RERA Order passed without Notice is recalled by Gujarat High Court

By Gujarat Bureau

In the case of Narayan Realty, Gujarat High Court in the second appeal have recalled the order passed by the Gujarat RERA. The Second appeal had maintained that there was no notice given to Respondents while passing an Order dated 20.11.2019.

The Hon’ble Court had, in the second appeal, given natural justice pleaded by the Respondents who have pleaded a review of the Order dated 20.11.2019 passed by the Hon’ble Gujarat RERA Authority.

Detailed order in Second Edition of Vol 1 of Saptkala Real Estate Law Journal.

Tenancy cannot be created by courts: Calcutta High Court

By SRELJ Bureau

Hon’ble Calcutta High Court had decided that consent of the land lord is must before creating the tenancy. The company in liquidation admittedly does not own the property. We cannot force Tivoli either to sell or let it out to Wacoma. Interim arrangement was made at the stage of admission of appeal considering the balance of convenience and inconvenience. Such interim arrangement could not be made permanent. Court cannot create tenancy without the consent of the landlord. In short, tenancy is a contract between landlord and tenant. Court is not competent to direct the parties to enter into contract of tenancy. Hence, the request made by Mr. Sen on that score is turned down.

HIGH COURT OF CALCUTTA
Wellman Wacoma Ltd.
v.
Tivoli Park Apartments (P.) Ltd.
A.P.O. NO. 316 OF 2011
BIFR NO. 55 OF 1998
SEPTEMBER 4, 2012
JUDGMENT
Ashim Kumar Banerjee, J – Tivoli Park, the respondent No. 1 was the owner of a bungalow situated at No. 225 Acharya Jagadish Chandra Bose Road, Calcutta-700 020. Wellman Incandescent Ltd. (hereinafter referred to as ‘Incandescent’) was a company incorporated under the provisions of the Companies Act, 1956. In the year 1970 Incandescent became a tenant in respect of bungalow No. 5 measuring about fifteen hundred square feet under Tivoli Park Apartments (P) Ltd. The financial condition of Incandescent became precarious resulting in a BIFR proceeding where it was declared as a “Sick industrial company”. By an order dated July 25, 2002 BIFR recommended winding up of Incandescent and this Court ultimately passed an order of winding up vide order dated September 24, 2002. Since then the Official Liquidator would be in deemed possession of all the assets of the company in liquidation including the bungalow in question. According to Tivoli Park, they did not have any information about the BIFR proceeding or the subsequent order of winding up. They were getting rent month by month. They came to know of the order of winding up from an advertisement published by the Official Liquidator in Media inviting offer for sale of the assets of the company in liquidation. They wrote letter to the Official Liquidator on August 22, 2005, asking the Official Liquidator to deliver vacant possession of the premises in question as according to them tenancy stood terminated in view of the order of winding up. The Official Liquidator subsequently contended, he did not take possession of the bungalow. In fact, Official Liquidator did not know of such tenancy as we find from the record. On April 28, 2006 Tivoli Park made an application inter alia praying for disclaimer of the said tenancy under Section 535 of the said Act of 1956. Official Liquidator subsequently decided to take possession of the said bungalow in question and visited the premises on May 5, 2006 when he was resisted by one Suman Basu, claiming to be an Executive of Wellman Wacoma Ltd. (hereinafter referred to as ‘Wacoma’), a company claiming to be a tenant of the self-same bungalow. Suman however could not produce any agreement for tenancy or any rent receipt. He supported his act by production of telephone bill, electric bill and Municipal Trade Licence. Wacoma approached the learned Company Judge on May 10, 2006 inter alia praying for an order of restraint on the Official Liquidator from interfering with their possession. Wacoma subsequently filed a suit in the Alipore Court inter alia praying for a declaration that Tivoli Park had no right to obstruct ingress and egress of Wacoma to and from the said premises coupled with prayer for permanent injunction and other reliefs. The learned Judge dismissed both the applications. On an appeal by Tivoli Park, the Division Bench set aside the judgment and order dated September 19, 2007 passed on the disclaimer application and directed the said application to be tried on evidence. The Alipore Court suit was also transferred to this Court. Wacoma subsequently withdrew the said suit and did not proceed further in respect of their prayer made in their application under Section 446. Hence, the only application being the application for disclaimer was heard by the learned Judge by trial on evidence.
2. One Kalyan Banerjee adduced evidence on behalf of Wacoma. The matter reached up the Apex Court level on the question of framing of additional issues when the Apex Court directed expeditious disposal of the disclaimer application. His Lordship allowed the application for disclaimer that gave rise to the present appeal.
3. From the evidence and the judgment and order of the learned Single Judge it would appear that Wacoma based their claim on a surrender by Incandescent and a fresh tenancy being created in their favour since March 2002. Pertinent to note, the order of winding up was passed in September 2002. In March 2002 admittedly the BIFR proceeding was pending that ultimately culminated in the order of recommendation of winding up. Wacoma relied on receipts for few months to show that Tivoli Park accepted rent from them. The contents of the receipt are extracted below :
“Received from M/s Wellman Wacoma Ltd. cheque No.xxx dated xxx for Rs.825.00 drawn on Bank of Baroda, Hazra Road Branch as rent for the month of xxx being bungalow No. 5 Tivoli Park, 225 B A.J.C. Bose Road Kolkata-700 020?.
4. The receipt was signed by someone whose initial was illegible. The receipt would not contain any seal of the company. Needless to say, Tivoli Park denied such receipt being issued. According to them, those payments, although made by Wacoma, were credited towards Incandescent. Tivoli Park also disclosed receipt issued in favour of Incandescent who issued the cheque even in August 2002 that would demolish the claim of fresh tenancy being created in March 2002.
His Lordship considered the evidence and observed, “since I do not find any evidence which can even remotely suggest the termination of Incandescent’s tenancy and formation of a new tenancy in favour of Wacoma as asserted by Wacoma before the order of winding up at any point of time I should and do accept that the tenancy of Incandescent whether the said tenancy had commenced in the year 1970 or thereafter continued to exist on the date of the order of winding up.”
5. Mr. P.C. Sen, learned Senior Counsel appearing for Wacoma contended that the Division Bench directed the application to be tried on evidence. Hence, Tivoli Park as the petitioner, should prove their case through oral and documentary evidence which they failed to do. Mr. Sen contended, even after the order of winding up the Official Liquidator never took possession of the bungalow. The Official Liquidator found Wacoma occupying the said bungalow, hence, by the process of summary trial Wacoma could not be divested of possession. Section 535 could not operate as a mechanism to evict Wacoma who was a lawful tenant discharging their obligation month by month by payment of rent.
One Dalveer Singhee deposed on behalf of Tivoli Park who did not have any personal knowledge about the state of affairs in 2002. He deposed, he looked after the company’s affairs since 2004 at the request of one Manish Poddar who became a Director of Tivoli Park in 2003.
6. Mr. Sen further contended, Tivoli Park must prove, they had interest in the property and Incandescent was tenant in respect of the premises as on the date of winding up. They did not make any attempt to prove such case before His Lordship. Hence, His Lordship could not have allowed their application for disclaimer. Mr. Sen lastly contended, the property admittedly did not belong to the company in liquidation. Hence, Section 535 could not have any role to play.
7. He referred to the evidence to show that the rents were paid by Wacoma, receipts of which were appearing at pages 40 onwards in Volume I of the paper book, the text of which we have quoted above.
8. He further contended, Wacoma was enjoying the tenancy upon payment of Rs.75,000/- (Rupees seventy-five thousand) per month as per the order of Court of Appeal. They did not have any objection to continue with the same on the same term or on such terms and conditions, as this Court might think fit and proper. They would be agreeable to pay any reasonable rent that could be found to be payable in respect of such tenancy. He contended, Wacoma was not made a party in the disclaimer application. On their intervention, they were added as party and subsequently heard by His Lordship. He referred to the following decisions to support his contention :
1. Ram Kumar Das v. Jagdish Chandra Deb Dhabal Deb AIR 1952 SC 23
2. United Bank of India v. Official Liquidator [1994] 79 Comp. Cas. 262 (SC)
3. Asoka Ghose v. Official Liquidator Remington Rand of India Ltd. [2004] 51 SCL 572 (Cal.).
