Bombay High Court: In an interim application deciding whether in cooperative housing disputes, the doctrine of indoor management could shield an assignee and the original lessee’s heirs when society documents were executed by the then Secretary amid allegations of a forged resolution, absence of prior General Body approval, and suspicious circumstances, a Single Judge Bench of R.I. Chagla, J., dismissed the application and held that the defendants were entitled to rely on the Secretary’s authority and on the Society’s 1979 Bye-Laws, and that no suspicious circumstances were established to displace indoor management.
Background:
The plaintiff, a registered Co-operative Premises Society (‘Society’), consisting of 25 members, was conveyed a portion of a final plot by the vendor under a Deed of Conveyance dated 27-2-1979. Simultaneously, pursuant to an earlier agreement, a perpetual lease dated 6-9-1980 of 1786.89 square metres was granted by the Society in favour of the vendor at a rent of Re 1 per annum, if demanded. The lease deed permitted demolition or reconstruction but limited built-up area to 5100 square feet and height to 30 feet, and allowed assignment, transfer, mortgage, letting, or parting with possession without the lessor’s knowledge or consent. The Society constructed their building and wrongfully utilised the area retained by the vendor in the final plot. After the vendor’s demise, Defendants 1 and 2 (‘Heirs’) asserted leasehold rights.
The Heirs got an order from the City Survey Officer, Bandra entering their names as the owners of the final plot, which was appealed against by the Society in 2010. During the pendency of the appeal, Defendant 4 (‘Assignee’) entered into discussions with the Heirs for the assignment of their leasehold interest. Defendant 3, who was the Secretary of the Society, allegedly acted beyond his authority and entered into a series of transactions with the Heirs and the Assignee, which included a Deed of Confirmation reaffirming the 1980 lease, a Deed of Modification that removed the restrictions on built-up area and height, and a Deed of Assignment transferring leasehold rights to the Assignee for a consideration of Rs 24 crore. Additionally, an agreement was executed under which Rs 80 lakh was paid to the Society for consenting to the modification.
The Society filed a criminal complaint accusing the Secretary of cheating, criminal breach of trust, misappropriation, embezzlement, and forgery, and a suit seeking cancellation of the Deed of Confirmation, the Deed of Modification, and the Deed of Assignment, with damages for alleged loss of TDR rights. By an interim order passed in 2017, the Assignee was directed to give 30 days’ notice before proceeding to commence construction. With changes in law relating to TDR, the Assignee got plans for a ground plus nine floors sanctioned in 2022, and gave a notice to the Society and thereafter, commenced the construction, and by May 2025 the entire structure stood completed with partial work pending. In 2023, the Society brought the present interim application.
The Society alleged that the Secretary had no authority to negotiate, execute, or register deeds affecting the Society’s rights, and that he relied on a forged Managing Committee Resolution dated 14-2-2010. Under the 2003 and 2009 Bye-Laws, including provisions governing execution of conveyances and Committee powers, prior General Body approval and subsequent ratification were indispensable and it never occurred in the present case. It submitted that the transaction gave away valuable rights for a song and the Assignee paid Rs 24 crore to the Heirs while the Society received only Rs 80 lakh, and that the entire set of documents was replete with suspicious circumstances, fraud and forgery, thereby precluding reliance on indoor management or ostensible authority. It was further stated that even the defendant’s reliance on 1979 Bye-Laws was misplaced. The Society also argued that the delay in the hearing the interim application could not disentitle it from the grant of interim reliefs and the pendente lite construction by the Assignee had been at its own peril.
On the other hand, the defendants urged that indoor management squarely applied and submitted that the Secretary was in charge of handling all the affairs of the Society. They relied on the 1979 Bye-Laws which authorised the Managing Committee to enter into all contracts for the Society except contracts for purchase of plots, sale of housing sites, and construction of buildings or tenements. They argued that a blank date against the General Body Resolution reference was not suspicious because parties treated the committee resolution as pro forma and any reference to ratification indicated a subsequent approval and not a condition precedent. They submitted that the original lease permitted assignment and parting with possession without consent and that Rs 80 lakh was a commercially meaningful bargain compared to an annual rent of Re1.
