Supreme Court Rules Developers Cannot Back Out of Redevelopment Agreements After Taking Possession
The Supreme Court of India has held that a property developer cannot back out from their contractual and statutory obligations under a Permanent Alternate Accommodation Agreement once it has obtained vacant possession of the property from eligible occupants for redevelopment.
A Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran delivered the ruling in an appeal filed by Mahabanoo Contractor and another against Kalikund Developers.
The dispute arose over the redevelopment of a cessed building under the Maharashtra Housing and Area Development Act and Development Control Regulations for Greater Bombay.
The developer had secured possession of the premises and executed an agreement promising three alternate flats in the reconstructed building to the occupants. However, the developer later refused to hand over possession, citing non-utilization of full fungible Floor Space Index, internal management disputes among partners, and questioning the occupancy rights of the legal heirs.
The Bombay High Court had restrained the Maharashtra Housing and Area Development Authority from taking coercive steps against the developer, viewing the agreement as a private arrangement.
Reversing the High Court judgment, the Supreme Court clarified that redevelopment schemes for cessed buildings are governed by a statutory framework designed to protect occupants. The apex court emphasized that internal partner disputes or changes in building height cannot defeat the rights of occupants who vacated their premises relying on statutory assurances and valid agreements.
The Court directed the developer to execute the agreement and hand over possession of all three flats to the appellants within two months. If the developer fails to comply, the appellants are entitled to claim damages at the monthly rental value for the properties. The Supreme Court also restrained proceedings in a civil suit filed by the developer and imposed costs of fifty thousand rupees on the developer.
In another procedural clarification, the Supreme Court confirmed that under Section 34(3) of the Arbitration Act, limitation to challenge an award commences from the date a Section 33 application is formally disposed of, regardless of maintainability.