Supreme Court Cuts Homebuyer Refund, Says Bank's Loan Money Is Not His
NEW DELHI, October 15, 2026: A homebuyer who had been ordered a refund of Rs 2.19 crore will now receive only the money he paid from his own pocket. The Supreme Court held that the loan portion, which the bank paid directly to the builder and which the buyer has not repaid, cannot be handed to him, because that would be unjust enrichment. A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe modified the order of the National Consumer Disputes Redressal Commission and awarded the buyer Rs 1,27,34,726 with simple interest at 12 per cent per annum, plus Rs 15 lakh as compensation. The rest of the builder's deposit stays in an interest bearing account until the bank's appeal in the High Court is decided. The ruling is Madhu Kudapa (formerly K. Madhusudhan Rao) v. M/s Lodha Healthy Constructions and Developer Private Limited and Another (2026 INSC 1131).
Case at a Glance
Case: Madhu Kudapa (formerly known as K. Madhusudhan Rao) v. M/s Lodha Healthy Constructions and Developer Private Limited (LHCPL) and Another
Citation: 2026 INSC 1131, Civil Appeal No. 8994 of 2022, with Civil Appeal Nos. 4622-4623 of 2023 (appeals by Housing Development Finance Corporation Limited)
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe (author)
Challenged orders: NCDRC orders dated 01.07.2022 and 07.12.2022 (review dismissed) in Consumer Complaint No. 150 of 2013
Date of judgment: October 15, 2026
Outcome: NCDRC order modified. Buyer to receive Rs 1,27,34,726 with 12 per cent simple interest and Rs 15 lakh compensation. Bank's Rs 2 lakh deficiency finding upheld. No order as to costs
Background of the Dispute
In 2009 the builder launched a project called Lodha Bellezza at Kukatpally, Hyderabad. On 08.08.2009 the buyer, then a Non-Resident Indian, booked an apartment for Rs 2,30,73,876. He paid Rs 51,11,576 (22 per cent) from his own funds, and an Agreement for Sale was signed on 21.10.2009. For the balance he took a Rs 2 crore housing loan from HDFC, sanctioned on 27.11.2009, under a Tripartite Agreement dated 30.01.2010. Between February 2010 and July 2011 the bank disbursed Rs 1,68,80,531 to the builder in thirteen tranches, so that the builder held about 95 per cent of the price. Possession, due on 30.06.2011 with a six month grace period, never came. The buyer filed a consumer complaint on 13.05.2013.
Timeline
08.08.2009: apartment booked for Rs 2,30,73,876
21.10.2009: Agreement for Sale, possession due by 30.06.2011 plus six months grace
Feb 2010 to Jul 2011: bank releases Rs 1,68,80,531 to the builder in thirteen tranches
13.05.2013: consumer complaint filed (CC No. 150 of 2013)
19.01.2015: bank recalls the loan and later sues in the Commercial Court (COS No. 96 of 2017)
01.07.2022: NCDRC orders refund of the full amount with 9 per cent interest and Rs 2 lakh against the bank
01.02.2023: builder allowed to deposit Rs 4,43,24,510 with the Commission
10.12.2024: Commercial Court dismisses the bank's suit as not maintainable, and the bank's appeal is pending in the High Court
15.10.2026: Supreme Court modifies the NCDRC order
Who Argued What
For the buyer: Senior Advocate Amit Anand Tiwari argued that the bank and builder had colluded, that the buyer was entitled to refund of the entire amount including the loan portion, 18 per cent interest, rent and compensation.
For the builder: Senior Advocate Gaurav Agarwal and Rahul Kripalani said the builder had accepted the NCDRC order and offered to pay the buyer the Rs 1.27 crore from his own pocket with such interest as the Court thought fit, with the rest going to the bank. Alternatively they supported the 9 per cent interest.
For the bank: Suhasini Sen argued that refunding the entire Rs 2.19 crore to the buyer violated the Tripartite Agreement, that the finding of deficiency in service could not stand, and that its recovery rights could not be decided in a consumer complaint.
Issue 1: Who Gets the Refund and at What Interest?
The Court began with the principle that no one shall be enriched at the expense of another, grounded in Sections 64, 65, 70 and 72 of the Indian Contract Act, 1872 and in the doctrine of unjust enrichment.
Restitution restores. It does not redistribute. It returns value to the person at whose expense it was received.
The Court agreed that the builder's retention of Rs 2,19,92,107 was plainly unjust. But the money came from two sources. The buyer had paid Rs 51,11,576 to the builder and Rs 76,23,150 to the bank (Rs 26,23,150 as interest up to March 2013, Rs 20 lakh on 23.06.2021 and Rs 30 lakh on 14.07.2021), a total of Rs 1,27,34,726. The remaining amount was the bank's loan, still unpaid.
The Tripartite Agreement deems disbursal to the builder as disbursal to the buyer, but the Court held that fiction only fastens the repayment obligation on the buyer. It does not convert borrowed money, which remains unpaid, into the buyer's own money. Paying the entire amount to him while the loan was outstanding would put in his hands a sum he has not paid.