9. Mr. S.B. Mookherjee, learned Senior Counsel contended, Tivoli park was admittedly the owner of the bungalow in question that was not in dispute. Wacoma admitted Tivoli Park as their landlord. They filed a suit, claiming declaration as to the tenancy. They filed application under Section 446 to decide on the controversy. Both proceedings were withdrawn. They did not prove the tenancy allegedly created in their favour in March 2002 or at any point of time. Hence, Tivoli Park was entitled to an order of disclaimer that was rightly passed by His Lordship. Commenting on the receipts Mr. Mookherjee contended, mere receipt of any sum on account of rent or otherwise would not ipso facto create any tenancy. In any event, their claim for alleged surrender of tenancy and creation of new tenancy in favour of Wacoma in March 2002 stood demolished by production of rent receipt issued to Incandescent who paid rent for the month of August 2002 vide Account Payee cheque that was encashed through its banker. He referred to the letter of the State Bank of India appearing at pages 488, 489 and 490 Volume II of the paper book in this regard. He contended, Section 535 would empower the learned Company Judge to disclaim any onerous property. The tenancy was onerous, as it would attract expenses month by month whereas it would have no worth to support beneficial winding up. Mr. Mookherjee also referred to the evidence to show that Khosla being the Director of both the companies admitted that the possession had been illegally transferred to Wacoma without the consent of Tivili Park.
10. Resuming his argument on the next day Mr. Mookherjee took us to the said Act of 1996, particularly Sections 446, 456 and 535 to contend that on a combined reading of the said provisions, the Court’s power to have a summary adjudication on the issue of like-nature was permissible. He contended, such extraordinary power was vested upon the Company Court to smooth the beneficial winding up and have a speedy dissolution of the company after its winding up.
11. He relied on two decisions of our Court in the case of Sakow Industries (P.) Ltd. (In Liquidation), In re [1990] 67 Comp. Cas. 16 (Cal.) and Vidyadhar Upadhyay v. Sree Sree Madan Gopal Jew [1990] 67 Comp. Cas. 394 (Cal.), to support his proposition, the summary adjudication to be done by the Company Court, was the due process of law to evict an unauthorised occupant, occupying company’s property or a property having onerous covenant and burdensome on the company in liquidation. He also relied on three decisions of our Court in the case of Smt. Pushpa Devi Jhunjhunnwalla v. Official Liquidator, [1993] 1 Cal. LJ 447 in the case of Hongkong & Shanghai Banking Corpn. Ltd. v. Official Liquidator AIR 2008 Cal. 35 and in the case of Dhinrendra Nath Neogi v. Pronab Kumar Neogi [1957] 61 Cal WN 887. He also referred to the decision of the Apex Court in the case of General Radio & Appliances Co. Ltd. v. M.A. Khader AIR 1986 SC 1218 to support his contention that a tenancy being non-salable and non-transferable could not be transferred. Any transfer of tenancy without the consent of the landlord was illegal under the provisions of West Bengal Premises Tenancy Act, 1956, since repealed and West Bengal Premises Tenancy Act, 1997. He referred to Section 14 of the old law and Section 5(6) of the new law in this regard. He cited the decision in the case of Amar Kumar Sen v. Gita Rani Das [2005] 13 SCC 83 to say that unless there was any break in relationship between the landlord and tenant, there could not be any new relationship established on the self-same property. He relied upon the decision in the case of Prudential Capital Market Ltd. (In liquidation), In re [2012] 112 SCL 346. The Division Bench of our Court held that Sections 441, 446, 447, 456, 457, 535, 536 and 537 would have combined application in a case of the like-nature. Our Division Bench considered the monthly tenancy in favour of the company in liquidation and held that such summary adjudication was the due process of law as established by the judicial pronouncement in the case of Vidyadhar Upadhyay (supra).
12. To counteract the submissions of Mr. Sen that acceptance of rent would operate as an estoppel as against Tivoli, Mr. Mookherjee relied on the Apex Court decision in the case of Santi Prasad Devi v. Shankar Mahto AIR 2005 SC 2905. Paragraphs 17 and 18 were relied upon, wherein the Apex Court held that acceptance of rent after expiry of the lease, would not ipso facto operate as renewal. The lessee could not claim that he was ‘holding over’ as a lessee within the meaning of Section 116 of the Transfer of Property Act, 1882 (hereinafter referred to as ‘the said Act of 1882?). Mr. Mookherjee distinguished the decision in the case of United Bank of India (supra) by contending that there was substantial difference considering the factual controversy involved in the said matter. He contended that the Apex Court in the case of United Bank of India (supra) considered sub-Section (a) of Section 535 and not sub-Section (c), which would be relevant for consideration in the present case. He distinguished the decision in the case of Ram Kumar Das (supra) by contending that there was substantial difference in factual matrix. In the said case the defendant was a monthly tenant and the tenancy was determined by a notice to quit. The Apex Court considered ‘holding over’ under Section 116 of the said Act of 1882. In the present case, Wacoma was not a tenant. Hence, question of ‘holding over’ would not arise. Distinguishing the decision in the case of Asoka Ghose (supra), Mr. Mookherjee contended that the view of the learned Single Judge was contrary to the Division Bench view as expressed in the case of Sakow Industries (supra), Vidyadhar Upadhyay (supra) and Prudential Capital (supra). He lastly took us to the said decision to show inconsistency. He relied on the Division Bench decision (unreported) in the said case. He also referred to the receipts relied upon by Wacoma to show that payments were made in respect of the tenancy that Incandescent had been holding. He referred to the finding of the learned Judge on the affidavits of Khosla, particularly at page-725 of the paper book wherein we find, learned Judge recorded, Khosla gave possession to Wacoma as admitted by him. In his evidence, learned Judge observed, Khosla was not the landlord, hence, he did not have the authority to hand over possession to Wacoma.
13. Mr. Mukherjee also relied upon the decision in the case of Tata Steel Ltd. v. Official Liquidator [2009] 89 SCL 99 (Cal.).
14. Mr. Mookherjee prayed for dismissal of the appeal.
15. Mr. Susanta Datta, learned Counsel appearing for the Official Liquidator contended, Official Liquidator did not know about the tenancy at the initial stage. Hence, they could not make any attempt to take possession. After receipt of the notice for disclaimer, the Official Liquidator attempted to take possession. Such attempt failed, as Wacoma resisted such attempt. Mr. Datta contended, this Court should consider the records and pleadings and pass appropriate order as would be just and proper in the instant case. In short, he left the issue at our discretion.
16. While giving reply, Mr. P.C. Sen, learned Senior Counsel appearing for the Wacoma contended, the fact that Wacoma was in possession since March, 2002, was not in dispute, as it would appear from the evidence of Dalveer Singhee, particularly his reply to question No. 1059 appearing at page-186 of the paper book (Volume-II). Hence, Tivoli was not entitled to ask for summary eviction against Wacoma without availing due process of law. Mr. Sen relied on Section 535(6) and contended that both equity and law being in favour of Wacoma, the Company Court should not have passed an order of eviction that too, by availing the summary power, that would render workers of a running company jobless. On the additional issue, Mr. Sen contended that the Apex Court left it to the discretion of the learned Single Judge. Learned Single Judge declined to settle any additional issue at a stage when the suit as well as the application under Section 446 had been pending. Hence, His Lordship should have reconsidered the issue in view of withdrawal of the said two proceedings by Wacoma. The learned Single Judge earlier held, Tivoli would have to prove that Incandescent was a tenant on the date of winding up. Such initial onus on the part of Tivoli was not discharged at all that would be apparent from the evidence that was led on its behalf. He referred to the judgment and order impugned appearing at pages 697-728, particularly page 721 to say that the same contained incorrect facts. Mr. Sen made such comment on the observation of His Lordship to the extent that the tenancy in question was not at all terminated. According to Mr. Sen, such observation was contrary to the evidence that was led on behalf of the parties. Mr. Sen then contended, in 2002 Tivoli did not have any title on the property at all. The situation remained the same in 2003-2004, until the issue was resolved with the landlord and a fresh lease was executed after a protracted litigation up to the Apex Court level between Tivoli and its landlord. Hence, on the relevant date Tivoli did not have any interest in the property at all. So question of Tivoli’s consent would not arise at all. Referring to Section 535, Mr. Sen contended, to get an order for disclaimer the applicant would have to prove his interest over the property that Tivoli miserably failed. Hence, the learned Judge could not have allowed the said application. Dealing with the cases cited by Mr. Mookherjee, Mr. Sen contended that the decision in the case of Vidyadhar Upadhyay (supra) and Sakow Industries (P.) Ltd. (supra) would not represent the correct proposition of law. In any event factual matrix involved therein would make the proposition not applicable in the present case. In the case of Vidyadhar Upadhyay (supra), Civil Court dealt with all the issues. No evidence was led despite opportunity being given. In such backdrop, the order was passed. In