HC Bombay (2026.10.16) in Maruthi Co-operative Housing Society Limited vs. Tridhaatu Maruthi Developers LLP & Anr. [2026:BHC-OS:22683, Commercial Arbitration Petition (L) No.26942 Of 2026] held that;
However, none of the provisions of RERA renders the owner of the freehold or leasehold interest in the land, who enters into a development agreement with a developer, liable for discharging the developer's obligations under RERA merely because the developer subsequently enters into agreements for sale with third-party flat purchasers on the basis of such development agreement.
The Court has further reiterated that, in such circumstances, there is absolutely no privity of contract between the third-party purchasers and the Society or its members. Accordingly, no different view can be taken by any authority, including MahaRERA.
The developer takes the risk of satisfying those third-party claims simply because those third-party rights are principal-to- principal agreements between the developer and third parties. The developer created them and incurred liabilities to third parties on his own and in pursuit of his gains. But that is only ever legitimate if the developer is not in default of its obligations to the society in the first place.
No developer can be heard to say it has rights vis-a-vis third parties or free sale areas while yet in default of its obligations to the society. The fulfillment of the obligations to the society by the development is the sine-qua-non that entitles the developer to create third party rights and make profits from the free-sale areas.
Absent a fulfillment of a foundational obligation to the society, there are no equities or rights that inhere in a developer vis-a-vis others or in respect of any free-sale areas.
If the Society has found that its redevelopment project has not proceeded in the manner that it intended, then the Society is always within its legal entitlement to undertake the development itself or through any other developer of its choice. To resist this, a developer must able to show unequivocally that it is the society that is in default and it must show this in the clearest and most unambiguous terms, not in some roundabout, inferential or speculative manner.
The Developer has abandoned the Project, and the Society has terminated the Development Agreement. Consequently, the third-party rights created by the Developer cannot survive the termination of the Development Agreement.
Excerpts of the order;
# 43. Upon considering the material on record, this Court held that there was no privity of contract between the Society and the third-party purchasers claiming through the Developer. The third-party purchasers could not claim specific performance of their respective agreements for sale except through the Developer. They stood or fell with the Developer. Where the Developer's rights were brought to an end by the lawful termination of the Development Agreement by the Society, the third-party purchasers could not assert any independent claim against the Society or anyone claiming through it.
# 44.The agreements entered into with third-party purchasers were premised upon the existence of a valid, subsisting, and enforceable agreement between the vendors, i.e., the Developer, and the owners, i.e., the Society. If the Developer failed to perform its obligations, the purchasers had to suffer the consequences. The rights of the purchasers were subject to, and could not exceed, the rights of the Developer. Therefore, from a contractual standpoint, the third-party purchasers had no case against the Society.
# 45 After the enactment of the Real Estate (Regulation and Development) Act, 2016 (RERA), the High Court, relying upon its earlier judgment in Vaidehi Akash (supra), observed in Goregaon Pearl CHSL v. Dr. Seema Mahadev Paryekar & ors. (2019 SCC OnLine Bom 3274) that the enactment of RERA does not make any difference to the legal position.
# 46.RERA was enacted to establish a regulatory authority for the regulation and promotion of the real estate sector, to ensure the sale of real estate projects in an efficient and transparent manner, and to protect the interests of consumers in the sector. The grievances of purchasers under RERA are addressed by the Regulatory Authority established under the Act.
# 47. However, none of the provisions of RERA renders the owner of the freehold or leasehold interest in the land, who enters into a development agreement with a developer, liable for discharging the developer's obligations under RERA merely because the developer subsequently enters into agreements for sale with third-party flat purchasers on the basis of such development agreement.
# 48 The Division Bench of this Court, in Deepak Prabhakar (supra), while considering the case of third-party purchasers who had entered into agreements with the developer and claimed substantive rights in respect of the Society's property, in the context of the Society's proposal for its own redevelopment, reaffirmed the position of law laid down in Vaidehi Akash (supra) and Goregaon Pearl (supra).
