Law Web: Whether third-party flat purchasers in a redevelopment project from developer can claim specific performance of contract from Co-operative society?

The Society is the owner of the property and has

entered into an agreement with the developers, i.e. Vaidehi,

for redevelopment of its property. The redevelopment

envisages construction of the Society’s building to

accommodate its members and also construction of

building/s of flats/premises to be sold to outsiders. The

agreement authorizes or entitles the developers to

construct such building/s and sell flats/premises therein to

outsiders. Such authority or entitlement is to the

developers’ account and in their own right and as an

independent contractor. If in exercise of such authority or

entitlement, a building is constructed by the developers, it

cannot be said that such building is caused to be

constructed by the Society within the meaning of Section

2(c) of the MOFA. {Para 88}

89. Any other interpretation would lead to anomalous

consequences, which could never have been contemplated

by MOFA. The owners of lands entering into agreements

for sale or development agreements with

promoters/developers would be held as being subject to all

liabilities of a promoter, such as liability of disclosure of

plans and specifications, outgoings etc. under Section 3 of

the MOFA, entering into agreements in accordance with

Section 4, giving possession of flats and suffering the

consequences of Section 8, forming co-operative societies

of flat purchasers under Section 10 and so on. This would

be plainly inconceivable.

90. Prima facie, thus, there is no case to treat the

Society, who is merely in the position of an owner vis-avis

the third party purchasers, as a ‘promoter’ within

the meaning of MOFA and foist the obligations of a

promoter on the Society in relation to the purchasers.

91. Besides what is discussed above, there are many

other difficulties in the way of many of these third party

purchasers. In the first place, it now transpires from the

various proceedings that their vendor, Vaidehi, has

proceeded to allot an area far in excess of its entitlement,

which was merely 2,53,500 sq.ft. FSI to start with and

thereafter restricted to 57050 sq.ft. (i.e. after the Rustomjee

Agreement). In fact, what Vaidehi appears to have dealt

with is an area far in excess of even the total FSI (at the rate

of 2.4) available on the entire land. Secondly, the individual

transactions are evidenced only in a few cases by registered

agreements with Vaidehi. Many transactions are contained

in unregistered agreements or even allotment letters which

are not even stamped. Many of these transactions appear to

be simply financial arrangements. Each individual case of a

third party purchaser would thus be subject to different

considerations based on the entitlement of Vaidehi at the

relevant point of time and the nature and incidents of the

individual transaction. But we are dealing here with the

rights of the individual purchasers vis-a-vis the Society

and Rustomjee claimed through Vaidehi and not their

rights qua Vaidehi. All these purchasers certainly have

independent rights to claim damages against Vaidehi,

peculiar to their individual cases, but they have prima

facie no right to claim anything from the Society and

Rustomjee, much less specific performance of their

individual agreements. In the premises, the individual

features of their respective cases, as noted above, have no

relevance to our discussion in this group of Motions and

need not be discussed any further. Even the best placed

amongst them have no leg to stand on as against the Society

or Rustomjee.

92. That brings us to sum up the result of the above

discussion on the prima facie case on merits of individual

stakeholders. Prima facie, it is clear that Vaidehi has

committed breaches of the Society Development

Agreement and that the termination of the Agreement by

the Society was legal and proper. Vaidehi has not made out

any case of its readiness and willingness to perform its

obligations under the Society Development Agreement.