the instant case, Wacoma was not a party at all. In the application under Section 535, no allegation of wrongful possession or trespass was ever made by Tivoli as against Wacoma. Hence, the said application was not at all maintainable. According to Mr. Sen, when a statutory provision was invoked, it should be followed in all respect and any partial compliance would not suffice. In case of Sakow Industries (P.) Ltd. (supra), the Court dealt with a long lease and the tenant did not have any protection under the tenancy law. In any event, such decision was contrary to the settled proposition of law. In any event, the ratio decided, would not be applicable as Wacoma was entitled to the protection of tenancy law, that was absent in Sakow Industries (P.) Ltd. (supra). Distinguishing the decision of the Apex Court in the case of Amar Kumar Sen (supra), Mr. Sen contended that the said decision would relate to a civil proceeding that would have no bearing in the instant case. Commenting on the decision of General Radio & Appliances Co. Ltd. (supra) Mr. Sen contended that the said decision was had considering a scheme of amalgamation that would have no relevance in the present case. Relying on paragraph-27 of the decision in the case of Smt. Pushpa Devi Jhunjhunnwalla (supra), Mr. Sen contended that the said decision would be of no assistance to Tivoli as the decision would suggest that the special law should prevail. The decision in the case of Prudential Capital Market Ltd. (supra) would relate to Letter for Direction filed by the Official Liquidator and not a regular adversarial proceeding. Hence, it would have no relevance in the instant case.
17. The decision cited at the Bar would predominantly suggest, for beneficial winding up any question that would arise in the course of winding up, pertaining to company in liquidation, could be decided summarily by the Company Court under Section 446. Such power is also extended to a question where the company would have an onerous contract and/or interest that would cause hindrance in the smooth process of beneficial winding up, to be decided summarily in terms of Section 535. It is true that the decision in the case of Sakow Industries (supra) and Vidyadhar Upadhyay (supra) may not have resemblance of facts. We would have to agree with the proposition to the extent that a proceeding either under Section 446 or Section 535 relating to a question pertaining to the company in liquidation, would be the due process of law. Our view is strengthened on a combined reading of Sections 446 and 535 wherein any person, claiming interest over such property is given liberty to approach the learned Judge for appropriate adjudication of right. The purpose underlying this provision is to streamline the process of winding up through speedy avenue.
“Due process of law” is not specifically defined in any statute. On a combined reading of the relevant provisions we feel, it would mean, in the present context, adjudication on documentary evidence and pleadings, if not possible, through oral evidence deciding respective rights and privileges, the applicant would be having on the property, in respect of which the company in liquidation had an interest. It does not necessarily follow, the property must be owned by the company in liquidation. With due respect to Mr. Sen, we would join issue on that score. Any property held by the company in liquidation with onerous covenant would definitely come within the scope of Section 535 and the learned Company Judge through summary process could decide such question, of course, upon giving best of opportunities to the party, placing rival claim on the same resisting the applicant who was claiming for disclaimer. At the end of the day, it might be a lis between X and Y, having a rival claim on the self-same property, that would come within the scope of Section 535. Once it is proved, as on the date of liquidation, the company in liquidation had interest over it, the learned Company Judge should consider whether to disclaim the said property or not. If the learned Judge is satisfied, he would disclaim it as a consequence. Question would further remain, in whose favour it is to be disclaimed. The answer would be obviously in favour of the applicant, if there was no rival claim. If there was a rival claim, the learned Judge also would have to decide such issue.
18. The above, is our understanding of the law on the subject. Let us now apply the same in the present factual matrix.
Incandescent was a tenant in respect of the property under Tivoli, since 1970. Admittedly, there was no evidence that the tenancy was terminated at any point of time.
19. Unless the tenancy is terminated, it would continue to remain. If a tenant defaults in making payment of rent, the tenancy does not automatically come to an end. It would depend upon a positive consequential act of the parties. The landlord may give notice to quit. The tenant may accept such notice and quit the tenancy. If he does not do so, the landlord has to approach a Civil Court for a decree of eviction and recovery of possession. If someone commits any breach of the contract of tenancy either by defaulting payment of rent or otherwise, the landlord does not get automatic power to evict him. He would have to approach the Court for a definite order of eviction. In the instant case, Incandescent was paying rent. At one point of time Wacoma was its subsidiary. Subsequently the companies became independent of each other. It might have been correct, Wacoma paid rent for few months for the self-same tenancy. We carefully examined the receipts appearing at pages-40 onwards in the paper book. Those were receipts for acceptance of rent by cheque. The receipts did not acknowledge Wacoma as a tenant. Learned Judge rightly framed the issue, whether the tenancy of Incandescent was surrendered, if so, how Wacoma was inducted. Incandescent had gone in liquidation in September 2002. There was evidence on record to show that Incandescent paid rent even in August 2002. Wacoma claimed tenancy since April 2002, on the strength of the receipts referred to above. There could not be two tenancies in respect of one self-same premises. Incandescent paid rent even in August 2002 that would automatically demolish the case of Wacoma, having entered into agreement for tenancy in March, 2002. Pertinent to note, Wacoma could not produce any document except the receipts to prove their tenancy.
20. Coming to the oral evidence, lot was said by Mr. Sen on question No. 1059. We are not sure whether the answer was correctly typed out in the paper book. However, if we read the answer in question No.1058-1059 together, we would have a different meaning than what was suggested by Mr. Sen. We have examined the evidence of Khosla, the common man between Incandescent and Wacoma. His evidence would clearly show, he simply handed over possession to Wacoma with the help of one Sutodia whose authority was in dispute. Even if we give full credence to the argument that Sutodia consented to creation of tenancy on behalf of Tivoli, in absence of a surrender of tenancy by Incandescent there could not be any new tenancy created in favour of Wacoma. Even if we give full credence to the case made out by Wacoma, we would still be in difficulty to get a plausible answer as to why Incandescent paid rent in August 2002 if it had already surrendered the tenancy and caused Wacoma to step in its shoes in March, 2002.
21. The learned Judge meticulously scanned the evidence. We need not deliberate in detail. We view the controversy from a close angle and in a narrow campus.
22. We would find Incandescent, a tenant since 1970 under Tivoli. It is well-settled principle of law, a tenant cannot question the owner’s right over the property in which he is a tenant. In short, a tenant cannot dispute the title of his landlord. We do not know what litigation Tivoli was facing from its landlord. As on date landlord did not come to contest the claim of Tivoli. Wacoma also claimed tenancy under Tivoli. Hence, they cannot dispute its title.
23. Incandescent paid rent up to August 2002. It went in liquidation in September 2002. Hence, the case made out by Wacoma that they got the tenancy under Tivoli through Sutodia in March, 2002, falls to the ground.
24. Mr. Sen lastly contended, the Division Bench while admitting the appeal put Wacoma on terms. Wacoma is now paying occupation charges at the rate of Rs.75,000/- (Rupees seventy-five thousand) per month as per the order of the Division Bench. They would continue to do so if this Court would permit the same. Mr. Sen contended, any other term this Court may feel fit and proper, would be acceptable to Wacoma to continue in possession.
25. The company in liquidation admittedly does not own the property. We cannot force Tivoli either to sell or let it out to Wacoma. Interim arrangement was made at the stage of admission of appeal considering the balance of convenience and inconvenience. Such interim arrangement could not be made permanent. Court cannot create tenancy without the consent of the landlord. In short, tenancy is a contract between landlord and tenant. Court is not competent to direct the parties to enter into contract of tenancy. Hence, the request made by Mr. Sen on that score is turned down.
26. The appeal fails and is hereby dismissed.
27. There will be no order as to costs.
28. There would be stay of operation of this judgment and order for a period of two months from date. The appellant would however, continue to adhere to the existing arrangement during this period. Urgent certified copy of this judgment, if applied for, be given to the parties on their usual undertaking.
Shukla Kabir Sinha, J. – I agree.

