In a significant ruling impacting redevelopment projects in Mumbai, the Bombay High Court has upheld an arbitral award directing a city-based developer to regularise illegal alterations in a redeveloped residential building at Andheri West and obtain an Occupancy Certificate (OC) from the Brihanmumbai Municipal Corporation (BMC). Failing compliance, the developer has been ordered to pay ₹128.98 crore to the housing society to enable demolition and reconstruction as per sanctioned plans.
Justice Sandeep Marne, while dismissing the petition filed by Lotus Logistics and Developers Pvt. Ltd., made strong observations against the developer’s conduct and termed it blatantly deceitful.
Redevelopment Agreement and Project Details
The dispute relates to Evertop Apartments Co-operative Housing Society, located on JP Road, Andheri West, comprising 58 residential tenements. In May 2008, the society entered into a development agreement with the developer for construction of two buildings:
• A rehabilitation building for existing members
• A free-sale component building for commercial sale
Although building plans were sanctioned in September 2008, the society alleged that the rehabilitation building was completed after considerable delay and remained without an OC, even years after possession.
Forced Occupation and Non-Payment of Transit Rent
The society stated that its members were forced to occupy their flats after the developer stopped paying transit rent from January 2014. This left members with no practical option despite the absence of an OC, exposing them to legal and safety risks.
Allegations of Illegal Area Diversion and Plan Violations
Based on information obtained under the Right to Information Act, the society alleged serious irregularities, including:
• Reduction in built-up area of the rehabilitation building
• Showing “open-to-sky ducts” in bedrooms and living rooms to reduce carpet area
• Diversion of FSI/BUA from the rehabilitation building to the free-sale building
While the members were promised 52% additional area, the actual benefit was reduced to 32%, causing substantial financial and spatial loss.
Failure to Provide Promised Amenities
The society further accused the developer of breaching multiple contractual obligations, such as:
• Non-provision of car lifts for podium-level parking
• Absence of stack parking systems
• Failure to provide other agreed amenities
Due to these persistent breaches, the society terminated the development agreement in October 2015 and initiated arbitration proceedings.
Arbitral Tribunal’s Findings and Directions
Following the appointment of an arbitral tribunal by the High Court, the society raised claims aggregating to ₹351.54 crore under various heads. While the developer contested the claims, it expressed willingness to regularise the building and obtain the OC.
The tribunal, after detailed examination, held the developer liable and:
• Accepted several monetary claims of the society
• Directed the developer to regularise illegal alterations
• Ordered the developer to obtain OC within a stipulated timeframe
• Directed payment of ₹128.98 crore to the society if the developer failed to secure the OC, enabling reconstruction as per sanctioned plans
High Court’s Strong Observations Against the Developer
Upholding the arbitral award, Justice Sandeep Marne observed that the society members were handed over flats constructed in violation of sanctioned plans, seriously affecting the possibility of obtaining an OC.
The court noted that the developer had already completed and sold flats in the free-sale building, and therefore could not be allowed to walk away from its obligations towards the rehabilitation building.
In a scathing remark, the court stated that the developer had “stolen FSI/BUA meant for the rehabilitation building and sold it to outsiders”, clearly establishing dishonest conduct.
Public Policy and Importance of Occupancy Certificate
The High Court held that the arbitral award was consistent with public policy, as it aimed to ensure that the redevelopment project ultimately received a valid Occupancy Certificate, safeguarding the legal rights, safety, and financial interests of society members.
The court further observed that without imposing serious financial consequences, the developer was unlikely to take steps to obtain the OC.
Key Takeaways for Housing Societies and Developers
This judgment reinforces that:
• OC is mandatory and not a mere formality
• Developers cannot divert FSI or alter sanctioned plans to the detriment of society members
• Arbitration awards enforcing compliance will be upheld by courts
• Housing societies are entitled to strong remedies, including reconstruction costs, where violations are grave.
