Court Can Grant Mandatory Injunction At Interim Stage Under Section 9 Of The A&C Act When Builder Commits Multiple Breaches Eroding Housing Society’s Confidence In It: Bombay High Court

The bench of Justice Manish Pitale held that the relief of mandatory injunction at an interim stage is an extraordinary relief which ought not be granted in every case, however, the Court would not withhold such a relief it withholding such an injunction would be unjust and unconscionable.

The Court also remarked that in builder-co-operative society disputes, the members of the society cannot be left at the mercy of the builder and the Court must protect the interest of those members when the builder is found to be in multiple breaches such as failure to complete the construction work on time, failure to pay transit rent, brokerage, transportation and hardship compensation.

The Court held that in such a situation, the society cannot be forced to get the redevelopment work done through such a builder and it would have the right to get the work done through a new developer.

Facts

the Petitioner – Society hired the Respondent – Developer to undertake a redevelopment project for their property in Borivali, Mumbai. The society had 16 members, and the project was at the stage of a ground-plus-seven-floor shell structure.

The society passed resolutions appointing the developer for the project and signed a Memorandum of Understanding (MoU) in July 2015. The MoU obligated the developer to obtain property conveyance for the society and include the society's name in the property register. In August 2015, conveyance was obtained.

However, in 2016, the Municipal Corporation issued a notice, leading to the evacuation and eventual demolition of the building in 2017. The society claimed that there was no progress in the redevelopment project, and the developer failed to execute the development agreement. They passed a resolution in February 2018 to terminate the MoU, but it wasn't acted upon until May 2018.

The developer received the necessary approvals but started defaulting, prompting the society to call for compliance with the development agreement and payment of monthly rentals.

The development agreement required the developer to provide a bank guarantee and complete the project within specified timeframes. Due to ongoing issues, a Supplementary Development Agreement was signed in November 2019, but it faced problems related to bank guarantees and FSI sharing.

As the developer failed to act, the society called for redevelopment work in May 2020 and eventually terminated the development agreement in September 2020. The developer made assurances but later defaulted again.

The society called for the termination of various agreements, and on March 29, 2023, invoked the arbitration clause. They filed a Section 9 petition on April 1, 2023. Thereafter, the respondents also filed a Section 9 application against the society.

Contention of the Parties

The petitioner sought the relief of mandatory injunction against the respondent on the following grounds:

• Developer failed to fulfill its obligations under the Development Agreement and the Supplementary Development Agreement.
• The redevelopment project, which was supposed to be completed in 24 months, including the grace period, only resulted in a seven-floor shell structure. The Respondent – Developer repeatedly defaulted.
• The Respondent – Developer owed arrears of transit rent (about Rs. 90,00,000), hardship compensation (about Rs. 25,00,000), and transportation charges (Rs. 6,40,000).
• The Petitioner – Society, consisting of only 16 members, had trusted the Respondent – Developer to redevelop their property after the existing structure was demolished by the Municipal Corporation. Due to these defaults, the society's members were in dire straits.
• Even after the Development Agreement and Supplementary Development Agreement were terminated in September 2020, negotiations took place because of the society's limited resources. However, the Respondent – Developer failed to take positive steps, justifying the termination of the agreements.
• That similar mandatory reliefs have been granted by the court in similar circumstances under Section 9 of the relevant Act.

The respondent made the following counter-arguments:

• that the reliefs sought by the petitioner i.e., mandatory injunction, would amounts to granting a final relief at an interim stage and there would nothing remain for the parties to arbitrate.
• The delay in the construction work was on account of Covid-19 pandemic.
• That the project could still be completed, as significant construction work had already been done.
• The respondent has the right to enjoy the development potential of the land and sell the saleable component as per the terms of the agreement.
• The relief sought by the petitioners would also be in teeth of Section 14(3) of the Specific Relief Act, therefore, the Court is not empowered under Section 9 of the A&C Act to grant such a relief.

Analysis by the Court

The Court observed that the respondent is in multiple breaches of the agreement as it has failed to comply with the terms and conditions of the agreement.

The Court held that a Court exercising powers under Section 9 of the A&C Act can grant mandatory injunction at an interim stage when the builder is found to be in multiple breaches which results in the co-operative society losing its confidence in the builder.

The Court held that the relief of mandatory injunction at an interim stage is an extraordinary relief which ought not be granted in every case, however, the Court would not withhold such a relief it withholding such an injunction would be unjust and unconscionable.

The Court also remarked that in builder-co-operative society disputes, the members of the society cannot be left at the mercy of the builder and the Court must protect the interest of those members when the builder is found to be in multiple breaches such as failure to complete the construction work on time, failure to pay transit rent, brokerage, transportation and hardship compensation.

The Court held that in such a situation, the society cannot be forced to get the redevelopment work done through such a builder and it would have the right to get the work done through a new developer.

Accordingly, the Court allowed the petition and restrained the respondent from creating any third-party rights, obstructing the redevelopment work through a third-party developer, interfering with the possession of the members of the society. Further, it directed the respondent to hand over original documents pertaining to the subject property to the members of the society.

Case Title: Swashray Co-op. Housing Society Ltd v. Shanti Enterprises, Commercial Arbitration Petition (L) No. 10432 of 2023

Date: 03.11.2023

Counsel for the Petitioners: Mr. Tushar Gujjar a/w Mr. Deepak Singh i/b. SL Partners

Counsel for the Respondents: Mr. Milan Desai

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