Consumer Connect: Builder Defaulted On Your Redevelopment Flat? Housing Society Can Still Be Held Responsible - KNOW HOW

Q. A friend booked a flat in a redevelopment project of a housing society in Borivali in March 2018 and paid more than 50% of the flat price to the builder. The agreement for sale was duly registered and possession was promised in May 2021. However, the builder failed to complete construction due to various problems. In April 2024, the society terminated the development agreement and appointed a new builder. But neither the new builder nor the society is willing to accommodate him in the same project despite his registered agreement. In such a situation, can he legally compel the society and/or the new builder to honour his booking? — Rajendra Rane, Borivali

A. Till last month, several Bombay High Court judgments held that homebuyers in redevelopment projects had “no privity of contract” with either the housing society or the new developer. Therefore, disputes of such purchasers could only be pursued against the original developer. This meant that buyers could merely seek monetary compensation from the defaulting builder and could not insist on getting possession of the flats for which substantial amounts had already been paid and utilised in partly constructed buildings. The new developer was also considered under no obligation to accommodate such purchasers.

Judgments such as Vaidehi Akash v/s New D N Nagar CHSL, Rajawadi Arunodaya CHSL v/s Value Projects, and Vikas Thakur v/s MHADA reflected this legal position.

However, the position has now changed significantly. In April 2026, the Supreme Court affirmed the landmark judgment of the National Consumer Disputes Redressal Commission (NCDRC) in Sandeep Grover v/s Sai Siddhi Developers & Goregaon Pearl CHSL. The ruling upheld the rights of homebuyers in redevelopment projects and held housing societies legally responsible where the original developer is terminated.

In its judgment dated June 20, 2023, the NCDRC held that after deriving benefits under the redevelopment agreement, the society cannot usurp flats falling within the developer’s share. The commission further observed that since the society had authorised the developer to sell flats, the developer acted as the society’s “agent.” Consequently, under Section 226 of the Contract Act, 1872, the society becomes liable for the actions of the developer. The NCDRC also held that homebuyers can enforce their Agreements for Sale against the society. Further, the society’s contention that neither the developer nor the flat purchasers had any lien over the building or society was declared void under Section 24 of the Contract Act.

In the Sandeep Grover case, the society had already allotted the sale-component flats to its own members after terminating the developer. Since the flats were no longer available, the NCDRC directed the society to refund the entire amounts paid by the homebuyers along with 9% annual interest from the respective dates of payment.

Importantly, the Supreme Court dismissed Civil Appeal 5188 of 2023 challenging the NCDRC judgment. The same position was reaffirmed in subsequent review and curative petitions, conclusively confirming the correctness of the Sandeep Grover ruling. The Supreme Court has thus settled the controversy regarding homebuyers’ rights in redevelopment projects where societies terminate defaulting developers. Homebuyers can now approach consumer commissions, MahaRERA, or civil courts to ensure that flats booked by them are not transferred or allotted to third parties. Housing societies should therefore avoid rejecting such claims merely on the ground of “no privity of contract.”

(Advocate Shirish V Deshpande is chairman, Mumbai Grahak Panchayat. Queries can be sent to him on email: shirish50@yahoo.com)

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Published on: Monday, May 18, 2026, 07:37 AM IST