Vaidehi is not entitled to specific performance of the

Society Development Agreement or restrain the

development of the suit property by the Society or

Rustomjee. The Rustomjee Agreement and its confirmation

by the Society by the Confirmation and Supplementary

Agreements as well as further Agreement dated 29 January,

2011 between the Society and Rustomjee are valid and

proper. Members of the Society opposing the development

through Rustomjee are not entitled to any interim relief

either on the basis of the aforesaid agreements being in

breach of the Society Development Agreement or on the

basis of breach of bye-laws or contravention of the State

Government circular dated 3 January, 2009 or on account

of the alleged non-performance of the offer letter by

MHADA or the booklet or directives of MHADA or indeed

on account of any alleged FSI violation or usurpation. The

decisions of the Society in connection with the present

dispute are prima facie taken bona fide and none of the

challenges of the members opposing redevelopment are

prima facie sustainable. None of the third party purchasers,

who claim through Vaidehi under their respective

agreements for sale/allotment letters, have any case for

specific performance of their respective agreements against

the society or Rustomjee. None of these purchasers has

any enforceable right under MOFA against the Society

or Rustomjee.

93. Even the considerations of balance of

convenience and irreparable injury clearly weigh in

favour of the Society and its members, who support the

redevelopment project. The fundamental basis or rather

the very raison d’etre of the entire redevelopment

project is the need for housing of 480 members of the

Society. These members have already surrendered their

tenements to enable the Society to carry out the

redevelopment project first through Vaidehi and later

through Rustomjee, as noted above. Since 2006, these

members have been living in temporary alternative

accommodations. The buildings on the suit property

occupied by these members have since been demolished

and a rehab building for their permanent alternative

accommodation is under construction. The

development of the free sale component is inextricably

linked to the construction of the rehabilitation

component. The cost of the construction of the

rehabilitation component has to be necessarily funded

from and out of the development and sale of the free sale

component. Any relief granted to either of the

stakeholders, namely, Vaidehi or the members opposing

the redevelopment project or the third party purchasers,

who claim through Vaidehi, will necessarily impact the

construction of the rehabilitation component adversely

and jeopardize the members’ right to their permanent

alternative accommodation. The members cannot be

asked to wait indefinitely for years for getting something

which they are legally entitled to and which legal

entitlement is not even questioned by any other

stakeholders.

(Emphasis added)

11. We are in respectful agreement with all these findings on law.

We emphatically reaffirm Vaidehi Akash.

REPORTABLE

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

WRIT PETITION (L) NO. 1776 OF 2023

Deepak Prabhakar Thakoor & Ors Vs Maharashtra Housing and Area Development Authority (MHADA) & Ors

CORAM: G.S. Patel & Kamal Khata, JJ.

DATED: 12th October 2023

ORDER (per GS Patel J):-

1. In our view, the Petition is thoroughly misconceived. The

Petitioners are not members of the 3rd Respondent Society. They

are third-party flat purchasers in a redevelopment project that was

once being undertaken by the 2nd Respondent, M/s G.A. Builders

Pvt Ltd (“GABPL”), represented before us by Mr Ojha.

2. The principal reliefs sought in the Writ Petition are in prayer

clauses (a) and (b) at pages 13 and 14, which reads ::thus:

(a) This Honourable Court be pleased to issue Writ of

Certiorari or writ in the nature of Certiorari or any other

writ, directions, orders be passed calling upon the

Respondents Nos. 1 to call for the records and proceedings

in respect of the Intimation of Approval (IOA) No – EE/BP

Cell/GM/MHADA-29/1210/2022 dated 14.12.2022 issued

by Respondent No. 1 at Exhibit “D” and after going

through its validity, legality and propriety thereof, the said

impugned IOA be quashed and/or set aside.

(b) That this Honourable Court be pleased to restrain

the Respondents from demolishing the said building of the

Respondent No. 3 pursuant to Intimation of Approval

(IOA) No – EE/BP Cell/GM/MHADA-29/1210/2022

dated 14.12.2022 issued by Respondent No. 1.

3. Clearly, these third-party flat purchasers, all of whom have

transactions and agreements only with GABPL, claim substantive

rights in regard to the property of the Society and the proposal of

the Society for its own redevelopment.

