Delayed home possession: Developer can't go scot-free citing financial unviability or unfavourable situation: Maharashtra Real Estate Tribunal

(Representative image)

The Maharashtra Real Estate Appellate Tribunal (MREAT) has directed a city-based developer to complete a stalled residential housing project in Mumbai's Kandivali area within 12 months and pay interest to home buyers from 2013 till the date of possession for bookings made in 2010-2011.

Further, as more than 10 years have passed after taking bookings from the home buyers, the MREAT, in its judgment, said that the developer cannot go scot-free under the garb of financial unviability and financially unfavourable market conditions as the excuse for not completing the project.

The MREAT has, in the order, stated that the developer being in the business of real estate development is bound to be conscious of the market situations and is bound to carry the risk, if any, inherent to the business.

The case

The case goes back to 2010 when five buyers booked apartments in Mumbai's Kandivali area with a developer. Each of units cost around Rs 50 lakh. The buyers paid around 15 percent as booking amount. As per Clause-9 of the allotment letter given to each buyer, the possession timeline was 30 to 36 months.

However, the caveat here was that this timeline would kick off from the date of issue of commencement certificate (CC) or sanction of the amended plans by the Mumbai Civic Body also known as the Brihanmumbai Municipal Corporation (BMC) for loading and utilisation of Transferable Development Rights (TDR) on the plot, whichever is later.

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Further, owing to inordinate delay in execution of agreements for sale and delivery of possession of flats, the five complainants or five home buyers, filed separate complaints, claiming identical reliefs, with the MahaRERA. The buyers contended that they should be given interest for delayed payment, the developer be asked to complete the project, and to also sign the agreement for sale.

Developer’s argument in MahaRERA

The developer, in MahaRERA, argued that the complaints were premature as the date of completion of project had not arrived in terms of Clause-9 of the allotment letters. It was contended that development plans of BMC were pending and the new rules were not making the project financially viable at the current juncture.

The developer therefore, said that he intended to cancel all the allotments made by it in the project. It was further contended that given the financial scenario of the market it was not financially favourable to undertake the project, and that the project would not see any work in the foreseeable future.

The developer argued that though the plinth has been constructed, permission had not been granted by the Competent Authority, and further construction has been stalled from 2010.

MahaRERA order

MahaRERA observed that the CC has not been obtained by the developer, and therefore, considering the provisions of RERA, directions under Section 13 for registration of agreements for sale with respect to complainants’ (home buyers) flats cannot be issued in the absence of CC.

On interest for delayed possession, MahaRERA observed that no agreement for sale has been entered into between the parties showing any agreed date of possession, and so relief regarding interest on delayed possession cannot be considered by MahaRERA.

However, MahaRERA acknowledged the rights of the home buyers in the project. It directed that whenever the respondent starts the project it shall fulfil its statutory obligations towards the complainants being home buyers. It also held that the project will not go ahead further as the respondent had abandoned the same as on date, and accordingly disposed of the complaints.

Buyers challenge the order

The buyers, not satisfied with the directions of MahaRERA, approached the MREAT, which is an appellate tribunal. In its judgment dated June 30, 2022, the MREAT directed the developer to start work on the project. The order was uploaded on the website of MahaRERA on July 5, 2022.

According to the order of MREAT, the grounds of appeal of the buyers in MREAT was that it was the developer who was under obligation to obtain all timely approvals and extensions with respect to CC of the project. Last CC was obtained in 2013.

Thereafter, only in December 2019 did the respondent make up a false case of financial non-viability. The Authority (MahaRERA) did not appreciate that no attempts were made by the respondent between 2013 and 2019 to obtain further CC to carry out construction beyond the top podium level.

What did the MREAT say?

The MREAT, in its judgment, said that home buyers cannot be made to wait indefinitely for possession, as the project ought to have been completed within a reasonable period of three years from the date of allotment. It is evident that from 2013 to 2019, the developer did not take any concrete steps to seek approvals/permissions, and therefore, the building could not be completed even after 11 years of the allotment Ietters being handed out.

The judgment further said, "The developer alone is responsible for creating this untoward situation and statutorily liable to fulfil the contractual obligations. In our view, the developer cannot be allowed to take advantage of its own wrong and go scot-free under the garb of financial unviability and financially unfavourable market conditions, totally an unsubstantiated and unsupported defence, which is nothing but a lame excuse to shirk from the contractual and legal obligations to complete the project even after accepting part-consideration from the flat purchasers and utilising the money for more than 10 years without return. If such a defence is accepted the very purpose of enacting RERA would be frustrated."

The MREAT further said that interest cannot be denied merely because no agreement for sale is signed between the buyers and the developers. In this context, it said, "This Tribunal has consistently held in a series of cases that for the purpose of working out delay in possession, other documents like allotment letter, or brochure, etc. specifying the date of possession can be considered in the absence of formal agreement executed by the parties."

The MREAT directed the developer to execute agreements for sale in respect of subject flats with complainants within 30 days, and to complete construction of the project within 12 months after taking due approvals and permissions from the competent authorities.

The developer was also directed to pay interest at the rate of State Bank of India's highest Marginal Cost of Lending Rate (MCLR) plus 2 percent to the home buyers on the amounts paid from July 2013 in case of first buyer, October 2013 for the second buyer, December 2014 in case of third buyer, August 2014 in case of fourth buyer and October 2013 in case of the fifth buyer, till handing over actual possession of the respective flats.

Landmark judgment?
Lawyers have termed this as a landmark judgment that will set a good example. Dr Sanjay Chaturvedi, a lawyer actively practicing in MahaRERA, said, "This is how it should be. The judgment by the tribunal is a landmark judgment and is the first of its kind. This will set a good precedent because how can developers say they cannot deliver the project? After taking the money from home buyers, it is the obligation of the developer to construct and deliver."