Q. Our Society in Goregaon (West) is in the midst of re-development. The Developer appointed by the Society could not obtain necessary permissions from various concerned authorities despite the lapse of more than 2 years after executing the Development Agreement. The Society therefore terminated the Development Agreement with that Developer. The dispute arising from this termination was referred to Arbitration, where the award of the Arbitration is also in favour of the Society. The Society is now in the process of selecting and appointing a new Developer for redevelopment. However, the new intending Developers are not ready and willing to take the liabilities created by the erstwhile Developer with the buyers who had booked flats in our society’s redevelopment project. Some experts say that as per Sec 15 of RERA, the intending developer is required to independently comply with all pending obligations of the erstwhile developer towards the homebuyers. Kindly advise if it is true that in such a scenario the new developer is required to take over the liabilities of the erstwhile Developer. Can the homebuyers who had entered into Agreement for Sale with the erstwhile Developer insist on the new intending Developer or the Society to honour the erstwhile Developer’s obligations under their Agreement for Sale? Is it mandatory for the new Developer to obtain consent of 2/3rd of such homebuyers for registering such a project with MahaRERA. …… Gopal Modi Goregaon (West) A.
The situation you described is common among housing societies that have terminated developers for serious breaches. The Bombay High Court’s recent judgment dated September 9 in Tuvin Construction v/s. State of Maharashtra & ors clarifies your query. Section 15 of RERA applies when an existing developer seeks to transfer majority rights and liabilities to another developer, requiring compliance with pending obligations to homebuyers and MahaRERA approval after obtaining two-thirds consent from allottees.
Your case, however, does not fall under Section 15, as you have terminated the earlier developer and are appointing a new one, who must seek fresh MahaRERA registration. In the Tuvin Construction case, MahaRERA insisted on two-thirds consent from allottees for project registration, arguing that the society, as a co-promoter, transferred majority rights to the new developer. The High Court rejected this as misconceived, ruling there is no privity of contract between the society or new developer and third-party purchasers claiming through the erstwhile developer.
Thus, homebuyers who entered Agreements for Sale with the terminated developer cannot insist that the new developer or society assume the erstwhile developer’s liabilities or accommodate them in the redevelopment project. The Bombay High Court in Tuvin Construction clarified that such homebuyers lack privity of contract with the new developer or society. These homebuyers must pursue claims for refunds, interest, and compensation independently through MahaRERA, Consumer Commission, NCLT, or civil courts, as appropriate.
This legal position may seem unfair to homebuyers, who, through no fault of their own, are denied flats in redevelopment projects. The developer often uses homebuyers’ funds to provide free homes to rehab members, yet homebuyers are left with only refunds, interest, and compensation after lengthy, costly litigation. This may deter prudent homebuyers from investing in redevelopment projects. Nonetheless, in your case, the new developer is not required to assume the erstwhile developer’s liabilities or obtain two-thirds allottee consent for MahaRERA registration.
(Advocate Shirish V Deshpande is chairman, Mumbai Grahak Panchayat. Queries can be sent to him on email: shirish50@yahoo.com)
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