4. We are given to understand that between the Society and the

developer, there are and were other proceedings in arbitration and

elsewhere. These will remain unaffected by the present order. All

other remedies between the builder GAPBL and the Society are also

unaffected by the present order. The only question to which we

address ourselves is whether these third-party flat purchasers from

the developers can claim substantive rights as against the Society

itself.

5. The basis for this claim is an undertaking-cum-indemnity

given by the Society to MHADA, a copy of which is at Exhibit “D-

1” at pages 314 to 315. It reads ::thus:

UNDERTAKING CUM INDEMNITY BOND

To,

Executive Engineer Building Permission Cell,

MHADA,

Griha Nirman Bhavan,

Kala Nagar, Bandra (E),

Mumbai

We Mr Dharamaraj Ranga swamy, the Chairman, and Mr

Vijay C Sharma, the Secretary, both adult, Indian

Inhabitants, Presently Residing at Subhash Nagar,

Chembur (East), Mumbai No. 400071, do hereby are giving

undertaking cum indemnity bond on behalf of Chembur

Shivsmruti Co-operative Housing Society Ltd. Building

no.22, Subhash Nagar, Chembur (East), Mumbai-400071.

As per the Contempt Petition (L) 7362 of 2021 dated 11th

March 2022 physical possession of the said property was

handed over to the said society and now the existing old

structure standing thereon on the said plot will be

demolished by the appointed demolition contractor, who is

appointed by the society and if any claim or liabilities of the

terminated developer arises in present or in future then the

said claim or liability will be settled by the society alone.

Further the old structure will be completely demolished on

society’s own risk and we will indemnify the MHADA

authority and its officers and all other staff against any

claim or legal consequences if arises thereof.

This undertaking will be binding on us.

Secretary Chairman

6. Then reference is invited by Mr Thorat for the Petitioner to

the permission granted by MHADA to Society at Exhibit “D” from

pages 305 to 309. Condition 16 of this permission is that any thirdparty

rights created are to be settled by the Society following the

undertaking submitted by the Society.

7. These two provisions read together are nothing more than an

indemnity. They do not and cannot be held to create substantive

rights in praesenti to the Society building and properties nor in

respect of the development rights of the Society in regard to the

property that the Society itself owns. At best, if there is a claim that

the Petitioners have against the developer, it may be open for the

developer to then claim that the developer is fully indemnified by

the undertaking given by the Society and which is Condition 16 of

the MHADA permission.

8. the next submission is that now the RERA has been

established, the rights of third-party flat purchasers are thus

protected even in regard to the property of the Society.

9. None of these issues are res integra. All of them are

comprehensively decided by the two decisions of this Court both by

SC Gupte J, sitting singly. The first of these is the decision in

Vaidehi Akash Housing Pvt Ltd v New DN Nagar Cooperative Housing

Society Union Ltd & Ors1 and connected matters. There were

various contenders before the Court. Vaidehi Akash set out

submissions made on behalf of third-party flat purchasers. There

were other issues considered in that judgment with which we are not

immediately concerned. There are two issues however, that are

material to our discussion today. The first is the concept of the ‘rule

of majority’ in cooperative society matters. Individual members who

protest against society actions often describe this as the tyranny of a

brute-force majority. But whatever label that one may choose to

ascribe to it, the fact is that this is precisely the frame of law. Indeed,

there is sufficient authority to say that once a person becomes a

member of a Society, he literally loses his identity: see Aditya

Developers v Nirmal Anand Co-Operative Housing Society Ltd,2 a

decision by a learned Single Judge of this Court (KK Tated J). This

has been consistently followed by coordinate benches,3 and

reaffirmed by at least one Division Bench.4 In Vaidehi Akash, Gupte

J dealt with the concept of rule of majority in paragraphs 75

1 2014 SCC OnLine Bom 5068 : (2015) 3 AIR Bom R 270.

2 2016 SCC OnLine Bom 100: (2016) 3 Mah LJ 761 : (2016) 4 AIR Bom R

26 : (2017) 5 Arb LR 66.

