In a significant relief for homebuyers involved in redevelopment projects, the Supreme Court of India has ruled that housing societies can be held accountable if a developer defaults and is later replaced. The judgment overturns earlier legal interpretations that denied buyers any direct contractual relationship with societies or newly appointed developers.
The issue came into focus after a homebuyer booked a flat in a redevelopment project in Borivali in March 2018 and paid over 50% of the apartment cost. Although the Agreement for Sale was registered and possession was promised by May 2021, the project stalled due to construction delays. In April 2024, the housing society terminated the developer and appointed a new builder, who, along with the society, refused to honour the buyer’s booking despite the registered agreement.
Advocate Shirish V Deshpande, chairman of Mumbai Grahak Panchayat, explained that until recently, several judgments of the Bombay High Court had maintained that flat purchasers in redevelopment projects had “no privity of contract” with either the housing society or the replacement developer. As a result, affected buyers were limited to seeking financial compensation from the original developer and could not demand possession of their booked flats.
This legal position was reflected in cases such as Vaidehi Akash v/s New D N Nagar CHSL, Rajawadi Arunodaya CHSL v/s Value Projects and Vikas Thakur v/s MHADA.
However, the legal landscape changed after the Supreme Court upheld the landmark ruling delivered by the National Consumer Disputes Redressal Commission (NCDRC) in the case of Sandeep Grover v/s Sai Siddhi Developers & Goregaon Pearl CHSL.
In its June 20, 2023 judgment, the NCDRC held that once a society authorises a developer to sell flats under a redevelopment agreement, the developer effectively acts as the society’s “agent” under Section 226 of the Contract Act, 1872. The commission ruled that societies cannot deny responsibility after benefiting from redevelopment arrangements.
The NCDRC further stated that homebuyers have the right to enforce their Agreements for Sale against the society. In the Sandeep Grover matter, the commission directed the society to refund the buyers’ money with 9% annual interest after the flats were reassigned elsewhere.
Source: The Free Press Journal
