Consumer Law | Refunding Bank-Disbursed Loan Amount To Homebuyer Violates Doctrine Of Unjust Enrichment: Supreme Court

"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." Supreme Court, in a significant ruling dated October 15, 2026, held that in builder-buyer disputes financed through tripartite housing loan agreements, a consumer forum cannot direct the developer to refund the entire sale consideration—including undisbursed or outstanding loan tranches funded by the bank—directly to the flat buyer.

A bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that directing the refund of borrowed and unrepaid bank money to the purchaser amounts to unjust enrichment under Sections 70 and 72 of the Indian Contract Act, 1872. The bench observed that while a disbursal to the builder may be fictionally deemed a disbursal to the borrower to fasten loan repayment liability, that fiction "does not convert borrowed money, which remains unpaid, into the Borrower’s own money."

In 2009, the appellant-borrower booked an apartment in the respondent developer's "Lodha Bellezza" project in Hyderabad for Rs. 2.30 Crores, paying Rs. 51.11 Lakhs from personal funds and financing the remainder through a Rs. 2 Crore home loan from HDFC Bank under a Tripartite Agreement. The bank directly disbursed Rs. 1.68 Crores in 13 tranches to the builder, while the buyer serviced Rs. 76.23 Lakhs towards interest and principal, but the builder failed to deliver possession within the agreed period including the grace period ending in December 2011. Aggrieved by non-delivery, the buyer approached the National Consumer Disputes Redressal Commission (NCDRC), which directed the builder to refund the entire deposited sum of Rs. 2.19 Crores with interest to the buyer and penalised the bank Rs. 2 Lakhs for deficient service, prompting cross-appeals before the apex court by both the buyer and the lending bank.

The primary question before the court was whether a homebuyer is entitled to obtain a direct refund of the entire sale consideration, including amounts disbursed directly to the builder by the lending bank, under the doctrine of restitution. The bench was also called upon to determine whether an allottee electing to terminate an agreement and receive a refund with interest can simultaneously claim reimbursement of alternate rental expenses, whether the lending bank was deficient in disbursing loan tranches without independently verifying construction progress, and whether inter-se loan recovery claims can be adjudicated within consumer proceedings.

Doctrine Of Unjust Enrichment Governs Restitutionary Remedies

Restitution Operates As A Corrective Principle And Not As A Redistributional Reward

The Supreme Court examined the contours of the principle nemo debet locupletari ex aliena jactura—that no one ought to be enriched by the loss of another—and underscored that the doctrine of unjust enrichment possesses an express statutory foundation within Chapter V of the Indian Contract Act, 1872, spanning Sections 68 to 72 as well as Sections 64 and 65. Citing Mahabir Kishore v. State of Madhya Pradesh, Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise, and the nine-judge bench ruling in Mafatlal Industries Ltd. v. Union of India, the bench observed that the doctrine looks at the party holding a benefit and assesses whether in good conscience they may retain it.

Law Of Contract Compensates Loss And Forbids Windfall Gains

Writing for the bench, Justice Alok Aradhe highlighted that damages and restitutionary remedies under contract law are purely restorative rather than punitive or enriching. The bench reiterated its cautionary ruling in Rajnesh Sharma v. Business Park Town Planners Ltd., reiterating that the objective of granting compensation cannot be altered to grant an unearned windfall gain to an aggrieved party.

Fiction In Tripartite Agreements Serves Limited Obligatory Purpose

Addressing the tripartite mechanics, the court noted that the homebuyer had contributed a total of Rs. 1,27,34,726/- out of his own pocket, while the remaining disbursed sum had flown directly from the bank's coffers to the builder. The court rejected the submission that because the tripartite agreement deemed disbursal to the builder as disbursal to the borrower, the entire refund must be placed into the buyer's hands.

Payment Of Unrepaid Loan Capital To Borrower Amounts To Unjust Enrichment

The court ruled that the NCDRC erred fundamentally in directing the refund of the full Rs. 2.19 Crores to the borrower without reserving the lender's rights whose capital it substantially was. Placing unpaid borrowed capital into the hands of a purchaser whose loan liability remains contested amounts to impermissible unjust enrichment.

"Payment of the entire amount to the Borrower, while the loan remains outstanding and the claim of the Bank is in dispute, would place in his hands a sum which he has not paid. It amounts to unjust enrichment, which is impermissible in law."

Contractual Interest Rates Bind Default Consequences

Agreed Contractual Terms Govern Rate Of Interest For Delayed Possession

Turning to the rate of interest, the bench analysed Clause 24 of the Agreement for Sale, which explicitly provided for a refund with simple interest at 12% per annum in the event the purchaser elected to terminate the contract upon delay beyond the six-month grace period. Relying on DLF Homes Panchkula Pvt. Ltd. v. D.S. Dhanda and Greater Mohali Area Development Authority v. Anupam Garg, the bench held that where commercial parties have explicitly bargained and agreed upon the precise consequence of delay, strong and exceptional reasons are required to depart from it.

