Housing society can end deal with slack builder: Bombay high court

MUMBAI: A housing society can terminate a development agreement with a builder for non-performance, the Bombay high court has said.
According to Justice RD Dhanuka’s ruling last month, if Jal Ratan Deep Co-operative housing society in Bangur Nagar, Goregaon (West) has lost confidence in Kumar Builders Mumbai Realty, it cannot be forced to continue the contract.
The court allowed the society to appoint another builder to redevelop its five buildings for 97 members.“(Since) the buildings are dilapidated, it would be in the interest of justice that before any untoward incident takes place, the petitioner (society) be permitted to take steps to appoint another developer and go ahead with the redevelopment,” said the judge.
In February 2010, the society passed a resolution at its special general body meeting to appoint a developer. An agreement was signed with Kumar Builders in January 2011 for redevelopment. The developer was required to obtain preliminary permissions to start construction within three months from the execution of the agreement, furnish a bank guarantee of Rs 18 crore, indemnity bond and payment of hardship compensation, etc. The agreement stipulated that the developer complete the project within 29 months.
When the builder delayed procuring permissions, the society granted an extension of 16 months. No headway was made when the extension expired in September 2011. Five months later, the developer told the society he would offer less area to the members in the new building on the pretext that the development control rule had been amended.
The society told the court that the builder procured the basic building permission (IOD) in March 2013, a full 26 months after the agreement. “The IOD was defective as it covered only flats for 56 members and not 97 members. The IOD was in the name of Kumar Urban Development and not in the society’s name,’’ said the petitioner.
The builder then served a notice on the society, asking its members to vacate their flats by end-December 2013, “completely ignoring the conditions of the development agreement”. The builder’s representative also told society members about its financial problems, stating it would lose Rs 16 crore if more area was offered in the redeveloped property as promised in the agreement.
In the general body meeting of November 14, 2014, society members unanimously agreed to invoke a clause in the development agreement to impose liquidated damages of Rs 18.8 crore on the builder. They also recorded their dissatisfaction and hardship due to the delay.
Last December, the society issued a notice on the builder, asking it to rectify the breaches within 30 days or risk cancellation of the deal. The developer filed for arbitration. The court appointed an arbitrator, and said the society must issue a 15-day notice to the builder if it decides to appoint another developer.
“A perusal of the record prima-facie indicates the respondent (builder) committed various breaches and gross delay. Though letter of intent was issued by the society to the builder in May 2010, no steps were taken by the builder to get flats vacated till the agreement was terminated,’’ said the court.
However, the judge said the builder would be entitled to compensation in case it succeeds in the arbitration proceedings.