NCDRC in Sandeep Grover v. Sai Siddhi Developers held that after deriving the benefits under redevelopment agreement, the society cannot be permitted to usurp the flats purchased by third-party buyers from the share of the developer and allottees cannot be left at lurch by the society under the garb of absence of privity of contract between the society and flat purchasers.
When a society goes for redevelopment of its building, the said work is awarded to a developer, who promises new flat with extra area to each of the members of the society in the new building, in addition to other monetary benefits like monthly interim accommodation rent, corpus, etc. to the members and in consideration thereof, the developer is allowed to sell the balance area (free sale area) in the open market, to the flat buyers for the residences.
The money collected by the developer from the sale flats from the free sale components, is then used for construction of the building, payment of rent, corpus, etc. to the members of the society. Thus, the flat purchasers act as the “financiers” of the project.
Unfortunately, in certain cases, the dispute between the developer and society due to delay in construction, non-payment of rent, etc. to members, culminates in the termination of the redevelopment agreement and power of attorney given to the developer.
More often than not, the society then tries to disown the sale of flats made by the erstwhile developer to the third-party innocent flat purchasers, most of whom have borrowed money from banks and other sources for such payment to the developer.
When the developer whose redevelopment agreement is already terminated, they are already bankrupt and they have huge outstanding dues payable to society or its members and other parties. Any attempt of the flat purchasers to recover the money with interest from the said developer, will only add insult to injury, as the flats purchasers will never be able to recover a penny from the bankrupt developer.
Whenever such innocent flat purchasers approached the Bombay High Court, their petitions were dismissed on holding that once the redevelopment agreement is terminated, then persons who purchased the flats from the said developer also perishes with such termination of development agreement. To name few, in Vaidehi Akash Housing (P) Ltd. v. New D.N. Nagar Coop. Housing Society1, Rajawadi Arunodaya CHSL v. Value Projects (P) Ltd.2 and Deepak Prabhakar Thakoor v. MHADA3, and more recently in Vikas Shikshan Mandal v. State of Maharashtra4, held that there is no privity of contract between the society or new developer, with third-party purchasers claiming through the erstwhile developer and where the development agreement is terminated by the society and the erstwhile developer is unable to obtain specific performance of the development agreement against the society, no third-party flat purchaser from erstwhile developer can seek specific performance against the society or new developer.
However, the above consistent view of the Bombay High Court made in various judgments till date, is more a good law, in view of the Supreme Court, India’s affirmation of a judgment and order passed by the National Consumer Disputes Redressal Commission on 20 June 2023 in Sandeep Grover v. Sai Siddhi Developers5, wherein it was held that after deriving the benefits under redevelopment agreement, the society cannot be permitted to usurp the flats purchased by third-party buyers from the share of the developer and allottees cannot be left at lurch by the society under the garb of absence of privity of contract between the society and flat purchasers. The society having permitted the developer to sell the flats, the developer has acted as its agent and thus the action of agent are binding on the principle. As the principle is liable for the actions of his agent, the allottees can enforce their agreements for sale under Section 226, Contract Act, 1872 against society. (In fact, non-consideration of the statutory provisions under the Contract Act, 1872 and Power of
Supreme Court of India in Civil Appeal No. 5188 of 2023 and other companion appeals, has affirmed the above judgment of the National Consumer Disputes Redressal Commission in the Sandeep Grover case and dismissed all the said appeals.
Two Bench of the Supreme Court by dismissing the Review Petition Nos. 238-240 of 2024 has confirmed the order passed by the same Bench earlier in Civil appeal No. 5188 of 2023 and other companion appeals, and thereby reaffirmed the correctness of judgment of the National Consumer Disputes Redressal Commission in the Sandeep Grover case.
Four Bench of the Supreme Court by dismissing the Curative Petition Nos. 199-201 of 2025 has affirmed the order passed by the two Bench of the Supreme Court in Review Petition Nos. 238-240 of 2024 and thereby reaffirmed the correctness of the above judgment of the National Consumer Disputes Redressal Commission in the Sandeep Grover case.
Supreme Court of India has thus given a quietus to the confusion created through series of judgments of the Bombay High Court, when the redevelopment agreement with the developer is terminated, the innocent flat buyers through the said developer cannot seek specific performance of their agreements against the society.
This landmark judgment of National Consumer Commission, affirmed by Supreme Court of India, in appeal, review and curative petition, will not only help the innocent flat buyers in investing in the under construction project, but also help the real estate industry in selling the premises with guarantee that the money paid by the investors will not go waste and the premises will be delivered to the buyer either by the same developer or its successors, in the event of termination of their development agreement for any reason in future.
*Advocate, Bombay High Court. Author can be reached at ajay@ajaylaw.com.
