Developer Not Paying 'Transit Rent' For Months A 'Growing Social Injustice'; Single Default Sufficient To Terminate Agreement : Bombay High Court

A single bench of Justice Gautam Patel has observed that in matters of redevelopment, which are in the realm of private law, there is no such thing as 'substantial compliance.'

The slightest delay in project completion, unless specifically accepted by the society, and even one single default in payment of transit rent or other dues is actually sufficient to warrant a termination. There is no such thing in these matters as 'substantial compliance'. That is not the principle of obligations in the realm of private law.

The Case

The court was hearing a petition by Rajawadi Arunodaya Co-op Housing Society Ltd. from Ghatkopar (east) under Section 9 of the Arbitration and Conciliation Act for interim reliefs before the arbitral proceedings begin, regarding a six-year delay in completion of the project and non-payment of rent by developer Value Projects Pvt Ltd.

The original building with 20 residential and seven commercial units was built before 1985 on 1000 sq meters of land. The Society entered into a deed of redevelopment on April 5, 2013, and handed over vacant possession of their flats in 2015. However, a severe default in rent and contractual obligation by the developer, including the creation of third-party rights compelled them to terminate the contract in 2019 and approach the High Court, last year.

Justice Patel has granted a mandatory injunction to the society and ordered the developer to hand over peaceful possession of the property by April 19, appointed a Court Receiver who remain in symbolic possession until completion of the project and also appointed an arbitrator to decide the disputes between the society and developer arising out of the 2013 contract.

The developer's petition for interim reliefs, a status-quo so that his investment remained protected, was dismissed. "This order is not a final determination of the developer's final contentions or claims. It may in arbitration seek suitable reliefs," Justice Patel held.

Observations

Justice Patel observed that re-development involves a very real issue of human displacement and an associated trauma caused to an entire community by the delay in project completion. Where people who have lived together for generations suddenly lose contact forever.

This is what has been lost in translation. This is what delayed redevelopment projects do not begin to let us understand. There is a very real human tragedy unfolding in case after case, and it is tearing apart the social fabric of this city. It is all very easy to say in a Court of law that "arrears of transit rent" have not been paid. What does this actually mean? Digits and commas on a page in a lawsuit do not let us comprehend the terrifying reality of what that non-payment of rent month after month after month must mean to ordinary middle-income people."

Describing a typical middle-class community, with its open-doors and families celebrating festivals together, Justice Patel observes that "development" in a dryly-worded contract, does not tell us what has happened — that this community has been literally splintered and torn apart. The contact that has persisted through generations has almost certainly been lost.

This city is really nothing but an agglomeration of these communities [Maharashtrian, Gujarati, Tamil, Kannada, Parsi or otherwise] working together.

He ruled that the balance of convenience would lie in the society's favour, as a development project would be a gamble for a developer but a matter of survival for a society.

The hardship to the members is real and immediate; the so-called hardship to the Developers is notional. When it spent in the project, this was no altruism or charity…The Developer gambled on the project. Receiving monthly rent is not a sop, not a matter of 'convenience'. It is a matter of survival. Therefore, the non-payment of dues, the delays in project completion, and not paying transit rent for months together speaks to an inherent, and constantly growing, social injustice.

Justice Patel said that there are different categories in re-development cases. However, in a case where the developer has left the job mid-way and the society comes to court for termination, the developer must bring forward a proposal covering, (i) accumulated arrears of transit rent and other dues; (ii) the obligation to pay ongoing transit rent until possession with an occupation certificate; (iii) payment of statutory and corporation dues, including property tax and (iv) a demonstration of the financial means to bring the project to completion.

And in its absence, be ready for termination of the contract, ejectment from site and liability to pay all the accumulated debts.

Justice Patel noted the case of Gopi Gorwani v Ideal Cooperative Housing Society Ltd & Ors, 2013 SCC OnLine Bom 1967, where it was held that "Loss of faith and confidence on account of contractual violations and breaches by a developer are sufficient grounds to find for the society and against the developer."

The Society was represented by advocate Mayur Khandeparkar, with Tushar Gujjar, instructed by Solicis Lex. The developer was represented by advocate Rohaan Shah, with Paresh Shah, & Srisabari Rajan, instructed by Shah & Sanghavi