What happens if you surrender development rights in your property for a newly constructed flat and monetary compensation, but the developer withholds your money and fails to meet other terms? A recent case in the Maharashtra Consumer Disputes Redressal Commission answered this question, ruling in the favour of the landowners.
The case dates to March 2010, when Ms Sejal Pravin Shah and Monal H Mehta (along with their late mother) transferred their rights to a builder for the purpose of redevelopment. They owned a 1/3rd undivided share in a property known as ‘Magan Vihar’ in Mumbai’s Matunga, for which they executed an Agreement to Assign on for redevelopment.
A Supplementary Agreement dated 18.02.2015 and an Agreement to Offer Permanent Alternate Accommodation (PAA) dated 18.02.2015 were also signed. While the developer was to provide a 1,395 sq. ft. flat, parking, and monetary benefits in return, it allegedly failed to fulfil several crucial financial and statutory obligations.
Landowners vs builder: What was promised?
In their complaint filed with the Consumer Commission, Shah and Mehta claimed that as per the terms of the agreement, the builder agreed to give a 1395 sq. ft. flat in the newly constructed building, along with 2 car parking spaces.
The developer also agreed to pay monetary compensation, rent for temporary alternate accommodation, and a penalty for delayed possession. Moreover, the developer was obligated to register the agreement and bear the stamp duty and registration charges for up to 1000 sq. ft. of the allotted area.
While the landowners were given physical possession of the flat in May 2018, the developer failed to pay their share of the stamp duty and execute the registered PAA Agreement. They claimed that the builder also didn’t pay the agreed enhanced compensation of Rs 88 lakh for the increased FSI, as stated in the Supplementary Agreement.
Shah and Mehta further alleged that the developer failed to pay Rs 6,60,000 rent for temporary accommodation from December 2017 to April 2018; Rs 16,50,000 penalty for delayed possession; and Rs 10,00,000 as reimbursement for raw materials purchased by them.
And instead of complying with obligations, the developer issued them a “baseless legal notice” in June 2022 demanding Rs 30,26,592 for alleged construction costs.
What did the Consumer Commission find?
Despite having secured the benefits of the development rights and handing over possession of the flat in May 2018, "the developer blatantly ignored the statutory mandate of the Maharashtra Ownership Flats Act, 1963, by failing to register the Agreement to Offer Permanent Alternate Accommodation," the Commission stated.
The developer also arbitrarily withheld legitimate financial entitlements owed to the landowners. According to the Commission, the issuance of the demand notices claiming Rs 30,26,592 from the landowners constitutes a textbook example of an unfair trade practice.
It observed that the conduct of the builder demonstrates a gross and deliberate dereliction of both contractual obligations and statutory duties. Hearing the matter ex parte against the developer, as it failed to appear despite notice being issued, the Commission ordered the following:
- The developer is directed to execute and register the Agreement to Offer Permanent Alternate Accommodation within 60 days from the date of receipt of this order.
- The developer shall bear the stamp duty and registration charges to the extent of 1000 sq. ft. carpet area.
- The builder is ordered to pay Rs 88 lakh towards the enhanced FSI compensation, along with 8% interest from the date of default till actual realisation.
- It should pay Rs 6,60,000 towards arrears of temporary accommodation rent, and Rs 16,50,000 towards penalty for delayed possession.
- It must reimburse Rs 10,00,000 towards the purchase of raw materials.
- It shall pay Rs 1,00,000 towards compensation for mental agony, harassment, and hardship; Rs 50,000 towards the cost of litigation.
In all, the builder has been directed to pay over Rs 1.22 crore to the landowners (Mehta and Shah).
Why did the landowners succeed; which agreements supported their case?
Legal experts highlight that the landowners’ entitlements were clearly recorded in executed agreements, which helped them win this case. Another decisive factor was the developer’s breach of expressly recorded contractual obligations, Bhargav KS, Managing Partner at K.S & B.K.S Law Associates, Bengaluru, told ET Wealth Online.
The agreements established the landowners’ entitlements to accommodation, enhanced FSI compensation, transit rent, delay penalty and registration. Their affidavits and correspondence substantiated the defaults, while possession in May 2018 demonstrated delayed delivery.
Importantly, the Commission held that surrender of development rights constituted consideration for “housing services”. “The fact that the developer remained ex parte certainly strengthened the landowners’ position,” added Yash Dhruva, Partner at MDP Legal, Advocates & Solicitors.
The Commission allowed the claims on the strength of the contractual and evidentiary record.
Why is registration of a property important, and who pays the stamp duty?
Registration of the permanent alternate accommodation agreement is important because it formally records the landowner’s rights in the replacement flat, including its area, possession entitlement and the developer’s other obligations, explained Dhruva.
It also creates an official public record of the transaction and provides greater certainty in establishing and subsequently dealing with rights concerning the property. In a redevelopment, therefore, registration should not be left outstanding merely because physical possession has been handed over.
Stamp-duty liability must be distinguished from the obligation to register: ordinarily, the purchaser bears duty on a conveyance unless the parties agree otherwise, said Bhargav.
However, in the present case, the agreement expressly required the developer to bear the stamp duty, and registration charges up to 1,000 sq. ft.
What relief can a home/landowner claim if builder delays possession or withholds agreed payments?
According to Bhargava, relief should be framed around the agreement, the established default and the resulting loss. Depending on the facts, claims may include outstanding transit rent, agreed redevelopment compensation, contractual delay compensation, reimbursement of substantiated expenditure and interest.
Under RERA, where applicable, an allottee can file a complaint under Section 31. In cases of delayed possession, Section 18 provides for refund with interest and compensation where the allottee withdraws from the project, or interest for every month of delay where the allottee continues with the project.