What are the rights and obligations of a promoter under MOFA: Bombay High Court

By SRELJ Bureau

CASE NO.:
Appeal (civil) 3233 of 2006
PETITIONER:
M/s Jayantilal Investments
RESPONDENT:
Madhuvihar Co-operative Housing Society & Ors.
DATE OF JUDGMENT: 10/01/2007
BENCH:
Arijit Pasayat & S. H. Kapadia
JUDGMENT:
J U D G M E N T
KAPADIA, J.

What are the rights and obligations of a promoter under the provisions
of the Maharashtra Ownership Flats (Regulation of the Promotion of
Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”) is the
question which has arisen for determination in this civil appeal.

On 26.8.1980 an agreement was arrived at between the vendors and
the appellant herein (M/s Jayantilal Investments-Promoter) in respect of
8559.57 sqm. of land in CTS No. 1068 village Kandivili, Tehsil Borivili,
Greater Mumbai. Subsequently, under a Revised Draft Development Plan, a
44 ft. wide road was indicated and, consequently, the area admeasuring
8559.57 sqm. stood divided. On account of this division, a plot admeasuring
6071 sqm. emerged as the suit land. On 16.11.1984 the appellant-promoter
obtained NOC under Section 21(1) of the Urban Land Ceiling Act, 1976
(“ULC Act”) permitting it to construct a building with 7 wings and 137
tenements for weaker section. The construction was to be made in
accordance with the prevailing Municipal Regulations, Town Planning
requirements and Statutory Regulations. On 21.10.1985 the lay out plan was
sanctioned. It indicated 1 building with 7 wings. At that time, due to
existence of a narrow road as access, the promoter was entitled only to FSI
of 0.75. This plan was amended in 1986, 1987, 1989, 1992 and 1994 without
any objection from the flat takers. At this stage, it may be mentioned that on
6.5.1986 the lay out plan was revised and approved with 5 wings having
additional floors as well as FSI of 1.00 due to construction of 44 ft. wide DP
road on the original plot admeasuring 8559.57 sqm. of land.

From time to time, agreements stood entered into between the
appellant and the flat takers for sale of flats. These agreements are dated
7.12.1985, 11.4.1987, 18.1.1989, 30.4.1989, 27.7.1991 etc.

On 12.11.1986 MOFA was amended retrospectively. Under that
amendment Section 7A was inserted excluding ‘additional structures’ from
the scope of Section 7(1)(ii) and thereby lifted the requirement of consent of
flat takers. However, the said amendment was restricted to the plots falling
under a scheme or a project under the lay out plan. The object behind
enacting Section 7A was to overcome the judgment of the Bombay High
Court in the case of Kalpita Enclave Co-operative Housing Society Ltd.
v. Kiran Builders Private Ltd. 1986 MhLJ 110. On 12.4.1989 on
receiving occupation certificate, possession of flats was handed over to the
flat takers. Some flats remained to be sold. They stood in the name of the
appellant-promoter.

On 25.3.1991, the Development Control Regulations were framed
which resulted in an increase of FSI from 1 to 1.8 on account of the
introduction of the concept of TDR. For the first time under this concept,
lands stood separated from the development potential of the plot.
Consequently, the lay out plan stood amended and the appellant obtained
sanction on 25.5.1992 for construction of the building in question with
6 wings by consumption of the balance FSI of 1.00. The appellant
accordingly issued an advertisement for commencement of construction in
accordance with the amended plan. However, it is the case of the appellant
that on account of financial paucity the construction got stuck.

Respondent No. 1 is the Co-operative Society registered on 20.1.1993.
The lay out plan was once again amended on 26.11.1994. The building in
question with 6 wings was shown in the amended plan. The plan was duly
sanctioned. It is important to note that this plan of 1994 was sanctioned in
favour of the appellant on account of purchase of additional TDR by the
appellant.

In 1997 on account of Slum TDR, the permissible FSI stood increased
to 2 from 1.8.

On 12.8.1997 the Co-operative Society-respondent No. 1 and five flat
takers (members) instituted suit no. 4385/97 against the appellant-promoter
for conveyance, injunction restraining the promoter from putting up further
constructions and questioning the validity of the sanction given by the
competent authority to the amended plan dated 29.3.2001 under which the
competent authority sanctioned 5 + 2 wings applying the newly available
FSI.

By judgment and order dated 31.3.2004 the Bombay City Civil Court
at Mumbai (trial court) partly decreed the suit, permitting the appellant to
complete construction as per the amended plan dated 29.3.2001. The trial
court gave a period of three years to the appellant for executing conveyance
in favour of the Co-operative Society under the provisions of MOFA. Being
aggrieved by the grant of three years time to the appellant, the Cooperative
Society (Respondent No. 1 herein) preferred to the Bombay High Court First
Appeal No. 786/04. A cross appeal was preferred by the appellant-promoter
being First Appeal No. 989/04 in which the appellant contended that under
the agreement between the appellant and the flat takers no time limit for
execution of the conveyance could be set as the appellant was entitled to
exploit the full potential of the plot in question and till such time as the
development potentiality of the plot in question stood exhausted, the
appellant was not statutorily obliged to execute a conveyance in favour of
the Co-operative Society. In this connection reliance was placed on the
provisions of Section 7A of MOFA.

