Home > Article Showcase > Redevelopment Matters > Society can Cancel the Da and Appoint Another Developer

The transformation of any property from ‘OLD’ to ‘NEW’ by way of redevelopment is now proved a nightmare for thousands of housing societies their redevelopment projects in Mumbai are plagued with delay in its completion with many more are being added to this band-wagon every month.

There are unknown Developers of small means with insufficient funds or have pocketed redevelopment projects more than their financial resources or have diverted their funds to other projects that at a later date have stopped paying rentals to the members of societies due to inordinate delay with offering numerous excuses each time

In one of such similar cases, the Bombay High Court in its landmark judgment ruled that the aggrieved housing society can terminate a Development Agreement (DA) executed with a Developer for his non-performance. It was learnt that the Developer has been facing financial problems and had committed gross delay in taking steps under the said Development Agreement which resulted in gross hardship to the members of the society. There was no transparency and integrity from the Developer’s side in executing the terms of Development agreement. Refer to: http://www.redevelopmentofhousingsociety.com/index.php/203-housing-society-can-terminate-the-development-agreement

 

It was observed by the Justice R.D. Dhanuka that if the society has lost the confidence in Developer, it cannot be forced to let the society continue with the redevelopment contract.

 

Considering the adverse situation, the Court allowed the society to appoint another Developer to redevelop its five buildings as the said buildings were in inhabitable condition, it was in the interest of justice that before any untoward incident takes place, the society should be permitted to take steps to appoint another Developer and go ahead with the redevelopment.

 

It was in February 2010, the society passed a resolution at its Special General Body Meeting to appoint a Developer for the redevelopment of their property. The Development Agreement was signed with the Developers in January 2011 for redevelopment. The Developer was required to obtain preliminary permissions to start construction within three months from the execution of the said Agreement, furnish a Bank Guarantee, Indemnity Bond and payment of hardship compensation etc. The said Agreement stipulated that the Developer should complete the redevelopment project within 29 months.

 

When the Developer delayed procuring permissions, the society had granted an extension of 16 months. No progress was made and the said extension expired in September 2011. Five months later, the Developer conveyed to the society that he would offer lesser carpet area to the members in the new building on the pretext that the Development Control Rule (DCR) had been amended and the plans are to be resubmitted resulting the further delay.

 

The society represented to the Court that the builder procured the basic building permission (IOD) in March 2013 i.e. a full 26 months after the execution of Development Agreement. Further, the said IOD was defective as it covered only flats for 56 members and not all the 97 members. The IOD was in the name of Developer’s another undertaking and not in the society's name.

 

The Developer then served a notice on the society, asking its members to vacate their flats by end of December 2013 blatantly ignoring the conditions of the said Development Agreement. The Developer’s representative also expressed to the society about its financial problems, stating that it would be colossal loss to the tune of more than Rs.16 Crores if more carpet area was offered in the redeveloped property as promised in the said Agreement.

 

The members of the society at its General Body Meeting held on November 14, 2014, unanimously agreed and resolved to invoke a clause in the Development Agreement to impose liquidated damages of Rs.18.80 Crores on the Developer by reasoning their dissatisfaction and hardship due to the delay.


The society issued a notice on the Developer asking it to rectify the breaches within 30 days or risk cancellation of the redevelopment deal. The Developer filed for arbitration. The Court appointed an arbitrator and announced that the society must issue a 15-day notice to the Developer if the society decides to appoint another Developer.


The Court took the serious cognizance of the prima-facie evidences which indicates that the Developer committed various breaches and gross delay. Though the Letter of Intent was issued by the society to the Developer in May 2010 and thereafter, no steps were taken by the Developer to get the flats vacated till said Agreement was on the verge of terminating. However, it was further stated by the learned Judge that Developer would be entitled to compensation in case it succeeds in the arbitration proceedings.

 

The above case is between The Jal Ratan Deep Co-operative
Housing Society Limited, Bangur Nagar, M.G. Road,
Goregaon (West), Mumbai 400 104 and M/s Kumar Builders Mumbai Realty Private Limited.

 

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