3 Rajawadi Arunodaya CHSL v Value Projects Pvt Ltd, 2021 SCC OnLine

Bom 9572; Chirag Infra Projects Pvt Ltd v Vijay Jwala CHSL & Anr, 2021 SCC

OnLine Bom 364 : (2021) 3 Bom CR 271; Westin Sankalp Developers v Ajay

Sikandar Rana & Ors, 2021 SCC OnLine Bom 421.

4 Time Field Corporation v Sankalp CHSL & Ors, 2022 SCC OnLine Bom1436.

onwards5 inter alia citing the Division Bench Judgment of this Court

in Girish Mulchand Mehta & Anr v Mahesh S Mehta & Anr.6

10. Specifically on the question of the challenges to the

development canvassed on behalf of third parties, i.e., those third

party purchasers in whose favour rights are allegedly created by the

developer, the discussion is to be found in Vaidehi Akash in

paragraphs 80 to 93.7 These speak eloquently to a determination of

the issue. Rather than attempt a summarisation, and since the

discussion is not only exhaustive but is comprehensive from all

perspectives, we take liberty of reproducing the relevant portions of

these paragraphs.

80. This brings us to an important aspect of this

group of matters and which has engaged anxious

attention of this Court. During the subsistence of the

Society Development Agreement and in pursuance of

various rights conferred upon it thereunder with

reference to disposal of the free sale component of the

project, Vaidehi has created third party rights in favour

of various flat purchasers and others. These flat

purchasers and others themselves consist of different

categories. There are those who have come in between the

dates of the Society Development Agreement and the

5 Of the SCC OnLine report, corresponding to paragraph 15 of the

original.

6 2009 SCC OnLine Bom 1986 : (2010) 2 Mah LJ 657 : (2010) 1 Bom CR

31. Reaffirmed in Sarthak Developers v Bank of India Amrut-Tara Staff CHSL,

Appeal 24 of 2013, decided on 5th December 2012 (Dr DY Chandrachud J and

AA Sayed JJ (as they then were), per Dr DY Chandrachud J); unreported.

7 The paragraph numbering in the SCC OnLine report is completely

different from the original. These paragraphs of the SCC Report correspond to

paragraphs 16 (and its several sub-paragraphs) to 18 of the original.

Rustomjee Agreement. During this period the entire free

sale component, i.e. nearly 2,53,500 sq.ft. of real estate, was

at the disposal of Vaidehi and it was free to deal with the

same the way it liked. Third party rights have been

created by it in favour of various parties during this

period. Then there are others who have come in after the

Rustomjee Agreement but before the Society Development

Agreement was terminated by the Society. During this

period Vaidehi had a limited right, namely, the right to deal

with an area of 37050 sq.ft. for residential use and 20000

sq.ft. for commercial use. Different considerations may

apply to those third parties whose rights have been created

within or beyond this limitation on Vaidehi’s rights, as the

case may be, for Vaidehi seems to have gone much beyond

its limitation during this period and oversold its position. It

purports to have created rights over an area far in excess of

this limited F.S.I. available to it for disposal. Another

distinction as between the various third parties is on the

basis of the kinds of arrangements entered into with them

by Vaidehi. There are purchasers who hold registered

agreements with Vaidehi, whilst there are those who have

unregistered agreements and there are others who have

simply allotment letters in their favour. The rights of these

various stakeholders vis-a-vis the entitlement of the Society

and through it of Rustomjee to go ahead with the

redevelopment project need an anxious thought. Whilst

some of these third parties appear to be investors, there

may certainly be those who are genuine buyers who have

staked their hard-earned money to obtain premises within

the project.