By impugned judgment dated 16.3.2006 the Bombay High Court
allowed First Appeal No. 786/04 filed by the Co-operative Society and
simultaneously dismissed First Appeal No. 989/04 filed by the appellant
herein. By the impugned judgment, the High court directed the appellant to
convey right, title and interest and execute all relevant documents in respect
of Madhu Vihar Scheme in CTS No. 1068/1 admeasuring 6071 sqm. situated
at Village Kandivali (West), Mumbai in favour of the Co-operative Society.
By the impugned judgment, the appellant was restrained permanently from
making any construction over the suit plot bearing CTS No. 1068/1
admeasuring 6071 sqm. situated at Kandivali (West), Mumbai. By the
impugned judgment the High Court held, that the appellant was a promoter;
that it had floated Madhu Vihar Scheme on the said plot; that Madhu Vihar
was the Scheme/ Project undertaken for development of the plot in
accordance with the lay out plan; and, that the said Scheme stood completed
with the construction of the flats/ shops and the garden. By the impugned
judgment, it was further held that the Society was registered on 20.1.1993
and under Rule 8 of the Maharashtra Ownership Flats (Regulations of the
Promotion of Construction, etc.) Rules, 1964 (“the Rules), the appellant was
statutorily obliged to convey the title to the society which they failed to do
even after the Scheme got completed and possession of the flats stood
handed over to the flat takers. By the impugned judgment the High Court
held, that there was an implied trust created; that the promoter was the
trustee and that the beneficiaries were the flat takers. By the impugned
judgment it was further held, that under section 7 of MOFA the appellant
was prohibited from putting up additional constructions after the plan stood
disclosed to the flat takers; that the promoter was not entitled to make any
alteration in the structure without the prior consent of the flat takers; that the
promoter could not make any additions in the structure of the building
without the prior consent of the society and that under Section 7A, the said
prohibition was not to apply in respect of the construction of any other
additional building or structure constructed or to be constructed under a
scheme or a project of development in the lay out plan. By the impugned
judgment it has been held, that the construction of Madhu Vihar started in
1985; that section 7A was inserted in 1986 and that Madhu Vihar Scheme
got completed in 1989. According to the impugned judgment, between 1985
and 1989, the plans were changed at least four times and that no additional
wings like the one proposed in the plan approved on 29.3.2001 was ever
included in the lay out plans between 1985 and 1989 and, therefore, the
appellant-promoter was not entitled to derive any benefit from Section 7A of
MOFA and, consequently, the appellant was not entitled to construct
additional building in the above suit plot. Hence this civil appeal.

Mr. Sunil Gupta, learned senior counsel appearing on behalf of the
appellant submitted that Section 7 of MOFA enjoined the promoter, inter
alia, not to construct any additional structure without the consent of the flat
takers in the agreed building. This provision was applied by the Bombay
High Court in the case of Kalpita Enclave (supra). The said judgment
prohibited the developer from constructing the additional structure in the
agreed building. Learned counsel submitted that the State Legislature
imposed such a restriction on the promoter contrary to the object of the Act
and, consequently, the legislature stepped in to change the basis of the
judgment of the Bombay High Court in Kalpita Enclave case (supra) by
enacting the Amending Act No. 36/86 retrospectively. According to the
learned counsel, the said Amending Act deleted the said restriction and left
the promoter free to construct any additional structure without obtaining the
consent of the flat takers in the agreed building. Learned counsel submitted
that the underlying purpose of the said amendment is that maximum possible
housing as per the prevailing by-laws should be achieved to enable the
maximum number of members of the public to be accommodated therein
and that the individual rights of flat takers should not be allowed to come in
the way of achievement of this public purpose. Learned counsel emphasized
that the object behind amending Section 7 and Section 7A is to enable the
promoter to construct an additional structure; that the object of Section 7 and
Section 7A is to bring at par a promoter who has sought and has been
granted permission to construct building consuming the maximum FSI
available under the by-laws prevailing on the given date and a promoter who
had sought and was given permission to construct building consuming the
maximum FSI available under the by-laws as prevailing on earlier date and
who otherwise on the given date stands in the same class as the
abovementioned promoter insofar as the question of consumption of the total
FSI available is concerned. Learned counsel submitted that the object behind
the amendment is to ease the problem of shortage of housing. Learned
counsel further submitted that if the above interpretation of the amended
Section 7 and 7A is not accepted, it would give rise to discrimination
between two sets of persons, namely, flat takers who are party to a new
agreement and a new construction plan and those flat takers who have been
party to an earlier agreement in an earlier construction plan. According to
the learned counsel, if the interpretation given by him is not accepted,
persons interested in the former piece of land shall stand facilitated whereas
persons interested in the latter piece of land shall stand vetoed, though the
building by-laws, rules etc. treat them equally. Learned counsel, therefore,
submitted that any other interpretation would defeat the very purpose of the
amendment to Section 7 and Section 7A. On facts, learned counsel
submitted, relying on the lay out plans, that even under the initial lay out
plan of 1985, 7 wings were to be constructed; that the said plan was revised
on 6.5.1986 under which the construction was restricted to 5 wings having
additional floors; that this was prior to the inclusion of Section 7A and,
therefore, when the D.C. Regulations were enacted in 1991 and the concept
of TDR was introduced, the appellant got increased FSI of 1.8, consequent
upon which the plan was amended and 6 wings came to be sanctioned on
25.5.1992. Similarly, when the FSI was increased to 2, the plan was got
amended and accordingly the appellant obtained a sanction for construction
of 5 + 2 wings. Learned counsel, therefore, urged that the sanction obtained
by the appellant on 29.3.2001 for construction of 5 + 2 wings on the suit plot
was in terms of the original Plan sanctioned on 21.10.1985 when 7 wings
stood sanctioned. In the circumstances, learned counsel urged that the
appellant was entitled to construct 5 + 2 wings which was contemplated
even in the original Plan dated 21.10.1985. Accordingly it was submitted
that, in the facts and circumstances of this case, the amended provisions of
Sections 7 and 7A of MOFA were applicable and, consequently, the
appellant was not obliged to execute a conveyance in favour of the society
till the appellant is in a position to fully exploit the development potentiality
of the suit plot. In the alternative, it is urged that, in any view of the matter,
the appellant is not entitled to execute the conveyance in favour of the
society till the appellant exhausts the FSI of 2.