The Interest Rate: 12 Per Cent, Not 9 or 18
Clause 24 of the Agreement for Sale itself fixed 12 per cent per annum, and the buyer had himself claimed 12 per cent in his complaint. The Court distinguished Rajnesh Sharma v. Business Park Town Planners (2025), where interest was raised to 18 per cent because of the builder's conduct, saying the rate charged by a builder cannot be granted to the buyer as a rule of thumb. It therefore raised the 9 per cent awarded by the NCDRC to 12 per cent simple interest running from the date of each payment.
Issue 2: Rent and Compensation
The Court first noted that the Commission had reproduced the buyer's prayers for rent and compensation but never decided them. It then rejected the rent claim, which had grown from Rs 7,97,895 in the complaint to monthly rents of Rs 38,000 and Rs 65,000 stated for the first time in a rejoinder in the Supreme Court. It gave four reasons: rent on top of interest would be double compensation; the claim travelled beyond pleadings and proof, with no lease deed or rent receipt; the buyer had elected the refund remedy under Clause 24; and the claim was inconsistent with his own 2012 letter valuing the loss as rent he could have earned.
Having chosen to give up the apartment, he cannot claim, in addition, the rent which he would have saved had he taken possession of it.
Still, the Court noted that the buyer had paid about 95 per cent of the price by July 2011 and had been kept out of both the apartment and his money for over fifteen years. It awarded Rs 15,00,000 as compensation, in full and final satisfaction of all claims against the builder for rent, mental agony, harassment and litigation expenses.
Issue 3: Was the Bank Deficient in Service?
Yes. The buyer had repeatedly asked the bank to verify construction progress, and told the builder in May 2011 that progress did not justify further payment, yet the last tranche was released in July 2011. The bank itself reported the building only 90 per cent ready on 30.10.2012. The burden then shifted to the bank, which produced no inspection reports, led no evidence, and whose witness in the suit said such reports were not required. The Court said that the thirteen tranches matching the payment schedule showed only that the bank paid what was demanded, not that it verified construction. It upheld the Commission's finding of deficiency and the Rs 2 lakh compensation as modest.
A Win on Principle, a Cut on Money
This is where the answer to the title lies. The buyer won on deficiency, on a higher interest rate, and on compensation. But his claim to the entire Rs 2.19 crore failed, because the larger part of that money was the bank's, and the law of unjust enrichment does not let a wronged party profit from a loan he never repaid. As the Court put it, the law of contract compensates, it does not enrich.
What the Court Did Not Do
It did not decide the bank's claim to recover the loan from the buyer. That stays with the pending appeal in the High Court, which must decide on its own merits, and all contentions, including the buyer's liability under the loan, are left open.
It did not release the entire builder deposit to the buyer. Rs 1,27,34,726 with interest and Rs 15 lakh go to him, and the remaining amount stays in an interest bearing account abiding by the High Court's decision.
It did not accept the 18 per cent interest claim or the claim for rent, and it did not change the description of the respondents, though it allowed the correction of the appellant's name to Madhu Kudapa.
What It Means Going Forward
For Homebuyers
A refund order will track what you actually paid. Money lent by a bank and not repaid is not yours to recover from the builder.
For Banks and Lenders
Verify construction progress before each disbursal and keep inspection records. Silence on that point can lead to a finding of deficiency in service.
For Builders and Consumer Forums
Interest and compensation must be reasoned and not applied by rule of thumb, and all prayers must be decided. Where the agreement fixes a rate for delay, courts will need strong reasons to depart from it.
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FAQs
Can a homebuyer recover the bank loan portion from the builder?
Not in his own right if the loan remains unpaid. The Supreme Court held that giving him the loan portion would be unjust enrichment.
How much will the buyer get in this case?
Rs 1,27,34,726 with simple interest at 12 per cent per annum from the date of each payment, plus Rs 15,00,000 as compensation.
Why did the Court refuse rent as compensation?
Rent plus interest would be double compensation, it was claimed in detail only in a rejoinder without proof, and the buyer had chosen the refund remedy and given up the apartment.
What happens to the rest of the deposit?
It stays in an interest bearing account with the Commission and abides by the outcome of the bank's pending appeal in the High Court.
Was the bank held deficient in service?
Yes. It could not show it verified construction progress before disbursal, so the Rs 2 lakh compensation against it was upheld.
Keywords
Supreme Court homebuyer refund, unjust enrichment, housing loan tripartite agreement, Lodha Bellezza Hyderabad, deficiency in service bank, Consumer Protection Act 1986 refund, 12 per cent interest delayed possession, Rajnesh Sharma, 2026 INSC 1131, NCDRC Madhu Kudapa
Read the judgment: Download the Supreme Court judgment (PDF) | Google Drive copy
Case Title: Madhu Kudapa (formerly known as K. Madhusudhan Rao) v. M/s Lodha Healthy Constructions and Developer Private Limited and Another
Case No.: Civil Appeal No. 8994 of 2022 with Civil Appeal Nos. 4622-4623 of 2023
Citation: 2026 INSC 1131
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
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