Courts Are Not Authorized To Rewrite or Establish New Contracts between Parties: Supreme Court

Courts Are Not Authorized To Rewrite or Establish New Contracts between Parties: Supreme Court

The Supreme Court, in its recent ruling, emphasized that courts are not authorized to rewrite or establish new contracts between parties. Instead, they must adhere strictly to the terms and conditions agreed upon by the parties when adjudicating disputes.

Justices Aniruddha Bose and Sanjay Kumar, in their observations, emphasized that once parties have entered into a written contract, it becomes binding upon them. Consequently, the court is not entitled to rewrite or create a new contract by offering a different interpretation of the existing contract.

The Court opined that once parties have committed themselves to a written contract, thereby reducing the agreed-upon terms and conditions to writing, such terms become binding upon them. The court asserts that it is not within the jurisdiction of the National Consumer Disputes Redressal Commission (NCDRC) to rewrite the terms and conditions of the contract between the parties. Additionally, the court notes that the NCDRC should not apply its own subjective criteria to determine the course of action to be taken by either party involved.

In the present case, the NCDRC undertook a new interpretation of the contract entered into by the buyer and seller of the apartment. The contract explicitly stipulated that the buyer would have the option to terminate the contract and claim a refund of the consideration paid if the seller failed to provide an 'occupation certificate' before the expiration of the one-year grace period. Despite the seller's failure to furnish an 'occupation certificate' within the specified grace period, the NCDRC rejected the buyer's entitlement to terminate the contract and receive a refund of the consideration amount already paid to the seller for the purchase of the apartment.

The NCDRC, in rejecting the application from the appellant/buyer, acknowledged that there was a 'certain delay' in the respondent company handing over possession of the apartment. However, the commission expressed the view that this delay was not deemed 'unreasonable,' and therefore, the appellants were not justified in cancelling the agreement and seeking a refund.

Dissatisfied with this ruling, the appellant/buyer opted to file a civil appeal before the Supreme Court.

The key question presented before the Supreme Court was whether the NCDRC has the authority to alter the terms and conditions of the contractual obligations binding the parties or establish a new contract based on its own interpretation.

In response to the aforementioned question, the Supreme Court held that it is not within the court's jurisdiction to rewrite or create a new contract. The court emphasized that it is the duty of the courts to adhere to the terms and conditions outlined in the contract, which are binding on the parties involved.

In this context, the court observed that it is not within its purview to create a new contract, even if it may seem reasonable, if the parties themselves have not established it. The court referred to the Constitution Bench decision in General Assurance Society Ltd. v. Chandumull Jain and anr , emphasizing that the duty of the court is to interpret the words used in the contract as expressed by the parties. Similarly, in Rajasthan State Industrial Development & Investment Corporation v. Diamond & Gem Development Corporation Ltd. , the court reiterated that a contract, being a product of an agreement between parties, should be construed by giving effect to the actual meaning of the words contained within it, without the court introducing new terms that the parties did not themselves agree upon.

The court observed that while it is not explicitly stated when the appellants were actually provided with the 'Part Occupancy Certificate' dated June 8, 2017, obtained by the respondent-company, it is undisputed that the appellants took steps to terminate the agreement immediately after the expiration of the grace period on June 30, 2017, by issuing a legal notice on July 1, 2017.

Since there was no formal written novation of the contract by the parties and it was not permissible for one party, namely the respondent company, to unilaterally alter the agreed-upon terms and conditions, the court found that the appellants' action in terminating the agreement on the first available date, as provided therein, was justified.

The mere exchange of correspondence between the parties before the expiration of the grace period, during which the appellants were not fully informed of all the facts, could not be construed against them as an acceptance or acquiescence to the implied changes suggested by the respondent company.

Based on this analysis, the court unequivocally concluded that the NCDRC exceeded its authority by disregarding the binding clauses in the agreement and imposing its own interpretation to determine the future actions of the parties, particularly the appellants. As the appellants opted not to act upon the belated offer made by the respondent-company in its letter dated November 29, 2017, and continue to seek termination of the agreement in accordance with Clause 11.3, the court overturns the order dated November 9, 2022, issued by the NCDRC.

The court granted relief in the consumer complaint, instructing the respondent company to refund the deposited amount of ₹2,25,31,148/- in twelve monthly installments via post-dated cheques. The refund shall carry simple interest at a rate of 12% per year from the date of receipt of the amount or parts thereof until actual repayment.

The appeal was allowed with the aforementioned directives, and the decision of the NCDRC was set aside.