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Legal profession is not a commercial activity - Running of office by an Advocate in a building cannot be termed as Commercial activity - Electricity rates fixed for Commercial user cannot be charged

SUPREME COURT OF INDIA

Before: - Arijit Pasayat & H.K. Sema, JJ.
Civil Appeal No. 1065 of 2000 Dated 24.8.2005

 

Chairman, M.P. Electricity Board and Ors - Appellants
Versus
Shiv Narayan and Anr - Respondents

 

For the Appellants: - Sakesh Kumar and D.K. Sinha,
Advocates.
For the Respondents: - Ex-parte

 

JUDGMENT

Arijit Pasayat, J. - An interesting question is raised in this appeal i.e. whether the legal profession is a commercial activity or is it a trade or business. The Madhya Pradesh Electricity Board (hereinafter referred to as the 'Board') and its functionaries charged the respondent No. 2-Advocate for electricity consumption at the rate applicable for commercial consumers. The demand was questioned by filing a writ petition before the Madhya Pradesh High Court which by the impugned judgment held that the legal profession does not involve a commercial activity and, therefore, the rate applicable to commercial consumers was not applicable to him. The judgment is questioned by the Board in this appeal.

2. There is not much dispute on the factual aspect. Respondent No. 1 was at the relevant point of time the landlord of the house where respondent No. 2- G.D. Padraha, Advocate was staying as a tenant. He was occupying the tenanted premises till 1981. Thereafter, he shifted to his own house, but he maintained his office in the tenanted premises. There was an electricity service line in that house and it was in the name of the landlord who was paying at the rate applicable to domestic consumers. In January, 1986 some officials of the Board inspected the service meter and served a notice to the landlord alleging that he is using the service connection for commercial purposes instead of domestic purposes. The landlord replied stating that he had never used the premises for commercial purposes. However, the respondent No. 2 had his office in the premises. Notice of demand was raised after considering the reply and it was held that the rate applicable to the commercial consumers was applicable, on the basis of a circular issued by the Board laying down different types of connections for domestic purposes and commercial purposes. The validity of the circular classifying office of an advocate as a commercial establishment was questioned in the writ petition. The High Court as noted above held that the office of a lawyer or a firm of lawyers is not a 'commercial establishment' and therefore rates applicable to commercial consumers cannot be charged. Learned counsel for the appellant-Board and its functionaries submitted that the High Court has not considered the relevant aspects. When a lawyer has his office-cum-residence in particular premises the domestic rate is applicable. Where however only the chamber is functioning, clearly commercial activities are being carried out and therefore commercial rate was rightly applied. According to him, the two categories of consumers have to be classified as domestic consumers and non domestic consumers. Those who are not domestic consumers fall to the second category and merely because for the sake of convenience the description has been given as "commercial" it does not make a difference. When one is not a domestic consumer, as a natural consequence the rate applicable to the other category has to be charged. Nobody appears on behalf of the respondents.

3. The circulars on which reliance was placed by the Board clearly show that a distinction was made between domestic consumers and commercial consumers. There is no substance in the plea that the classification was domestic and non domestic as the residual category. The Board's notification which formed the foundation for the Board's action reads as follows:

"Madhya Pradesh Electricity Board
Rampur: Jabalpur
No. 5/GA/44/126/23256/356
Dated 30th November, 76

To,
The Divisional Engineer,
M.P. Electricity Board

Reference is invited to this office circulars No. 5/121/5/111/49-A dated 21.7.1971 and 5/11/5/111/49-A/54/4506 dated 8.7.1975 wherein the categories of consumers which could be classified as 'Commercial' were indicated. Points have been raised in regard to the tariff which shall be applied to the consumption in the house a part of which is used for professional purpose by Advocate, Doctors, etc.

The Board has considered the matter and has decided that the energy consumed in the residential premises of following persons, shall be treated as domestic purposes, even though these persons carry out some professional work in the residence.

(i) Advocate, Vakils.
(ii) Doctors.
(iii) Writers, poets and artists.

However, consumption in the premises which are away from the residential premises and are exclusively used for the professional purposes even by the Advocate, Vakils, Doctors, Writers, Poets and Artists and shall be billed at Board L.T. Tariff applicable.

Director, Commercial
M.P. Electricity Board
Jabalpur."

4. List of consumers who are treated as belonging to the commercial category clearly shows that there is an element of commerce involved in them as would be evident from the Notification dated 8th July, 1975.