Analysis and Decision:
The Court noted that the 1979 Bye-Laws were the only bye-laws placed on record bearing the stamp of the Assistant Registrar, whereas the 2003 and 2009 Bye-Laws prima facie appeared on their face to lack necessary authorisation. Under Clause G.1.18(ii)(p) of the 1979 Bye-Laws, the Managing Committee was authorised to enter into all contracts for the Society except for contracts for purchase of plots, for sale of housing sites, and for construction of buildings or tenements. The Court opined that the impugned Deed of Confirmation, Deed of Modification, and consequential assignment were executed to facilitate assignment of leasehold interest with the consent of the Managing Committee, and that these instruments did not fall within the enumerated exceptions.
The Court noted that a Managing Committee Resolution dated 14-2-2010 was shown during negotiations and that a Managing Committee member had co-signed the documents along with the Secretary, and consequently, observed that the defendants were entitled to proceed on the premise that the Secretary had authority to act for the Managing Committee and that no further inquiry into the genuineness of the resolution or the 1979 Bye-Laws was required.
The Court noted that the date was left blank in the Resolution passed in the General Body Meeting, but opined that the parties treated the Resolution as a pro forma and that the 1979 Bye-Laws did not require a prior General Body resolution for the impugned acts. The Court opined that these features did not constitute suspicious circumstances that would trigger a duty of further inquiry. Further, the Court observed that the stipulation in the Resolution dated 14-2-2010, of subsequent ratification of the documents executed by the General Body, negated the requirement of a prior authorisation by a General Body.
The Court relied on Kantu Shankar Dessai v. Sociedade Agricola Dos Gauncares De Cuncolim E Veroda, 2019 SCC OnLine Bom 9566, wherein it was held that once the Society’s act creating a lease in defendants’ favour is not ultra vires, the question of an office-bearer’s authority to act is a matter of internal management and the other person has no further duty to inquire. The Court also referred to Maharashtra Film Stage and Cultural Development Corporation Ltd. v. Multi Screen Media Pvt. Ltd., 2013 SCC OnLine Bom 735, wherein it was observed that where there is an express delegation to enter into contracts, a clause contemplating subsequent approval or ratification does not negate the authority to execute the documents, and indoor management must necessarily apply.
The Court rejected the Society’s contention that to accept the defendants’ case on indoor management would be an over extensive application of the doctrine, which would facilitate fraud at the expense of the innocent, and opined that the Society will have to prove fraud at the trial stage but at the prima facie stage, there appeared to be no fraud in the execution of the impugned documents. The Court noted that the original lease deed itself permitted an assignment of the leasehold rights without requiring the Society’s permission and therefore, there was nothing unusual in the transaction per se.
The Court further noted that the Assignee had given the notice of commencement of construction after sanction of plans and that the Society did not obtain any ad-interim relief. After two and a half years, the nine-storey building structure was completed, with interiors and finishing pending. The Court observed that the prayer to restrain development and construction had become infructuous and granting such restraint at this stage would gravely prejudice the Assignee.
The Court also observed that the prayer to restrain acting upon or committing acts in furtherance of the impugned documents was in substance a final relief dependent on proof of fraud and forgery at trial and could not be granted at the interim stage. The Court further held that the request to restrain dealing with or creating third-party rights was adequately protected by the doctrine of lis pendens. The Court further held that the prayer restraining entry or remaining upon the property was not maintainable since the Heirs as lessees and the Assignee as the assignee of lessees were entitled to enter and remain upon the demised properties.
Accordingly, the Court, while dismissing the interim application, held that the Society could not established a prima facie case and even the balance of convenience did not favour the grant of any interim relief.
[Usha Sunder Premises CHS Ltd. v. Nilang Desai, 2026 SCC OnLine Bom 160, decided on 14-1-2026]
Advocates who appeared in this case :
For the Applicant: Rashmin Khandekar, Pranav Nair, Manisha Virkhare, Shaheen Moghul and Trupti Gage i/b. Divya Shah Associates.
For the Respondents: Kunal Mehta, Smruti Kanade and Shreya Bhagnari i/b. Negandhi Shah and Himayatullah, Aspi Chinoy, Senior Counsel, Karl Tamboly, Vikrant Shetty, Gurdeep Singh Sachar and Kush M. Shah i/b. Ishan Srivastava, Ishan Gambhir with Amisha Upadhyay i/b. Indialaw LLP