Uniform 18% Interest Rate Cannot Be Claimed As A Rule Of Thumb

The bench distinguished the buyer's reliance on Rajnesh Sharma, noting that the award of 18% interest in that case turned on exceptional conduct and cannot be claimed as a matter of routine or uniform rule. Reaffirming Ghaziabad Development Authority v. Balbir Singh, the court held that the buyer was entitled strictly to simple interest at the contractually stipulated rate of 12% per annum running from the date of each deposit made by him.

"To award him both, the return on the money which would have bought him a home and the rent which he paid for want of one would be to compensate him twice for the same loss."

Simultaneous Claims For Interest And Rent Impermissible

Awarding Alternate Rent Alongside Full Refund With Interest Amounts To Double Compensation

The Supreme Court rejected the flat buyer's enhanced claims for rental reimbursement amounting to several lakhs per annum, holding that granting rent in addition to 12% per annum interest on the refund constitutes unsustainable double compensation for the exact same default. Citing DLF Homes Panchkula and the Constitution Bench decision in Irrigation Department, Government of Orissa v. G.C. Roy, the bench emphasized that interest is granted precisely to compensate the allottee for being deprived of the use and benefit of his money.

Election Of Termination Precludes Indefinite Housing Expense Claims Under Section 73 Contract Act

The bench emphasized the doctrine of election, noting that under Clause 24, the allottee had the option either to remain in the project and claim monthly delay compensation or terminate the contract and claim a refund with interest. Having elected to terminate the transaction by seeking a refund in 2013, the buyer gave up his claim to the apartment itself, meaning the subsequent cost of renting alternate housing was an ordinary living expense rather than a breach-induced loss under Section 73 of the Indian Contract Act.

Lump-Sum Compensation Awarded For Prolonged Harassment And Escalation Loss

Notwithstanding the refusal of separate rent claims, the bench exercised powers under Section 14(1)(d) of the Consumer Protection Act, 1986, citing Lucknow Development Authority v. M.K. Gupta and Fortune Infrastructure v. Trevor D’lima. Considering that the buyer had parted with 95% of the funds by 2011 and was deprived of both his capital and asset appreciation for over fifteen years, the court awarded a composite sum of Rs. 15,00,000/- towards mental agony, harassment, and litigation expenses.

Bank's Failure To Inspect Site Constitutes Deficiency In Service

Lender Cannot Disburse Construction-Linked Tranches Without Verifying Ground Progress

Evaluating the cross-appeal by HDFC Bank, the court examined Section 2(1)(g) of the Consumer Protection Act, 1986, governing deficiency in service. The bench reaffirmed Ravneet Singh Bagga v. KLM Royal Dutch Airlines and SGS (India) Ltd. v. Dolphin International Ltd., observing that while the initial burden of proving deficiency rests on the consumer, that burden successfully shifted to the bank once the borrower established that substantial tranches were released even when the site was incomplete and lacked statutory fire clearances.

Failure To Produce Mandatory Engineering Reports Justifies Modest Damages Against Bank

The bench observed that the verification of construction progress prior to each tranche release was a fact especially within the lender's knowledge. Because the bank failed to place any engineering inspection reports on record before the NCDRC and merely released funds upon receiving builder demand notices, the NCDRC's finding of deficiency was fully warranted, and the award of Rs. 2,00,000/- compensation against the bank was affirmed.

Consumer Fora Lack Jurisdiction To Adjudicate Bank's Commercial Debt Recovery Suits

The Supreme Court explicitly clarified that consumer commissions cannot determine or adjudicate a financing bank's recovery claims arising out of loan defaults or tripartite contracts. Pointing out that HDFC Bank's recovery suit had been dismissed by the Commercial Court solely on maintainability and was sub-judice in first appeal before the High Court, the bench ruled that all inter-se debt liabilities between the bank and borrower must be decided independently on merits in those civil appellate proceedings without being influenced by consumer forum findings.

Final Directions Modifying The Consumer Commission's Reliefs

Disposing of the appeals, the Supreme Court modified the NCDRC's directions by ordering the immediate release of Rs. 1,27,34,726/- with 12% per annum simple interest from the dates of respective deposits to the homebuyer, alongside Rs. 15,00,000/- as comprehensive compensation out of the amounts deposited by the developer. The apex court directed that the balance sum deposited by the builder be retained by the NCDRC in an interest-bearing account to abide by the final outcome of the lender's pending appeal before the High Court.

Date of Decision: October 15, 2026