Bombay High Court Modifies Arbitral Order On TDR Sale, Upholds Stay On Termination In Redevelopment Dispute

The Bombay High Court has partly modified an arbitral tribunal's interim order in a redevelopment dispute, holding that the tribunal exceeded the scope of interim protection in prescribing the manner in which Transferable Development Rights (TDR) could be sold.

Justice Somasekhar Sundaresan was hearing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, filed by landowner Khimchand Prithviraj Kothari against an interim order passed in favour of developer Earth Realtors.

The dispute concerns a 25 November 2011 development agreement for redevelopment of a 1940 building housing 84 tenants on a 608.70 sq. metre plot.

On June 4, 2024, the owner issued a termination notice stating that the foundation of the agreement had collapsed due to regulatory changes following the Supreme Court's decision in Municipal Corporation of Greater Mumbai v. Kohinoor CTNL Infrastructure Co. (P) Ltd.

The arbitral tribunal stayed the termination notice and permitted the project to proceed. It also allowed the developer to monetise TDR generated from the plot. The tribunal directed that the developer give four weeks' prior notice before any TDR sale and allowed the owner to secure a higher offer within that period.

The High Court upheld the stay on termination and the broader interim framework. It found the tribunal's prima facie view that the development agreement was amenable to specific performance to be a plausible one. It also found no perversity in the tribunal's assessment of delay or in its rejection of the owner's plea of frustration.

However, on the TDR sale mechanism, the court held that the right-of-first-refusal structure effectively created a new contractual arrangement between the parties.

“A plain reading of the right of first refusal framework… would indicate a new contractual arrangement that has been created,” the court observed.

The court modified the directions to require prior notice to both the owner and the arbitral tribunal before any TDR sale, made such sale subject to tribunal approval, and directed that the proceeds be deposited in a separate bank account to be used only for redevelopment, with monthly disclosures.

Except to that extent, the tribunal's order was upheld.