The Bombay High Court on 5 November held that an incoming developer cannot be held liable for a previous developer's refund obligations merely because it knew about those liabilities, in the absence of a contractual or statutory basis for assuming them.
A Division Bench comprising Justices Suman Shyam and Gautam A. Ankhad allowed petitions filed by H. Rishabraj Developers, and set aside Maharashtra Real Estate Regulatory Authority's (MahaRERA) directions requiring it to pay interest on Rs. 37 lakh owed by former developer Jayant Mehta to two flat purchasers, along with consequential recovery measures. It observed:
“Knowledge of another person's liability does not amount to taking over of that liability. There is no contract, statutory provision or order of a competent authority under which the Petitioner undertook, or was made liable for, the refund obligations of Respondent No. 5.”
The dispute arose from two flat purchasers, Kinjal M. Karia and Mahesh Karia, seeking recovery of Rs. 37 lakh paid to Jayant Mehta, proprietor of Bhakti Enterprises, for a flat in the 'Samaj Darshan' redevelopment project in Kandivali West, Mumbai.
Mehta issued an allotment letter for Flat No. 902 on 22 January 2015. The property's owner, charitable trust Khambhati Modh Vanik Samaj, terminated his development agreement on 15 July 2017 over alleged contractual breaches.
The Karias approached MahaRERA on 6 March 2018. On 17 May 2018, MahaRERA disposed of their complaint after recording Mehta's undertaking to repay Rs. 37 lakh in accordance with an agreed schedule and the purchasers' agreement to forgo interest. After Mehta defaulted, the Karias filed a review-cum-execution application on 12 June 2018.
Meanwhile, the High Court directed the Court Receiver to take possession of the property and hand it over to the Trust for appointment of a replacement developer. H. Rishabraj Developers executed a fresh development agreement on 7 July 2021 and subsequently completed the redevelopment.
On 30 July 2021, the appellate tribunal remanded the Karias' application to MahaRERA. MahaRERA called Rishabraj for a hearing without formally impleading it in the proceedings.
Although MahaRERA permitted registration of the project in Rishabraj's favour on 21 January 2022, excluding past project liabilities, it directed Rishabraj and Mehta on 21 March 2022 to pay interest on Rs. 37 lakh from 17 May 2018 until realisation.
Subsequent recovery orders dated 23 March and 30 May 2022 resulted in the attachment and freezing of Rishabraj's bank accounts.
Challenging these directions under Articles 226 and 227 of the Constitution, Rishabraj contended that it had never assumed Mehta's refund obligations and had not been formally impleaded in the proceedings. The Karias relied on the co-promoter, project-transfer and refund provisions of the Real Estate (Regulation and Development) Act, 2016 (RERA Act).
Mehta argued that Rishabraj and the Trust could not retain the benefit of his construction expenditure while disowning the associated liabilities.
The Court held that Section 15 of the RERA Act was inapplicable because Rishabraj's appointment followed a court-supervised process and did not involve a transfer of the project by Mehta. Distinguishing the precedent concerning co-promoters, it observed:
“It does not deal with the present fact situation where one development agreement is terminated and another developer is appointed through a court process on a 'clean-slate' basis.”
Further, the judges held that Mehta's refund liability arose from his own undertaking and remained his personal responsibility. They observed:
“In this case, a refund order, already passed against Respondent No. 5 on the basis of its own undertaking, is not a 'pending obligation' of the project which passes to whoever completes the building. It is the debt of Respondent No. 5 only”.
Moreover, the Bench held that Section 18 of the RERA Act could not impose liability on Rishabraj because Mehta had received and retained the purchasers' money, whereas Rishabraj had received none of it. The interest direction also covered a period of more than three years before Rishabraj entered the project.
On the issue of non-joinder, it held that Rishabraj's appearance through an advocate could not substitute its formal impleadment in the proceedings. It said:
“A judgment or order of a court or quasi-judicial authority, rendered in adversarial proceedings, binds only the parties to those proceedings. An adjudicating authority cannot pass orders against a person who is not a party to the proceeding.”
Accordingly, the High Court set aside the impugned directions and recovery measures against Rishabraj, including the execution order dated 26 November 2024, and directed the removal of attachments over its bank accounts. Mehta's repayment undertakings remained binding, leaving the Karias at liberty to pursue recovery, including interest, against him and/or the Trust, if maintainable.
Petitioner (H. Rishabraj Developers): Advocates Mayur Khandeparkar, Bishwajeet Mukharjee, Naman Gupta, Humera Syed, Omkar Mendadkar.
Respondent (Maharashtra Real Estate Regulatory Authority): Advocates A.K. Saxena, T.R. Yadav, P.B. Kadam.
Respondent (Kinjal M. Karia and Mahesh Karia): Advocates Vinodini Srinivasan, Atmaram Patade, Shraddha Patil, Rahul R. Dubey.
Respondent (State of Maharashtra): Advocates Himanshu Takke, A.I. Patel, R.A. Salunkhe.
Respondent (Khambhati Modh Vanik Samaj): Advocates Vishal Kanade, Shashikant Chaudhari, Snehal S. Chaudhari, Tanaya Patankar, Atharv Nalawade, Pranot Pawar.
Respondent (Jayant Mehta, proprietor of Bhakti Enterprises): Advocates Nikita Jacob, Kinjal Khandelwal.