5. The word 'commerce' is a derivative of the word 'commercial'. The word 'commercial' originates from the word 'commerce' which has been defined in Black's Law Dictionary, Sixth Edition as under:

"Commerce - The exchange of goods, productions, or property of any kind, the buying, selling, and exchanging of articles. Anderson v. Humble Oil and Refining Co., 226 Ga. 252, 174 S.E.2d 415, 417 The transportation of persons and property by land, water and air. Union Pacific R. Co. v. State Tax Commissioner, 19 Utah 2d 236, 429 p. 2d 983, 984

Intercourse by way of trade and traffic between different people or States and the citizens or inhabitants thereof, including not only the purchase, sale, and exchange of commodities, but also the instrumentalities and agencies by which it is promoted and the means and appliances by which it is carried on, and transportation of persons as well as of goods, both by land and sea. Brennan v. Titusville, 153 U.S. 289, 14 S. Ct. 829, 38 L. Ed. 719; Railroad Co. v. Fuller, 84 U.S. (17 Wall.) 568, 21 L. Ed. 710; Hoke v. United States, 227 U.S. 308, 33 S. Ct 281, 57 L. Ed. 523. Also interchange of ideas, sentiments, etc. as between man and man.

The term 'commerce' means trade, traffic, commerce, transportation or communication among the several States, or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia or any territory, or between points in the same State but through any other State or any Territory or the District of Columbia or any foreign country. National Labour Relations Act 2......"

The word 'commercial' has been defined to mean:

"Commercial. - Relates to or is connected with trade and traffic or commerce in general; is occupied with business and commerce. Anderson v. Humble Oil & Refining Co., 226 Ga.252: 174 S.E. 2d 415, 416 (supra) Generic term for most all aspects of buying and selling".

The expression 'commerce' or 'commercial' necessarily has a concept of a trading activity. Trading activity may involve any kind of activity, be it a transport or supply of goods. Generic term for most all aspects is buying and selling. But in legal profession, there is no such kind of buying or selling or any trading of any kind whatsoever. Therefore, to compare legal profession with that of trade and business is far from correct approach and it will totally be misplaced.

Similarly, in the Advanced Law Lexicon 3rd Edition 2005, Volume 1 at page 878 by P. Ramanatha Aiyar, word 'commerce' has been defined as under:

'Commerce' is a term of the largest import. It comprehends intercourse for the purposes of trade in any and all its forms, including transportation, purchase, sale, and exchange of commodities between the citizens of one country and the citizens or subjects of other countries, and between the citizens of different provinces in the same State or country. Walton v. Missoury, 91 US 275: 23 L Ed. 347.

Buying and selling together, exchange of merchandise especially on a large scale between different countries or districts; intercourse for the purpose of trade in any and all its forms (Section 2(13), Income Tax Act)'

6. The word 'profession' has been defined in Black's Law Dictionary, Sixth Ed. as under:

'Profession - A vocation or occupation requiring special, usually advanced education, knowledge, and skill; e.g. law or medical professions. Also refers to whole body of such profession.

The labour and skill involved in a profession in predominantly mental or intellectual, rather than physical or manual.

The term originally contemplated only technology, law and medicine, but as applications of science and learning are extended to other departments of affairs, other vocations also receive the name, which implies professed attainments in special knowledge as distinguished from mere skill.

Act of professing; a public declaration respecting something. Profession of faith in a religion"

7. The word 'profession' has also been defined in the Advanced Law Lexicon Volume-3 at page 3764 which reads as under:

"Profession - A 'profession' involves the idea of an occupation requiring either purely intellectual skill or any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangements for the production of sale of commodities.C.I.T. v. Manmohan Das, (1966)59 ITR 699, 710 (SC) Income Tax Act, 1961. Section 28"

At page 3765 it has been further stated as follows:

"One definition of a profession is an employment, especially an employment requiring a learned education, as those of law and physics (Worcest Dict.). In the Century Dictionary the definition of profession is given, among others, as a vocation in which a professional knowledge of some department of science or learning is used by its practical application to the affairs of others, either in advising, guiding, or teaching them, or in serving, their interest or welfare in the practice of an art founded on it."

"The word implies professional attainment in special knowledge as distinguished from mere skill; a practical dealing with affairs as distinguished from mere study or investigation; and an application of such knowledge to use for others as a vocation as distinguished from its pursuits for its own purposes."

"The term is applied to an occupation or calling which requires learned and special preparation in the acquirement of scientific knowledge and skill.

1. The occupation which one professes to be skilled in and to follow; any calling or occupation by which a person habitually earns his living (Section 2(36), Income Tax Act and Section 150, Indian Evidence Act); 2. Section 7, North Eastern Hill University Act."

