India: Decoding Legal Complexities: National Consumer Disputes Redressal Commission's Landmark Ruling On Redevelopment Challenges

Introduction

This article discusses a landmark decision by the National Consumer Disputes Redressal Commission, New Delhi (the Commission), related to Sandeep Grover v. Sai Siddhi Developers¹. A significant judgment has been pronounced regarding the challenges faced by flat buyers in a redevelopment project in Goregaon, Mumbai. This decision has been upheld by the Supreme Court.

The cases centred around delays in possession, contractual disputes, and compensation claims against Goregaon Pearl Cooperative Housing Society (Society) and SSD Escatics Pvt. Ltd. (Developer). The Commission delved into the complexities of redevelopment agreements, regulatory changes, and legal battles that unfolded over the years.

Background

The Maharashtra Housing and Area Development Authority (MHADA) constructed three buildings (Building Nos. 3, 4 and 5) with a total of 60 flats in Goregaon, Mumbai. These flats were allotted to individuals who formed the Society Limited in January 1982, registered under the Maharashtra Cooperative Societies Act, 1960. MHADA leased the buildings and land through a lease deed in September 2006 and subsequently sold it to the Society.

The Society, consisting of flat owners, decided to redevelop the three buildings into two wings. The redevelopment plan, proposed by the Developer (Opposite Party 1), was approved in a special general body meeting of the Society in June 2006. A redevelopment agreement was executed in September 2007 (agreement), and the Society granted power of attorney to the Developer.

The Developer obtained necessary approvals, including a sanctioned building plan from Brihanmumbai Municipal Corporation and a no-objection certificate from other Departments. As per the agreement, the Developer committed to allocating 32 flats to existing owners in A-Wing and 28 flats to those in B-Wing, with additional flats to be sold to prospective purchasers.

In 2008, the Development Control Regulation of Greater Mumbai, 1991 was amended, increasing permissible floor space index (FSI) from 2.4 to 2.5. The Developer deposited Rs 8.21 crores and applied for additional FSI, approved by MHADA in a revised offer letter in August 2011. The revised building plan was approved in June 2012 and November 2013.

The Developer advertised the sale of flats, leading to complaints from flat purchasers who had booked and entered into agreements but faced possession delays.

Complaints and submissions

Sandeep Grover and Jyoti Grover lodged a complaint against the Society and the Developer, seeking possession of a flat by December 2014 along with compensation. They had booked the flat in 2013, made deposits, and signed a sale agreement. Despite inquiries and a legal notice, possession was not provided, resulting in financial losses.

Amendments to the complaint were allowed in September 2019, introducing the Society as the second opposing party. The Society, involved in a previous case, reached a compromise that led to the termination of the development agreement. Subsequently, a new Arbitration Petition emerged, resulting in an interim award favouring the Society.

Legal challenges raised by the Developer were dismissed, leading to the Developer's departure in January 2019. Homebuyers raised their concerns with the Maharashtra Real Estate Regulatory Authority (MRERA), prompting MRERA to instruct the Developer to list third-party purchasers.

The Society made efforts for amicable resolutions directed by MRERA in May, June and July 2019, including the allocation of B-Wing flats to its members. In response to ongoing legal proceedings, complainants in Sandeep Grover v Sai Siddhi Developers²provided additional information and a statement of facts. Both the Developer and the Society submitted statements and evidence. The Developer completed the construction of a section called B-Wing in July 2017. Additional construction was approved by MHADA around May 2017, and construction was still in progress. The Developer sought to present more evidence through a formal request. All parties involved shared their written arguments.

In Mahendra Bansidhar Agarwal v Sai Siddhi Developers³, the complainant filed a complaint against the Society (Opposite Party 2) and the Developer (Opposite Party 1). He sought possession of a flat within a specific time-frame and requested the Developer to cancel the booking, refund the amounts paid with interest, and compensate for mental distress and legal costs. Mr Agarwal explained that the Developer, initially a partnership firm, entered a redevelopment agreement in 2007. He booked a flat in 2012, made payments, and signed an agreement for sale in 2013. Despite assurances, construction delays and multiple extensions of the possession date occurred, leading to a legal notice and the subsequent filing of the complaint.

In Veena Kumari Sheoran v Unitech Ltd⁴ case, changes were permitted around December 2018, introducing the Society as the second opposing party in December 2019. The Society had a prior case against the Developer, resulting in interim orders and arbitration. Despite a compromise, disputes resurfaced, leading to the termination of the development agreement. A new Arbitration Petition (No. 665 of 2018) in the Bombay High Court had a sole arbitrator's interim award in favour of the Society. Legal challenges by the Developer were dismissed by the High Court and Supreme Court. The Developer exited the project in January 2019. Homebuyers filed complaints with MRERA, and the Society attempted to amicably resolve the dispute in May, June and July 2019.

In response to these proceedings, in Mahendra Bansidhar Agarwal (supra), the complainants provided a written reply (rejoinder reply) and a statement of facts from Mahendra Bansidhar Agarwal. The Developer completed the construction of a section called B-Wing in July 2017. Additional construction was approved by MHADA around May 2017, and construction was ongoing. The Society submitted its statement. The Developer sought to present more evidence through a formal request. All parties shared their written arguments.

