of the Bank's appeal.
- The High Court shall decide the Bank's pending appeal on its own merits without being influenced by the observations in this judgment; all contentions on the borrower's liability under the loan are left open.
- The Rs. 2,00,000 compensation payable by the Bank to the borrower for deficiency in service is upheld.
- I.A. No. 95385 of 2026 is allowed only to permit the change of the appellant's name from K. Madhusudhan Rao to Madhu Kudapa; the borrower's proposed change of the respondents' description was not permitted.
- No order as to costs.
Key Legal Principles Established
No one ought to be enriched at the expense of another; restitution restores and does not redistribute.
A deemed-disbursement clause in a tripartite agreement does not make the bank's unpaid loan money the buyer's own money for refund purposes.
Where the agreement fixes interest on builder default, strong reasons are required to depart from it; 18% is not a rule of thumb.
Rent and interest on the same refund amount cannot both be awarded for the same default (no double compensation).
A buyer who elects refund under the agreement cannot also claim rent for the apartment he gave up.
A lender that disburses against construction progress without verifying it may be held deficient in service.
A bank's recovery claim cannot be adjudicated in a consumer complaint by the buyer.
Key Takeaways
What different people should know from this case
- If you buy a flat with a home loan paid directly to the builder and the builder fails to deliver, a refund may be limited to what you actually paid out of your own pocket, with the lender's share going back to the lender.
- Check the agreement for sale: the interest rate stated for delay (here 12% per annum) is what a court is likely to enforce.
- Claiming rent for years on top of interest on your money is unlikely to succeed, and rent claims must be pleaded and proved in the consumer complaint itself.
- Banks releasing loan instalments to a builder are expected to check construction progress; failing to do so can mean compensation to the buyer.
- Even after a consumer case, the bank may still pursue you for the loan in a separate proceeding.
Legal Framework
Applicable laws and provisions
Statutory Provisions
Sections 2(1)(g), 14(1)(d), 22 and 23
Consumer Protection Act, 1986
“Section 2(1)(g) defines deficiency; Section 14(1)(d) read with Section 22 empowers the Commission to award compensation; Section 23 provides for appeals to the Supreme Court from the National Commission.”
Relevance: The appeals were filed under Section 23, and the Court examined compensation and deficiency in service under these provisions.
Sections 64, 65, 70, 72 and 73
Indian Contract Act, 1872
“Chapter V (Sections 68 to 72) deals with relations resembling those created by contract, and Section 73 deals with compensation for breach of contract.”
Relevance: The Court located the doctrine of unjust enrichment in these provisions and used Section 73 to reject the claim for continuing rent.
Related Cases & Precedents
Rajnesh Sharma v. Business Park Town Planners Ltd.
distinguished2025 SCC OnLine SC 2061
Enhanced interest to 18% on its facts; the Court held it does not make 18% a rule of thumb and relied on its caution against windfall gains.
DLF Homes Panchkula (P) Ltd. v. D.S. Dhanda
followed(2020) 16 SCC 318
Held that awards under various heads for the same default are not sustainable and that interest or compensation cannot be fixed by a rule of thumb.
Ghaziabad Development Authority v. Balbir Singh
followed(2004) 5 SCC 65
Held that compensation must be based on a finding of loss or injury and correlate with it.
Mafatlal Industries Ltd. v. Union of India
cited(1997) 5 SCC 536
A nine-Judge Bench applying unjust enrichment to refund claims where the burden was passed on.
Lucknow Development Authority v. M.K. Gupta
cited(1994) 1 SCC 243
Explained that the consumer forum may award compensation for injustice suffered in addition to value of services.
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