"An activity to be a profession must be one carried on by an individual by his personal skill, intelligence and an individual by his personal skill, intelligence and dependent on individual characteristics. Sakharam Narayan Kherdekar v. City of Nagpur Corporation, (AIR 1964 Bombay 200, 210) (Bombay Shops and Establishment Act (79 of 1948, Section 2(4))

The multifarious functions call for the exercise of integrity; intelligence and personal skill by the Chartered Accountant in the service of his client and so the preamble of the Chartered Accountant Act, 1949 describes the avocation of a chartered accountant as a profession. N.E. Merchant v. State, (AIR 1968 Bombay 283,287) Bombay Shops and Commercial Establishment Act (76 of 1948)"

"A profession or occupation is carried on for the purpose of earning a livelihood and a profit motive does not underline such carrying of profession or occupation. L.M. Chitala v. Commissioner of Labour, (AIR 1964 Madras 131, 133) (Constitution of India, Article 19(6))"

"Profession as distinguished with 'commercial' means a person who enters into a profession. It involves certain amount of skill as against commercial activity where it is more of a matter of things or business activity. In profession, it is purely use of skill activity. Therefore, two are distinct concepts in commercial activity - one works for gain or profit and as against this, in profession, one works for his livelihood."

8. This Court in V. Sasidharan v. M/s Peter and Karunakar, (AIR 1984 SC 1700) held as under:

".........It does not require any strong argument to justify the conclusion that the office of a lawyer or a firm of lawyers is not a 'shop' within the meaning of Section 2(15). Whatever may be the popular conception or misconception regarding the role of today's lawyers and the alleged narrowing of the gap between a profession on one hand and a trade or business on the other, it is trite that, traditionally, lawyers do not carry on a trade or business nor do they render services to 'customers'. The context as well as the phraseology of the definition in Section 2(15) is inapposite in the case of a lawyer's office or the office of a firm of lawyers."

9. In Harendra H. Mehta & Ors. v/s Mukesh H. Mehta & Ors., (1999(5) SCC 108) it was noted as follows:-

"1. Of, engaged in, or concerned with, commerce. 2. Having profit as a primary aim rather than artistic etc. value; philistine" (The Concise Oxford Dictionary) In the Black's Law Dictionary, "commercial" is defined as: "Relates to or is connected with trade and traffic or commerce in general; is occupied with business and commerce. Anderson v. Humble Oil and Refining Co., (226 Ga 252: 174 SE 2d 415), "A broad and not a restricted construction should be given to the word "commercial" appearing in Section 2 of the Foreign Awards Act. In R.M. Investment and Trading Co. (P) Ltd., (1994(4) SCC 541), the terms of the agreement required the petitioner to play an active role in promoting the sale and to provide "commercial and managerial assistance and information" which may be helpful in the respondents sales efforts. It was held that the relationship between the appellant and the respondents was of a commercial nature. The Court said that the word "commercial" under Section 2 of the Foreign Awards Act should be liberally construed."

10. In Stroud's Judicial Dictionary (5th Edition) the term "commercial" is defined as "traffic, trade or merchandise in buying and selling of goods".

11. A professional activity must be an activity carried on by an individual by his personal skill and intelligence. There is a fundamental distinction, therefore, between a professional activity and an activity of a commercial character. Considering a similar question in the background of Section 2(4) of the Bombay Shops and Establishments Act (79 of 1948), it was held by this Court in Dr. Devendra M. Surti v. The State of Gujarat, (AIR 1969 SC 63) that a doctor's establishment is not covered by the expression "Commercial establishment".

12. In the above background, we would have dismissed the appeal. But we notice that in New Delhi Municipal Council v. Sohan Lal Sachdev, 2000(1) RCR (Rent) 313 (SC): (2000(2) SCC 494) certain observations are made, with which we do not agree. In Para 12 it was observed as follows:-

