When a builder defaults, the arithmetic of the refund matters as much as the right to it. In Madhu Kudapa (formerly K. Madhusudhan Rao) v. Lodha Healthy Constructions and Developers Pvt. Ltd., 2026 INSC 1131, decided on 15 October 2026, a bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe settled three recurring questions in consumer litigation over stalled flats: whose money is refunded when a bank loan funded most of the price, what rate of interest applies, and whether the buyer can claim rent for alternative accommodation on top of interest. The answers: only the buyer's own payments, the contract rate, and no.
A 2009 booking, a 95% payment, no flat
The buyer booked an apartment in a Hyderabad project in 2009 for about ₹2.30 crore. He paid ₹51.11 lakh from his own funds to the builder and serviced a ₹2 crore HDFC loan — about ₹1.69 crore of which was disbursed to the builder in thirteen tranches, with the buyer paying ₹76.23 lakh towards the loan. The builder received nearly 95% of the consideration but never delivered possession in the promised period. In 2013 the buyer approached the National Consumer Disputes Redressal Commission seeking refund with 18% interest, rent reimbursement and compensation. The NCDRC ordered a refund with 9% interest (12% on default), leaving rent and compensation undecided; both sides and the bank pursued appeals.
The three rulings
Own funds, not loan funds
The buyer recovers ₹1,27,34,726 — the sums traceable to his own pocket. The loan disbursement is not refunded to him, since money borrowed and still unpaid “does not become his own money”; recovery of that component awaits the bank-builder accounts.
Contract rate of interest
Interest runs at 12% per annum, simple, from the date of each payment — the rate the Agreement for Sale itself fixed in Clause 24. The demand for 18% failed.
No rent atop interest
Interest compensates the deprivation of money; rent for the same period over the same default is double compensation. The rent claim also failed on pleading and proof.
The final directions
| Item | Direction |
|---|---|
| Refund to buyer | ₹1,27,34,726 with 12% simple interest from the respective payment dates until payment |
| Lump-sum compensation | ₹15,00,000 from the builder, in full and final satisfaction of rent, mental agony, harassment and litigation expenses, releasable within one month |
| Bank’s deficiency | ₹2,00,000 award against the bank upheld |
| Loan component | Buyer’s liability and the bank’s recovery left to the bank’s appeal before the High Court, to be decided independently; balance deposit retained in an interest-bearing account to abide by that outcome |
What this means for stalled-project litigation
- Map the money first. In tripartite-loan purchases, counsel must separate the buyer’s own payments from bank disbursements at the pleading stage, because the refund decree will follow that line.
- Plead rent properly or not at all. A rent claim raised late, without rent receipts or a lease, now faces both an evidentiary and a conceptual bar.
- The contract rate anchors interest. Agreements that stipulate delay interest cut both ways — buyers get the stipulated rate, not an aspirational one.
- Election has consequences. Choosing refund over possession forecloses possession-linked heads; the choice should be made deliberately, in writing, early.
This article is for general information only and is not legal advice. Outcomes in consumer and real-estate disputes depend on the agreement and payment records in each case; the judgment should be read in full before being relied upon.
Frequently Asked Questions
Why was the buyer not refunded the full amount the builder received?
The builder had received about ₹2.19 crore, of which roughly ₹1.69 crore was disbursed directly by HDFC under a tripartite loan arrangement. The Court held that refunding the loan component to the buyer would unjustly enrich him, because borrowed money that remains unpaid does not become his own. He was entitled in his own right to ₹1,27,34,726 — his payments to the builder and to the bank.
What interest rate applies to the refund?
Twelve per cent simple interest, running from the date of each payment until realisation. The Court anchored the rate in Clause 24 of the Agreement for Sale rather than picking a figure in the abstract, and rejected the buyer's claim for 18%. Where the contract itself fixes consequences of delay, that rate frames the restitution.
Why was rent refused in addition to interest?
Because interest on the refund is awarded precisely to compensate the buyer for being kept out of his money. Adding rent for alternative accommodation would compensate the same deprivation twice. The Court also noted that the rent claim surfaced only in a rejoinder without evidence, and that the buyer had elected the refund remedy rather than possession.
What about the home loan and the bank?
The buyer's liability on the HDFC loan was left to be decided in the bank's own appeal, which the High Court must decide on its merits uninfluenced by the Supreme Court's observations. The ₹2 lakh awarded against the bank for deficiency in service was upheld, and the balance deposit stays in an interest-bearing account pending that appeal. The builder must also pay ₹15 lakh in full and final settlement of rent, mental agony, harassment and litigation costs.