81. The flat purchasers’ main arguments are that

under the Society Development Agreement, which was

at any rate valid upto 16 April, 2010, Vaidehi had the

authority to deal with the entire free sale component, i.e.

nearly 2,53,500 sq.ft. of area; that even if such authority

could be treated as having been divested by it under the

Rustomjee Agreement, between 4 April, 2007 (i.e. the date

of Rustomjee Agreement) and 16 April, 2010 (i.e. the date

of termination of the Society Development Agreement),

Vaidehi had the authority to deal with 57050 sq.ft of area as

shown above; that the agreements entered into by

Vaidehi during these periods were lawful and binding on

the Society, since during these periods Vaidehi was an

agent of the Society and the former’s acts within; its

authority were binding on the latter; and that at any rate,

the Society itself being a ‘promoter’ within the meaning

of MOFA, the rights of the purchasers under MOFA

were binding on the Society and the latter could not

enter into any agreement with Rustomjee in breach of

these rights.

82. The purchasers’ rights may, thus, be examined

from two angles, one from the standpoint of the contract

between the Society and Vaidehi (who was their

vendor) and the other from the standpoint of the

obligations of the Society, if any, under MOFA.

83. No doubt Vaidehi had been conferred with the

authority to deal with the free sale component of the project

by the Society under the Society Development Agreement,

but the question is whether such authority was to be

exercised by Vaidehi for its own sake or on its own account

as an independent contractor or as an agent of the Society.

Some of the important clauses of the Society Development

Agreement may be noted in this behalf. These are as

follows: … … …

84. The clauses quoted above, read together and in their

proper perspective to be gathered from the whole

agreement, clearly envisage the development and sale of the

free sale component of the project by Vaidehi on their own

account and as an independent contracting party and not as

agents of the Society. The contract between Vaidehi and

the Society is on a principal to principal basis; it neither

constitutes a partnership nor a joint venture or agency

between the two. The third party purchasers with whom

Vaidehi might enter into agreements for sale would have

no privity of contract with the Society and the Society

would in no way be responsible for any claim made by

such purchasers against Vaidehi under their respective

agreements for sale.

85. There being no privity of contract between the

Society and the third party purchasers claiming under

Vaidehi, the third party purchasers cannot claim

specific performance of their respective agreements for

sale except through Vaidehi. They stand or fall by

Vaidehi. If the rights of Vaidehi are brought to an end

upon a lawful termination of the Society Development

Agreement, the third party purchasers cannot lay any

independent claim against the Society or anyone

claiming through the Society. The agreements with

third party purchasers are premised upon a valid,

subsisting and enforceable agreement between their

vendors, namely, Vaidehi and the owners, namely, the

Society and in fact refer to the Society Development

Agreement in this behalf. Admittedly, therefore, the

third party purchasers had, or at any rate, ought to

have, notice of the Society Development Agreement and

its terms and conditions and Vaidehi’s obligations to

perform the same. If Vaidehi fails to perform these

obligations, the purchasers cannot but suffer the

consequences. In other words, the purchaser’s rights

are subject to Vaidehi’s rights and not higher than

those. Therefore, from a contractual standpoint, the third

party purchasers have no case against the Society or

Rustomjee, who claim through the Society.

86. Let us now consider if these third party purchasers

have any rights under MOFA against the Society. It is

submitted on their behalf that the Society is very much a

‘promoter’ within the meaning of MOFA as regards their

respective agreements for sale. Learned Counsel for the

purchasers rely upon the definition of “promoter”

contained in Section 2(c) of the MOFA. The definition is in

the following terms:

“promoter” means a person and includes a

partnership firm or a body or association of

persons, whether registered or not who

constructs or causes to be constructed a block

or building of flats, or apartments for the

purpose of selling some or all of them to other

persons, or to a company, co-operative society

or other association of persons and includes

his assignees; and where the person who

builds and the person who sells are different

persons, the term includes both.”

87. It is submitted that the Society can at any rate be said

to have caused the building of flats to be constructed for the

purpose of selling the same and as a person, who causes

such building to be built, is as much a promoter as a person

who sells premises in such building.

88. The Society is the owner of the property and has