Promoter Cannot Use Grace Period After Missing Fit-Out Possession Deadline Under RERA: Bombay High Court

The Bombay High Court on 8 June held that although the Real Estate (Regulation and Development) Act, 2016 does not recognise “fit-out possession”, a promoter cannot rely on its own failure to hand over fit-out possession within the agreed timeline to invoke a contractual grace period and defer final possession.

Justice Sharmila U. Deshmukh dismissed second appeals filed by Macrotech Developers Ltd. (formerly Bellissima Hi-Rise Builders Pvt. Ltd.) and upheld a Maharashtra Real Estate Appellate Tribunal (REAT) order directing the developer to refund amounts paid by two allottees in the 'Palava Lakeside A to H' project at Kalyan, along with interest. The Single-Judge Bench held:

“The statutory provisions of RERA do not recognise any concept of possession for fit outs and provides for the rights and obligations of the parties with respect of the date of handing over final possession. The date of possession for fit outs would be relevant only for determining the date of final possession. Where the Appellant failed to hand over possession for fit outs by 28th February, 2018, the Appellants cannot take disadvantage of their own failure to comply with the terms of agreement to factor in the grace period applicable to date of possession for fit outs and defer the date of final possession.”

The dispute arose from Flat Nos. 901-H and 902-H booked by Suryakant Yashwant Jadhav and his HUF under registered agreements executed in 2014 for Macrotech's Palava Lakeside project at Palava, Kalyan. The agreements required the developer to offer fit-out possession by 28 February 2017 under Annexure-2 read with Clauses 1.13 and 11.1.

The allottees paid around 95–96% of the total consideration. In March 2018, they called upon Macrotech to hand over possession within 30 days and warned that they would withdraw from the project if it failed to do so. They withdrew from the project on 14 May 2018 and sought refund, interest and compensation.

Then, they approached the Maharashtra RERA Authority under Section 18 of the Act. The Adjudicating Authority rejected their claim by order dated 6 March 2019. The Real Estate Appellate Tribunal (REAT), however, reversed this on 12 January 2021 and directed refund with interest, while granting liberty to seek compensation under Sections 71 and 72 of RERA.

Macrotech challenged the REAT order before the High Court. It argued that Clauses 11.1 and 11.2 allowed a one-year grace period and extended the outer limit for final possession to 28 February 2019. It also submitted that it obtained a part occupation certificate on 10 May 2018 and offered possession on 21 June 2018.

The allottees argued that Macrotech failed to hand over even fit-out possession within the agreed timeline. They also submitted that the communication dated 21 June 2018 did not clearly state whether it offered fit-out possession or final possession and did not refer to the occupation certificate.

The High Court held that Section 18 of RERA gives primacy to contractual terms and permits parties to agree on a grace period. It also noted that the agreements were executed in 2014, before RERA came into force, and therefore fell under the Maharashtra Ownership Flats Act (MOFA), which requires parties to specify the possession date under Section 4.

However, the Bench held that contractual terms cannot allow a promoter to benefit from its own default. It relied on the Supreme Court decision in Venkataraman Krishnamurthy v. Lodha Crown Buildmart Pvt. Ltd. and reiterated that authorities cannot apply a grace period twice.

It found that Macrotech failed to deliver fit-out possession by 28 February 2018. It held that the allottees' right under Section 18 accrued and they validly withdrew from the project under RERA as well as Clause 11.3 of the agreements.

Accordingly, the High Court dismissed the appeals.

Appearances for appellant (Macrotech Developers Ltd.): Advocates Amogh Singh, Rahul Arora, Silpa Nir and Himanshi Mishra instructed by Advocate Jeet Gandhi.

Appearances for respondents (Suryakant Yashwant Jadhav and Suryakant Jadhav HUF): Senior Advocate Nitin Thakkar with Advocates Munaf Virjee and Shruti Salian instructed by AMR Law.