# 49. The Division Bench of this Court, in Kapilkunj CHS (supra), has observed that third-party purchasers have no rights over the assets of the Society. It has further held that, if the Society undertakes redevelopment following the termination of its redevelopment agreement, any additional F.S.I. or buildable area generated thereby would enure to the benefit of the Society. The Court has observed that third-party flat purchasers have no rights, claims, or equities in respect of the assets of the Society. This includes not only the original structure but also the entire redevelopment project, including all additional F.S.I. and free-sale components. The Court has further reiterated that, in such circumstances, there is absolutely no privity of contract between the third-party purchasers and the Society or its members. Accordingly, no different view can be taken by any authority, including MahaRERA.
# 50 A similar view was taken by this Court in Rakhi Kamal (supra). This Court has consistently held that, even in the case of a RERA-registered project, purchasers' rights are confined to the development in which they have an interest. Upon the valid termination of the Development Agreement between the landowner and the developer, the purchasers' rights remain subject to the consequences of such termination, having regard to the fact that the contractual arrangement between the landowner and the developer is on a principal-to-principal basis. This position has been clearly explained in the judgment of Rajawadi (supra), wherein this Court, in paragraphs 49 to 54, has observed as follows:"
“49. In all this, we should not miss something that seems to me to be cardinal. It is a mistake, in my view, to pillory a developer for being profit-oriented. That is the nature of every developer's business. That is what it does. Pursuing a profit is, as Mr. Shah points out, neither illegal nor criminal. It is perfectly legitimate. The question is not whether the pursuit of a profit is a good or a bad thing. It is a question of fidelity to the contract that permits the pursuit of profit. It is only this aspect of the matter with which we are concerned. In the course of pursuing that profit, the developer will create third party rights. Those cannot, in turn, create equities in favour of the developer against its contractual counterparty, the society. The developer takes the risk of satisfying those third-party claims simply because those third-party rights are principal-to- principal agreements between the developer and third parties.The developer created them and incurred liabilities to third parties on his own and in pursuit of his gains. But that is only ever legitimate if the developer is not in default of its obligations to the society in the first place. No developer can be heard to say it has rights vis-a-vis third parties or free sale areas while yet in default of its obligations to the society. The fulfillment of the obligations to the society by the development is the sine-qua-non that entitles the developer to create third party rights and make profits from the free-sale areas. Absent a fulfillment of a foundational obligation to the society, there are no equities or rights that inhere in a developer vis-a-vis others or in respect of any free-sale areas.
50. The other fundamental factor never to be lost sight of is this: the Society is the belongs to the Society. The Society and the members will decide how and through whom they want to exploit their legal ownership rights over that property. It is not for any other outsider to say in generality that the rights of an owner have been compromised. If the Society has divested itself of ownership rights, there are ways in law of doing this. If the Society has found that its redevelopment project has not proceeded in the manner that it intended, then the Society is always within its legal entitlement to undertake the development itself or through any other developer of its choice. To resist this, a developer must able to show unequivocally that it is the society that is in default and it must show this in the clearest and most unambiguous terms, not in some roundabout, inferential or speculative manner. I imagine Mr. Shah understands this perfectly well. This is indeed the reason he has been at pains to try and make out a case in regard to deficiency of title. But if that case is not a clear and unambiguous breach, i.e. a fundamental breach, then his submissions will not assist his client, the Developer here.
51. There is a considerable amount of judicial learning on this branch of the law. I myself have had occasion to deal with such issues in the past, but before I turn to those, I believe this is an opportune matter to set out some broad principles.
52. There are, in my experience, and I do not say this with any rigidity, three broad classes of disputes of this kind pertaining to societies and their disputes with developers.
(a) In Category 1, we find those cases where an agreement is entered into, the society and its members for some reason or the other do not vacate although the developer has everything ready to proceed.
(b) In Category 2, one that is sadly quite common, we have a situation where the society and their members vacate, the developer takes possession, but then nothing happens for years together; and when the society tries to take charge of its own estate and redevelopment, the developer comes forward and cites the pendency of the agreement. In such cases, the developer is very often in default of huge amounts of financial obligations. There, clearly, there is no equity on the side of the developer. Such developers are often only speculating in land and property prices.