Mr. M. K. Ghelani, learned counsel appearing on behalf of the society
submitted that under MOFA there are two concepts, namely,
developeability and conveyance. It was urged that Section 7 and 7A deal
with developeability of the project, while Sections 10 and 11 read with Rules
8 and 9 deal with the subject of formation of Society and transfer of title.
Learned counsel urged that each of the above two concepts operate in
different fields and, therefore, Section 7 and 7A cannot override Sections 10
and 11 read with the relevant rules. It was urged, that under Section 3(m)(iii)
and (iv) a promoter is required to disclose the nature, extent and description
of the common areas and facilities in its advertisement/ brochure; that
section 4(1) requires a promoter to enter into a written agreement in the
prescribed form and Section 4(1A) inter alia provides that such agreements
shall contain the nature, extent and description of common areas and
facilities and, consequently, it is not open to the promoter to contract out of
the prescribed form of the agreement in form V. Learned counsel pointed out
that Section 4(1) provides that such agreement shall be in Form V, that Form
V gives a model form under which the promoter has to declare the FSI
(inherent) available in respect of the land. Under Rule 5 read with the model
form of agreement, the promoter has to declare all relevant particulars in
respect of utilization of FSI and in cases where the promoter has utilized any
FSI of any other land or property by way of floating FSI then the particulars
of such floating FSI has to be disclosed by the promoter to the flat
purchasers. The residual FSI in the plot or the lay out not consumed will be
available to the promoter till the registration of the society. However, after
registration of the society the remaining FSI shall be available to the society.
Learned counsel submitted that Section 7A stood inserted in MOFA vide
Maharashtra Amending Act 36/86 and by the same Amending Act Section
4(1A) was also inserted and, therefore, Section 7A has to be read with
Section 4(1A). Learned counsel, therefore, urged that Section 7A does not
give to the promoter the right of developeability in eternity. In the present
case, learned counsel submitted that the lay out plan as well as the NOC
obtained by the promoter from ULC authorities was to construct a building
with 7 wings. Learned counsel urged that Section 7A was not applicable to
the present case since in the present case the scheme consisted of one
building with 6 to 7 wings. Moreover, it was further pointed out that Section
7A applies when there is a project or scheme which indicates phase wise
development of a large plot made known to the intending flat takers. Section
7A in such cases does not empower the intending flat takers to prevent
construction of additional building according to such scheme. As a corollary,
it was urged that Section 7A does not confer any additional benefits or rights
to a promoter to construct additional building which did not form part of the
scheme/project in the lay out disclosed to the flat takers and, in any event,
not after the obligation to convey has become operative and enforceable
under Sections 10 and 11 read with Rules 8 and 9 of the Rules. Learned
counsel urged that in the present case the society has been registered in
1993. He submitted that in the present case, on facts, the obligation to
convey has become enforceable under Sections 10 and 11. He clarified that
mere formation of the society does not take away from the promoter the
rights of the promoter to the remaining development. He is not deprived of
his rights to the unsold flats. However, it is not open to the promoter to
resort to an ingenious drafting enabling the promoter to defer execution of
conveyance till eternity. On facts, learned counsel pointed out that in the
present case, the NOC obtained by the promoter from the Urban Land
Ceiling authorities read with the lay out plan/ block plan of 1985 as well as
the agreements with the flat takers showed that the scheme/ project/ lay out
was in respect of only one building with different wings; that the lay out
plan does not indicate phase wise development; that the agreement with the
flat takers indicated the scheme for only one building and, in the
circumstances, Section 7A is not attracted. That in any event, it was not open
to the promoter to unilaterally change the scheme/ lay out by adding to it
additional building and in the process remove the existing facilities and
amenities provided in the lay out plan. Learned counsel urged that on facts
of the present case, it was one building project which got completed in 1989
when occupation certificate was issued and, in the circumstances, the
promoter was not entitled to put up additional constructions.

Looking to the importance of the matter in which we were required to
harmoniously construe the provisions of Sections 3 and 4 on one hand with
Section 7 and 7A on the other hand as also Sections 10 and 11 of MOFA and
keeping in mind the question of public importance, we requested Mr. G.E.
Vahanvati, learned Solicitor General of India to assist the Court, keeping in
mind the externalities existing in such cases coming from Mumbai. Learned
Solicitor General of India has given us written submissions. He has
reproduced the various judgments of the Bombay High Court under MOFA.
It is submitted that, it is not open to the builders to insert clauses in the
agreement with the flat takers stating that conveyances will be executed only
after the entire property is developed. Learned amicus curiae submitted that
the contention of the promoter in the present case is that its obligation to
form society and execute a conveyance only after completion of the scheme
is misconceived because under Sections 10 and 11 when the builder enters
into an agreement with the flat takers he is required to form a cooperative
society as soon as the minimum number of flat takers is reached and,
thereafter, the conveyance has to be executed in favour of the society within
four months after the formation thereof in terms of Section 11. He submitted
that MOFA has been enacted to regulate the activities of the builders and not
to confer benefits on them. He submitted that Section 7A was inserted only
for removal of doubts and to provide that the deleted words “construct any
additional structure” shall be deemed never to have been there
notwithstanding any judgment, decree or order of any court which means
that the builder could construct any additional structure without the consent
of the flat purchasers. However, it is pointed out that Section 7A does not
have the effect of conferring any rights on builders to claim an exemption
from their obligations under Sections 10 and 11 of MOFA.

Before dealing with the point in issue one needs to look at original
Section 7 which was in existence in the Statute prior to its amendment by
Maharashtra Amending Act No. 36/86.
The unamended Section 7 reads as follows:
“7.(1) After the plans, and specifications of the buildings
as approved by the local authority as aforesaid, are
disclosed or furnished to the person who agrees to take
one or more flats, the promoter shall not make–

(i) any alterations in the structures described therein
in respect of the flat or flats which are agreed to be
taken, without the previous consent of that person;
or

(ii) any other alterations in the structure of the
building, [or construct any additional structures,]
without the previous consent of all the persons
who have agreed to take the flats.”
(emphasis supplied)
The amended Section 7 reads as follows:
“7. After plans and specifications are disclosed no
alterations or additions without consent of
persons who have agreed to take the flats; and
defects noticed within three years to be
rectified.

(1) After the plans and specifications of the
building, as approved by the local authority
as aforesaid, are disclosed or furnished to
the person who agrees to take one or more
flats, the promoter shall not make-

(i) any alterations in the structures described
therein in respect of the flat or flats
which are agreed to be taken, without the
previous consent of that person;

(ii) any other alterations or additions in the
structure of the building without the
previous consent of all the persons who
have agreed to take the flats in such
building.”
(emphasis supplied)

The judgment of the Bombay High Court in Kalpita Enclave case
(supra) was based on the interpretation of unamended Section 7 of MOFA.
Consequently, it was held that a promoter was not entitled to put up
additional structures not shown in the original lay out plan without the
consent of the flat takers. Thus, consent was attached to the concept of
additional structure. Section 7 was accordingly amended. Section 7A was
accordingly inserted by Maharashtra Amending Act No. 36/86. Section 7A
was inserted in order to make the position explicit, which according to the
legislature existed prior to 1986, implicitly. Section 7 of MOFA came to be
amended and for the purpose of removal of doubt, additional Section 7A
came to be added by Maharashtra Act 36/86. By this amendment, the words
indicated in the parenthesis in the unamended Section 7(ii), namely, “or
construct any additional structures” came to be deleted and consequential
amendments were made in Section 7(1)(ii). Maharashtra Act No. 36/86
operated retrospectively. Section 7A was declared as having been
retrospectively substituted and it was deemed to be effective as if the
amended clause had been in force at all material times. Further, it was
declared vide Section 7A that the above quoted expression as it existed
before commencement of the Amendment Act shall be deemed never to
apply in respect of the construction of any other additional buildings/
structures, constructed or to be constructed, under a scheme or project of
development in the lay out plan, notwithstanding anything contained in the
Act or in any agreement or in any judgment, decree or order of the court.
Consequently, reading Section 7 and Section 7A, it is clear that the question
of taking prior consent of the flat takers does not arise after the amendment
in respect of any construction of additional structures. However, the right to
make any construction of additional structures/ buildings would come into
existence only on the approval of the plan by the competent authority. That,
unless and until, such a plan stood approved, the promoter does not get any
right to make additional construction. This position is clear when one reads
the amended Section 7(1)(ii) with Section 7A of the MOFA as amended.
Therefore, having regard to the Statement of Objects and Reasons for
substitution of Section 7(1)(ii) by the Amendment Act 36/86, it is clear that
the object was to make legal position clear that even prior to the amendment
of 1986, it was never intended that the original provision of Section 7(1)(ii)
of MOFA would operate even in respect of construction of additional
buildings. In other words, the object of enacting Act No. 36/86 was to
change the basis of the judgment of the Bombay High Court in Kalpita
Enclave case (supra). By insertion of Section 7A vide Maharashtra
Amendment Act 36/86 the legislature had made it clear that the consent of
flat takers was never the criteria applicable to construction of additional
buildings by the promoters. The object behind the said amendment was to
give maximum weightage to the exploitation of development rights which
existed in the land. Thus, the intention behind the amendment was to remove
the impediment in construction of the additional buildings, if the total lay out
allows construction of more buildings, subject to compliance of the building
rules or building by-laws or Development Control Regulations. At the same
time, the legislature had retained Section 3 which imposes statutory
obligations on the promoter to make full and true disclosure of particulars
mentioned in Section 3(2) including the nature, extent and description of
common areas and facilities. As stated above, sub-section (1A) to Section 4
was also introduced by the legislature by Maharashtra Act 36/86 under
which the promoter is bound to enter into agreements with the flat takers in
the prescribed form. Under the prescribed form, every promoter is required
to declare the FSI available in respect of the said land. The promoter is also
required to declare that no part of that FSI has been utilized elsewhere, and if
it is utilized, the promoter has to give particulars of such utilization to the
flat takers. Further, under the proforma agreement, the promoter has to
further declare utilization of FSI of any other land for the purposes of
developing the land in question which is covered by the agreement.