Ram Pyare Yadav and Dropati Rampyare Yadav filed a complaint (CC/1103/2017) seeking the handover of their flat from the Society (Opposite Party 2) and various compensations from the Developer (Opposite Party 1). The complaint outlined that the Developer, initially a partnership firm, advertised flat sales in 2013 under "Sai Goregaon Pearl Cooperative Housing Society Limited." The complainants booked a flat around 3-2-2014, made multiple payments, secured a home loan, and entered an agreement for possession by December 2014. However, the Developer failed to meet the agreed-upon possession date, prompting the complaint.

In Ram Pyare Yadav v Sai Siddhi Developers⁵, the complainants sought changes, which were allowed on December 18. They added the Society as the second opposing party, which was permitted on 17-7-2019. The Society had a previous case, where they compromised with the Developer in 2017. Disputes resurfaced, leading to the termination of the agreement and power of attorney, resulting in Arbitration Petition No. 665 of 2018 and an arbitrator's interim award directing possession handover to the Society. Legal challenges were dismissed, and the Developer vacated in January 2019. Homebuyers approached MRERA, and the Society attempted resolutions in 2019. In Ram Pyare Yadav (supra), the complainants submitted a rejoinder reply and affidavit of evidence. The Developer and Society presented evidence and additional information.

The Developer responded to complaints, acknowledging flat allotments, agreements, and deposits without dispute. The Developer clarified that the agreement stipulated allocating specific flats to existing owners. Regulatory changes increased permissible FSI, and funds were deposited for additional FSI. However, 2013 regulatory changes impacted project completion, with the Society delaying attempts to acquire additional FSI. Disputes led to legal actions, including Arbitration Petition No. 665 of 2018. An interim award instructed the Developer to handover the property to the Society. The Developer vacated the site in January 2019, citing Society obstruction, and awaits the sole arbitrators' decision, seeking an extension for possession delay due to force majeure.

The Society responded to complaints, refuting any contractual agreement with the complainants. The Society outlined the terms of the agreement, highlighting the Developer's obligations and the Society's rights. Project delays resulted in the termination of the agreement, leading to legal proceedings, including arbitration. Despite a settlement in May 2017, the Developer failed to fulfil its obligations. The Society terminated the agreement in June 2018, resulting in further legal actions and an interim award. The Developer exited the project in January 2019. Ongoing disputes involved flat buyers, legal challenges, and Society resolutions, ultimately culminating in the Society claiming absolute ownership of the building.

The Developer acknowledged selling flats and receiving payments from complainants but failed to provide possession by the agreed date in December 2014. The Developer invoked force majeure, citing changes in FSI rules after the building plan's approval. The Society rejected the Developer's proposal to merge additional land for FSI, leading to construction halting. However, the FSI rule change occurred after the agreement for sale in March 2014, rendering the Developer's force majeure claim invalid.

The Developer argued that legal actions initiated by the Society in 2015 caused interruptions, including the revocation of power of attorney and an arbitration petition. Despite a compromise in 2017 and the withdrawal of legal actions, no construction was being undertaken during that period. After obtaining approval for additional FSI in May 2017, the Developer resumed construction but faced renewed disputes in 2018. Termination of Agreement and legal challenges led to the Developer vacating the site in January 2019. The Developer contends that obstructions caused by the Society from 2015-2017 and from June 2018 onward should be treated as force majeure.

On 27-1-2019, the Society took full possession of the building and allocated flats to its members. The Society contends, referencing the relevant clause in the redevelopment agreement, that neither the Developer nor flat buyers have any legitimate claim, as the Society is the absolute owner. Flat purchasers were aware of the agreement and allocation during the sale, making them non-bona fide purchasers without notice. Under the Real Estate (Regulation and Development) Act, 2016 (RERA), the Society is not considered a promoter. Citing specific Bombay High Court decisions, complainants cannot seek relief against the Society.

Analysis

The Developer was obligated to provide specific flats under the agreement, allowing the Developer to sell flats in its share. Additional FSI used for construction was to be equally shared with the Society. The new building and payments to old flat owners were funded from the Developer's share, as acknowledged in consent terms. With the Society appointing the Developer as its agent, the transferees can enforce their agreement against the Society. The Supreme Court, in previous rulings, emphasised the principal's responsibility for the agent's actions, and as the Society benefited from the agreement, it cannot take over the flats in the Developer's share.

The Society, having taken possession of the flats assigned to complainants by the Developer, must refund the entire sum deposited. The ongoing arbitration between the Society and the Developer will not impact the complainants' rights. In earlier cases, the Supreme Court has held that the Arbitration and Conciliation Act, 1996, does not exclude consumer forums' jurisdiction. Furthermore, the Supreme Court has ruled in earlier cases that homebuyers should not be compelled to wait indefinitely for possession.

Order

The Commission issued a partial approval for the complaints. The Society is directed to refund the complete deposited amount to the complainants, along with 9% annual interest from each deposit date until the payment date. This payment should be completed within two months from the order date.

Conclusion

As Mumbai's skyline continues to evolve, the legacy of Goregaon Pearl Cooperative Housing Society imparts a crucial lesson― Societies must exercise due caution in the selection of Developers, prioritising those who align with principles of transparency, adherence to timelines, and unwavering commitment to homebuyers' interests.

Footnotes

1. 2023 SCC OnLine NCDRC 197.

2. CC/1710/2016

3. CC/875/2017

4. CC/875/2016

5. CC/1103/2017

Originally published by SCC.

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