(c) Category 3 cases, and this is where I believe the present case falls, are those where the society has vacated, the developer has taken possession, has done some amount of work, but then at some point falls behind in payment of financial obligations and completion of development. This is a downward spiral. The developer gets mired more and more in debt. The arrears of transit rent keep mounting with each passing month, and then there is a near financial impossibility. Sometimes, these matters are resolved by negotiations, but it is here that the questions of law and of assessment of contracts really arise.
(d) Category 4 cases are of the kind where both the society and the developer are on the same page. Most members of the society have vacated. The developer is ready to proceed, but there are one or two dissenting members. This category of cases will fall within the Girish Mulchand Mehta & Ors. v. Mahesh S. Mehta & Ors.2 line of judgments and need not detain us. That is now a separate jurisprudence of its own.
53. Each of one these requires a slightly different approach, but in the Category 3 cases with which we are concerned, I would venture to suggest that, again without attempting to lay down any strait jacket or rigid formula, the following tests are among those to be applied:
(a) Can it be shown that there is a default on the part of the society in fulfilling its obligations? For instance, has the society failed or refused to vacate? Has it wrongly claimed arrears of transit rent or other dues although these have been paid? Is the society itself merely trying to squeeze more financial gain out of the developer? If so, the society's petition will be dismissed--possibly with costs and even strictures-- and the developer will receive the full weight of protection against unjust or unlawful termination.
(b) Can the default by the society be said to be a fundamental breach or a breach of a fundamental term such as would excuse the developer from performing one or more of its obligations? For instance, a failure to deliver possession might constitute such a fundamental breach; for, without possession, the developer simply cannot proceed. Unless it has vacant possession, the developer has no obligation to pay transit compensation or, possibly, the other dues.
(c) Can it be shown that the financial or other obligations of the developer have a one-to-one correspondence with the obligations of the society such that a default by the society would absolve the developer from the performance of his obligations? Again, an example of this might be the society's obligation to deliver vacant possession. It is quite clear from any reading of any of these agreements that a failure to do so will result in the developer being excused from performing almost all his obligations including the financial obligations. But once this has happened--and this is why at the beginning of this judgment I called a trigger event-- then a series of consequences begin to follow. Unless it is demonstrated that the developer's ensuing obligations have a express conditionality attached to them, the developer cannot seek to evade the consequences of a breach of its financial obligations and its obligations to complete the development on time.
54. Therefore, a final factor relates to how a Category 3 case developer conducts itself once the society has come to court. There are several distinct elements in play at this time: (i) accumulated arrears of transit rent and other dues; (ii) the obligation to pay ongoing transit rent until possession with an occupation certificate; (iii) payment of statutory and corporation dues, including property tax (including arrears, and irrespective of when these are actually due), for non-payment puts at risk the very property of the society; and (iv) a demonstration of the financial means to bring the project to completion. To stave off a society's petition framed such as the present one is, the respondent-developer must place an acceptable proposal that covers all these. Accumulated arrears can be capitalized and allowed to be paid in reasonable tranches or instalments. But while that is happening, ongoing payment obligations must be met month to month. All statutory dues and property taxes must be cleared. There must be a tenable, viable and cogent statement of availability of financing to complete the project, and this, in turn, requires a fair estimate of the remaining costs of completion, disclosure of the source of funding (not some woolly promise or expectation) and the actual and ready availability of, and access to, that funding. Inevitably, there will also be a default clause in any such re-worked understanding that culminates in Consent Terms or a consent order: if there is a default (of such kind as is agreed before the Court), the developer must accept (a) the termination; (b) ejectment from the site; and (c) its liability to pay all accumulated financial debts until the date of default—all resulting automatically in an enforceable order of the court. Nothing short of this will do.”
# 51. Considering the law laid down by this Court in the aforesaid judgments, this Court finds that there is no impediment to granting relief to the Petitioner under Section 9 of the Arbitration and Conciliation Act, 1996, notwithstanding the fact that the Project is registered under RERA and that third-party rights have been created by the Developer. The Developer has abandoned the Project, and the Society has terminated the Development Agreement. Consequently, the third-party rights created by the Developer cannot survive the termination of the Development Agreement.
---------------------------------------------------
No comments:
Post a Comment