"The two terms "domestic" and "commercial" are not defined in the Act or the Rules. Therefore, the expressions are to be given the common parlance meaning and must be understood in their natural, ordinary and popular sense. In interpreting the phrases the context in which they are used is also to be kept in mind. In Stroud's Judicial Dictionary (5th Edition) the term "commercial" is defined as "traffic, trade or merchandise in buying and selling of goods". In the said dictionary the phrase "domestic purpose" is stated to mean use for personal residential purposes. In essence the question is, what the character of the purpose of user of the premises by the owner or landlord is and not the character of the place of user. For example, running a boarding house is a business, but persons in a boarding house may use water for "domestic" purposes. As noted earlier the classification made for the purpose of charging electricity duty by NDMC sets out the categories "domestic" user as contradistinguished from "commercial" user or to put it differently "non- domestic user". The intent and purpose of the classifications as we see it, is to make a distinction between purely "private residential purposes" as against "commercial purpose". In the case of a "guest house", the building is used for providing accommodation to "guests" who may be travellers, passengers, or such persons who may use the premises temporarily for the purpose of their stay on payment of the charges. The use for which the building is put by the keeper of the guest house, in the context cannot be said to be for purely residential purpose. Then the question is, can the use of the premises be said to be for "commercial purpose"? Keeping in mind the context in which the phrases are used and the purpose for which the classification is made, it is our considered view that the question must be answered in the affirmative. It is the user of the premises by the owner (not necessarily absolute owner) which is relevant for determination of the question and not the purpose of which the guest or occupant of the guest house uses electric energy. In the broad classification as is made in the Rules, different types of user which can reasonably be grouped together for the purpose of understanding the two phrases "domestic" and "commercial" is to be made. To a certain degree there might be overlapping, but that has to be accepted in the context of things."

13. Even if it is accepted that the user was not domestic, it may be non- domestic. But it does not automatically become "commercial". The words "non- domestic" and "commercial" are not inter-changeable. The entry is "commercial". It is not a residual entry; unless the user is commercial the rate applicable to be commercial user cannot be charged merely because it is not considered to be domestic user, as has been held in New Delhi Municipal Corporation's case (supra).

14. The view expressed in the said case does not appear to be correct. We, therefore, refer the matter to a larger Bench. Place the records before the Hon'ble Chief Justice of India for necessary orders.

Order accordingly.
ARIJIT PASAYAT, JUSTICE

**********

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

ARBITRATION PETITION (LODGING) NO.219 OF 2015

The Jal Ratan Deep Co-operative Housing Society Limited, Plot No.13-B of Survey No.161 (PT), Bangur Nagar, M.G. Road, Goregaon (West), Mumbai – 400 104 - Petitioner

Versus 

Kumar Builders Mumbai Realty Private Limited, a company incorporated under The Companies Act, 1956, having its office address at Office No.7, Ground Floor, Suryodaya Estate, Tardeo, Mumbai – 400 034.
Respondent

Mr.Rohan Cama with Mr.Prakash Shinde and Mr.Chirag Bhavsar i/b MDP & Partners for the Petitioner.

Mr.Amir Arsiwala with Mr.Sameer Khedekar for the Respondent.

CORAM : R.D. DHANUKA, J.
RESERVED ON : 12TH JUNE, 2015
PRONOUNCED ON : 24TH JUNE, 2015.

 

JUDGMENT

1. By this petition filed under section 9 of the Arbitration & Conciliation Act, 1996 (for short the said “Arbitration Act”), the petitioner seeks permission to appoint a new developer to develop the property of the petitioner and/or to deal with the said property pursuant to the liberty granted by this Court vide order dated 23rd December, 2014 and also seeks an injunction restraining the respondent from advertising and dealing with in any manner pursuant to the development agreement and to advertise such redevelopment project of the petitioner in any manner whatsoever. Some of the relevant facts for the purpose of deciding this petition are as under :

2. The petitioner society was formed and registered in 1974 and comprises of 97 members in five buildings. The petitioner passed a resolution at the special general body meeting on 14th February, 2010 to carry out demolition of the existing buildings and for construction of the flats for the members through a professional developer. The petitioner and the respondent entered into an agreement on 12th January, 2011 for the purpose of redevelopment of the buildings of the petitioner on the terms and conditions recorded therein. Under the said agreement, the respondent was required to take various steps such as obtaining IOD with full TDR FSI to be loaded within three months from the execution of the development agreement, to furnish the bank guarantee of Rs.18.00 crores, indemnity bond and payment of hardship compensation, rent, brokerage and shifting / re-shifting charges etc. The respondent had agreed to complete the development project within 29 months from the date of execution of the development agreement. Several other obligations of the respondents were also recorded in the said development agreement.

3. It is the case of the petitioner that there was gross delay on the part of the respondent in obtaining IOD with 2 TDR FSI loaded by the end of August, 2011. The petitioner though, at the request of the respondent granted extension of 16 months on 12th June, 2011, the respondent however, could not obtain IOD with full FSI TDR within the extended period which expired on 12th September, 2011.

4. The respondent on 9th February, 2012 forwarded a proposal for reduction of an area offered to the petitioner i.e. proposal of 773 sq. ft. and 580 sq. ft. on the pretext of the amendment to the Development Control Rules and Regulations.

5. It is the case of the petitioner that only on 28th March, 2013, i.e. after 26 months from the execution of the development agreement and after 10 months from the approval of the revised plans by the petitioner, IOD was received by the respondent. According to the petitioner, the said IOD was defective as it covered only the flats for 56 members and not 97 members. The said IOD was in the name of Kumar Urban Development and not in the name of the society.

