Homebuyers Can't Enforce Rights Against New Developer After Termination of Erstwhile Builder's Contract: MahaREAT

The Maharashtra Real Estate Appellate Tribunal (REAT) has held that homebuyers who executed agreements for sale with an erstwhile developer cannot enforce their claims for possession, interest, or other entitlements arising from those agreements against the society or a new developer due to the absence of privity of contract.

Dismissing the appeals, the tribunal upheld the order dated August 26, 2024 passed by MahaRERA, rejecting the homebuyers' claims for possession, interest, and cancellation of the new project registration.

A Coram of Chairperson S. S. Shinde and Member Shrikant M. Deshpande observed that "In the above circumstances, the issue of whether the allottees who have executed and registered the agreements for sale with the erstwhile promoter can enforce their agreements for sale or any entitlements against the society or its property or the new promoter appointed by the society as well as whether the society can be termed as promoter within section 2 (zk) of the RERA Act, 20L6 have been answered by the series of judgments of the Hon'ble Bombay High Court."

It further observed that “the only remedy available to the third-party purchasers/allottees is against the erstwhile developer who have executed the agreements for sale with the allottees.”

The case arises from a redevelopment project of the SBI Employees Prashant Co-operative Housing Society at Borivali, Mumbai. The society had executed a development agreement dated September 6, 2013 in favour of Aditya Developers, the erstwhile developer.

The project was registered with MahaRERA on August 22, 2017 with a revised completion date of May 18, 2022. Construction progressed only up to the fourth slab. The erstwhile developer had executed agreements for sale with about 12 to 13 homebuyers, including the appellants.

Due to delay, the society invoked arbitration proceedings in 2018. By orders dated August 4, 2018 and October 26, 2018, the Bombay High Court restrained the erstwhile developer from creating any third-party rights.

The society thereafter terminated the development agreement on April 20, 2019.

The termination was confirmed by the Bombay High Court by order dated December 12, 2019, which permitted the society to complete the project by appointing a contractor or a new developer.

Pursuant to this, the society issued a public notice on February 7, 2022 and appointed URNA Evolved Living Private Limited as the new developer.

A fresh development agreement was executed on August 10, 2022. The new developer obtained revised permissions and secured fresh MahaRERA registration on June 8, 2023.

The homebuyers filed complaints before MahaRERA seeking possession, interest and cancellation of the new registration on the ground of violation of Section 15 of the RERA Act.

MahaRERA held that the termination of the erstwhile developer and appointment of the new developer was done pursuant to orders of the Bombay High Court and therefore the question of obtaining consent of two-thirds homebuyers under Section 15 does not arise.

It also held that the earlier project registration had lapsed on May 18, 2022 and the project of the erstwhile developer was no longer in existence.

The Authority further held that the fresh registration obtained by the new developer was not illegal or bad in law as it was based on valid permissions granted by the competent authorities.

On the issue of liability, it held that there is no privity of contract between the homebuyers and the society or the new developer.

It observed that the agreements for sale were executed by the erstwhile developer and the consideration amounts were paid to the erstwhile developer.

The Authority also held that the society is not a “promoter” as there was no material to show any revenue sharing or area sharing arrangement.

It further observed that despite the High Court's restraint, the erstwhile developer had created third-party rights and in some cases executed agreements without a valid commencement certificate.

In view of these findings, MahaRERA held that it cannot recognise the claims of the homebuyers against the new developer.

The tribunal agreed with these findings. It held that the change of developer was carried out pursuant to orders of the Bombay High Court and therefore does not attract Section 15 of the Act.

It also held that after termination of the development agreement and lapse of the earlier registration, the new developer was entitled to obtain fresh registration.

Reiterating the absence of privity of contract, the tribunal held that no enforceable claims for possession, interest, or other reliefs arising from the agreements for sale can be made against the society or the new developer.

Dismissing all appeals, the tribunal clarified that the homebuyers are at liberty to pursue their remedies against the erstwhile developer in arbitration or other proceedings.

For Appellants (allottees): Advocates Krishna Agarwal and Atreya Tambe.

For Respondents (M/s. Aditya Developers & Ors.): Advocates Mohd. Mustafa Ansari and Floyd Gracias.