Therefore, the legislature has sought to regulate the activities of the
promoter by retaining Sections 3 and 4 in the Act. It needs to be mentioned
at this stage the question which needs to be decided is whether one building
with several wings would fall under amended Section 7(1)(ii). Section 7A
basically allows a builder to construct additional building provided the
construction forms part of a scheme or a project. That construction has to be
in accordance with the lay out plan. That construction cannot exceed the
development potentiality of the plot in question. Section 10 of MOFA casts
an obligation on the promoter to form a cooperative society of the flat takers
as soon as minimum number of persons required to form a society have
taken flats. It further provides that the promoter shall join the society in
respect of the flats which are not sold. He has to become a member of the
society. He has the right to dispose of the flats in accordance with the
provisions of the MOFA. Section 11 inter alia provides that a promoter shall
take all necessary steps to complete his title and convey the title to the
society. He is obliged to execute all relevant documents in accordance with
the agreement executed under Section 4 and if no period for execution of the
conveyance is agreed upon, he shall execute the conveyance within the
prescribed period. Rule 8 inter alia provides that where a cooperative
society is to be constituted, the promoter shall submit an application to the
Registrar for registration of the society within four months from the date on
which the minimum number of persons required to form such society (60%)
have taken flats. Rule 9 provides that if no period for execution of a
conveyance is agreed upon, the promoter shall, subject to his right to dispose
of the remaining flats, execute the conveyance within four months from the
date on which the society is registered.
Reading the above provisions of MOFA, we are required to balance
the rights of the promoter to make alterations or additions in the structure of
the building in accordance with the lay out plan on the one hand vis-`-vis his
obligations to form the society and convey the right, title and interest in the
property to that society. The obligation of the promoter under MOFA to
make true and full disclosure of the flat takers remains unfettered even after
the inclusion of Section 7A in MOFA. That obligation remains unfettered
even after the amendment made in Section 7(1)(ii) of MOFA. That
obligation is strengthened by insertion of sub-section (1A) in Section 4 of
MOFA by Maharashtra Amendment Act 36/86. Therefore, every agreement
between the promoter and the flat taker shall comply with the prescribed
Form V. It may be noted that, in that prescribed form, there is an explanatory
note which inter alia states that clauses 3 and 4 shall be statutory and shall
be retained. It shows the intention of the legislature. Note 1 clarifies that a
model form of agreement has been prescribed which could be modified and
adapted in each case depending upon the facts and circumstances of each
case but, in any event, certain clauses including clauses 3 and 4 shall be
treated as statutory and mandatory and shall be retained in each and every
individual agreements between the promoter and the flat taker. Clauses 3
and 4 of the Maharashtra Ownership Flats (Regulation of the Promotion of
Construction etc.) Rules, 1964 are quoted hereinbelow:
“3. The Promoter hereby agrees to observe, perform
and comply with all the terms, conditions,
stipulations and restrictions if any, which may
have been imposed by the concerned local
authority at the time sanctioning the said plans or
thereafter and shall, before handing over
possession of the Flat to the Flat Purchaser, obtain
from the concerned local authority occupation
and/or completion certificates in respect of the
Flat.

4. The Promoter hereby declares that the Floor Space
Index available in respect of the said land is 
square metres only and that no part of the said
floor space index has been utilized by the Promoter
elsewhere for any purpose whatsoever. In case the
said floor space index has been utilized by the
Promoter elsewhere, then the Promoter shall
furnish to the Flat Purchaser all the detailed
particulars in respect of such utilization of said
floor space index by him. In case while developing
the said land the Promoter has utilized any floor
space index of any other land or property by way
of floating floor, space index, then the particulars
of such floor space index shall be disclosed by the
Promoter to the Flat Purchaser. The residual
F.A.R. (F.S.I.) in the plot or the layout not
consumed will be available to the promoter till the
registration of the society. Whereas after the
registration of the Society the residual F.A.R.
(F.S.I.), shall be available to the Society.”
(emphasis supplied)

The above clauses 3 and 4 are declared to be statutory and mandatory
by the legislature because the promoter is not only obliged statutorily to give
the particulars of the land, amenities, facilities etc., he is also obliged to
make full and true disclosure of the development potentiality of the plot
which is the subject matter of the agreement. The promoter is not only
required to make disclosure concerning the inherent FSI, he is also required
at the stage of lay out plan to declare whether the plot in question in future is
capable of being loaded with additional FSI/ floating FSI/ TDR. In other
words, at the time of execution of the agreement with the flat takers the
promoter is obliged statutorily to place before the flat takers the entire
project/ scheme, be it a one building scheme or multiple number of buildings
scheme. Clause 4 shows the effect of the formation of the Society.

In our view, the above condition of true and full disclosure flows from
the obligation of the promoter under MOFA vide Sections 3 and 4 and Form
V which prescribes the form of agreement to the extent indicated above.
This obligation remains unfettered because the concept of developeability
has to be harmoniously read with the concept of registration of society and
conveyance of title. Once the entire project is placed before the flat takers at
the time of the agreement, then the promoter is not required to obtain prior
consent of the flat takers as long as the builder put up additional construction
in accordance with the lay out plan, building rules and Development Control
Regulations etc..
In the light of what is stated above, the question which needs to be
examined in the present case is whether this case falls within the ambit of
amended Section 7(1)(ii) or whether it falls within the ambit of Section 7A
of MOFA. As stated above, under Section 7(1) after the lay out plans and
specifications of the building, as approved by the competent authority, are
disclosed to the flat takers, the promoter shall not make any other alterations
or additions in the structure of the building without the prior consent of the
flat takers. This is where the problem lies. In the impugned judgment, the
High Court has failed to examine the question as to whether the project
undertaken in 1985 by the appellant herein was in respect of construction of
additional buildings or whether the project in the lay out plan of 1985
consisted of one building with 7 wings. The promoter has kept the requisite
percentage of land open as recreation ground/ open space. Relocation of the
tennis court cannot be faulted. The question which the High Court should
have examined is: whether the project in question consists of 7 independent
buildings or whether it is one building with 7 wings? The answer to the
above question will decide the applicability or non-applicability of Section
7(1)(ii) of MOFA, as amended. The answer to the above question will
decide whether the time to execute the conveyance has arrived or not. This
will also require explanation from the competent authority, namely,
Executive Engineer, “R” South Ward, Kandivali, Mumbai-400067
(Respondent No. 8 herein). In the dates and events submitted by the
appellant-promoter, there is a reference to the permission granted by ULC
authorities dated 16.11.1984 which states that the owner/developer shall
construct a building with 7 wings. One needs to examine the application
made by the promoter when he submitted the lay out plan in 1985. If it is the
building with 7 wings intended to be constructed in terms of the lay out plan
then the High Court is also required to consider the effect of the judgment in
the case of Ravindra Mutneja and Ors. v. Bhavan Corporation and
Ors. 2003 (5) BomCR 695 in which the learned single Judge has held that if
a building is put up as a wing of an existing building, it cannot be
constructed without the prior permission of the flat takers. In that
connection, the High Court shall also consider Permission dated 16.11.1984
under section 21(1) of ULC Act, application made to the competent
authority when initial lay out plan was sanctioned, applications for
amendments to lay out plans made from time to time and also agreements
between promoter and flat takers.
For the aforesaid reasons and in view of the law enunciated by us vide
this judgment, the impugned judgment is set aside and the matter is remitted
to the High Court for reconsideration. As the matter has been under litigation
for a considerable length of time, we hope that due priority will be given for
early disposal of this matter.
We wish to express our deep appreciation for the assistance rendered
by learned Solicitor General of India as amicus curiae in the matter.
Subject to what is stated, the appeal is allowed with no order as to
costs.

Is RERA Retrospective?

RERA

WRIT PETITION NO. 2737 OF 2017,

Bombay High Court. Judgment pronounced on

6th December 2017

 

The Writ transferred from Supreme Court to Bombay High Court has answered many important questions. The Judgment had specifically said that the provisions of Section 18 is not having penal provisions but compensatory in nature. Read the various para of the judgment.

 

Para 181. There was no accountability as to entity or persons responsible and/or liable for delivering on several projects that were advertised and in respect of which amounts had been collected from individual purchasers.

 

What was promised in advertisements/broachers, such as amenities, specifications of premises etc. was without any basis, often without plans having been sanctioned, and was far from what was finally delivered. Amounts collected from purchasers were either being diverted to other projects, or were not used towards development at all, and the developer would often be left with no funds to finish the project despite having collected funds from the purchasers. For a variety of reasons including lack of funds, projects were stalled and never completed and individual purchasers who had invested their life-savings or had borrowed money on interest, were left in the lurch on account of these stalled projects.

 

Individual purchasers were often left with no choice but to take illegal possession of premises offered to them under the guise of fit-outs etc., and without the developer having obtained an occupation/completion certificate, which in turn would be on account of a range of different acts of omission and commission such as non-adherence to the sanctioned plans, excess construction, lack of having obtained the requisite permissions etc. Agreements entered into with individual purchasers were invariably one sided, standard-format agreements prepared by the builders/developers and which were overwhelmingly in their favour with unjust clauses on delayed delivery, time for conveyance to the society, obligations to obtain occupation/completion certificate etc. Individual purchasers had no scope or power to negotiate and had to accept these one-sided agreements. 182. The real estate sector has largely been opaque, with consumers often unable to procure complete information, or enforce accountability against builders and developers in the absence of effective regulation. The biggest fallout affecting the sector has been (1) the delay in project completion; (2) diversion of funds collected from buyers, (3) one-sided contracts due to power asymmetry; (4) reneging on contractual commitments by both the developers and the buyers; and (5) constraints in financing and investment options available to the sector, thereby affecting its long-tern growth.

 

Para 253. The learned Counsel for the petitioners submitted that the first proviso to Section 3(1), Sections 18, 38, 59, 60, 61, 63 and 64 are retrospective/retroactive and are penal in nature. First proviso to Section 6, Section 7(4)(a) and Section 8 are penal in nature. They are violative of Articles 19(1)(g) and 20(1) of the Constitution of India. As against this the learned Counsel for the respondents submitted that first proviso to Section 3(1), Sections 18, 38, 59, 60, 61, 63 and 64 are prospective in nature. They submitted that first proviso to Section 3(1), first proviso to Section 6, Sections 7(4)(a) and Section 8 are not penal in nature.

 

Para 254. I have already held that Sections 3, 4, 5, 7 and 8 are required to be construed harmoniously. These provisions cannot be said to be violative of Articles 14, 19(1)(g), 20(1) and 300-A of the Constitution of India. These provisions cannot be construed as penal in nature. They impose reasonable restrictions on the promoter in larger public interest. These provisions regulate the construction activities in the planning area.

 

Para 255. Section 18 provides for refund of amount and compensation on account of – (a) failure of the promoter to complete or his inability to give possession of an apartment, plot or building either in accordance with the terms of the agreement for sale or as the case may be, duly completed by the date specified therein, or (b) due to discontinuance of his business as a developer on account of revocation or suspension of the registration under the Act or for any other reason. The plain language of Section 18(1)(a) shows that if the promoter fails to complete or is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale or, as the case may be, duly completed by the date specified therein, he would be liable to return the amount received by him together with interest including compensation. In case the allottee does not intend to withdraw from the project, the promoter is liable to pay interest for every month’s delay till handing over of possession. The purpose of Section 18(1)(a) is to ameliorate the buyers in real estate sector and balance the rights of all the stake holders. The provisions of RERA seek to protect the allottees and simplify the remedying of wrongs committed by a promoter. The intention of RERA is to bring the complaints of allottees before one Authority and simplify the process. If the interpretation suggested by the petitioners, namely, that the provision is applicable only after coming into force RERA is accepted, this would result in allottees having to approach different fora for interest prior to RERA and subsequent to RERA. In fact Section 71 of RERA provides that the cases pending before the Consumer Court can be transferred to Authority. Reference to pending cases is obviously a reference to claims for interest and / or compensation pending when the RERA came into force.

 

Para 261. In my opinion Section 18 is compensatory in nature and not penal. The promoter is in effect constructing the apartments for the allottees. The allottees make payment from time to time. Under the provisions of RERA, 70% amount is to be deposited in a designated bank account which covers the cost of construction and the land cost and has to be utilized only for that purpose. Interest accrued thereon is credited in that account. Under the provisions of RERA, 30% amount paid by the allottees is enjoyed and used by the promoter. It is, therefore, not unreasonable to require the promoter to pay interest to the allottees whose money it is when the project is delayed beyond the contractual agreed period. Even under  Section 8 of MOFA on failure of the promoter in giving possession in accordance with the terms of the agreement for sale, he is liable to refund the amount already received by him together with simple interest @ 9% per annum from the date he received the sum till the date the amount and interest thereon is refunded. In other words, the liability under Section 18(1)

 

(a) is not created for the first time by RERA. Section 88 lays down that the provisions of RERA shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.

Para ….. This is also pointer to indicate that the interest and compensation determined by the Adjudicating Officer under Sections 12, 14, 18 and 19 is not by way of penalty but is essentially compensatory in nature. As the penalties under Sections 59, 60, 61, 63 and 64 are on account of acts of commission or omission on the part of either promoter or the allottee as the case may be and which are prospective in nature, it cannot be said that these provisions are violative of Articles 14 and 19(1)(g) of the Constitution of India and amount to unreasonable restrictions.

 

Para 285. For the reasons already indicated, aforesaid decisions are not applicable to the facts of the present case. I have already indicated that the provisions of RERA are prospective in nature. The penalty under Sections 18, 38, 59, 60, 61, 63 and 64 is to be levied on account of contravention of provisions of RERA, prospectively and not retrospectively. These provisions, therefore, cannot be said to be violative of Articles 14, 19(1)(g), 20(1) and 300-A of the Constitution of India.