6. On 25th July 2013, the respondent requested the petitioner for further flexibility to load TDR. The petitioner agreed to the proposal made by the respondent in the special general body meeting held on 10 th August, 2013 and approved the draft of supplementary agreement and Alternate Accommodation Agreement. The petitioner thereafter called upon the respondent to inform the dates for executing the Supplementary Agreement, Alternate Accommodation Agreement and the date of notice to vacate about the corpus, TDR and the bank guarantee. It is the case of the petitioner that the

respondent served a notice on 30th September, 2013 to the petitioner asking the members to vacate the premises by 31st December, 2013 however, completely ignoring the conditions in clause 15 of the development agreement. It is the case of the petitioner that the representative of the respondent informed the members of the petitioner about the financial problem faced by the respondent. The respondent apologized to the petitioner for the delay and informed that the respondent would be sending the revised plans for approval by the first week of January, 2014.

7. On 31st December, 2013, the petitioner informed the respondent about the vicarious condition of the buildings and forwarded the photographs showing the cracks in the buildings.

8. On 9th May, 2014, the respondent sent an e-mail showing three plans thereby proposing the size of the flats of 700 sq. ft., 710 sq. ft. and 810 sq. ft. for consideration of the members of the petitioner. On 17th October, 2014, the respondent came up with the feasibility report of the project claiming that the project was making loss of Rs.16.00 crores if the petitioner was offered 773 sq. ft.

9. In the general body meeting of the petitioner held on 14th November, 2014, all the members of the petitioner unanimously agreed to invoke clause 26 of the development agreement for imposing liquidated damages on the respondent and recorded their dissatisfaction and hardship that had taken place due to gross delay in execution of the project by the respondent. The petitioner accordingly sent a notice on 16th November, 2014 to the respondent calling upon to pay the liquidated damages amounting to Rs.18,80,00,000/- within seven days from the date of receipt of the said notice.

10. On 15th December, 2014, the petitioner issued a notice on the respondent calling upon to rectify the breaches enumerated in the said notice within 30 days making it clear that in case of non-compliance, development agreement shall stand automatically terminated.

11. The respondent filed a petition under section 9 of the Arbitration Act in this Court (Arbitration Petition (Lodging) No.1892 of 2014). By an order dated 23rd December, 2014 this Court referred the disputes and differences between the parties arising out of the development agreement to the sole arbitration of Mr.Sanjay Kothari, advocate with a direction to make an endeavour to pass his award within a period of 12 weeks from the date of the first meeting held by him with the parties and their advocates. It was however, made clear that pending the arbitration proceedings, if the petitioner herein was desirous of appointing a developer to develop the property of the society and/or to deal with the said property in any manner whatsoever, the petitioner herein shall after giving 15 days clear notice to the respondent for the respondent herein move this Court and obtain permission of this Court in that regard. It was also clarified that the said direction would not preclude the society or its members to carry in sale / transfer of flat/s in the society premises. All the contentions of the parties are kept open. The said petition was disposed of.

12. On 7th January, 2015, the petitioner issued a notice to the respondent's advocate informing that the petitioner was desirous of appointing a new developer to develop the property of the society and to proceed in accordance with the order dated 23rd December, 2014. The petitioner called upon the respondent to forthwith stop advertising the redevelopment project of the petitioner through their website. The petitioner thereafter filed this petition on 2nd February, 2015, inter-alia praying for permission to appoint the new developer. By an ad-interim order dated 8th May, 2015, this Court permitted the petitioner to initiate and implement tender processing but not to appoint a new developer

13. Mr.Cama, learned counsel for the petitioner invited my attention to the various documents annexed to the petition, reply and re-joinder, including the photographs of the buildings showing dilapidated condition of the buildings. It is submitted that the parties are proceeding with the arbitral proceedings which would take time for final disposal. He submits that since the respondent did not show any progress for the last several years from the date of the execution of the agreement and there were no chances of such progress even in future, the members of the petitioner passed a resolution for termination of the development agreement after giving 30 days notice to the respondent to rectify the breaches. The respondent however,did not take any steps inspite of the said notice dated 15th December, 2014.

14. Learned counsel submits that there was no stay of the termination notice granted by this Court in the arbitration petition filed by the respondent. This Court thus granted liberty to the petitioner to apply for permission to appoint a developer to develop the property and/or to deal with the said property in any manner whatsoever after giving 15 days notice to the respondent. He submits that the members of the society have lost confidence in the respondent and considering the dilapidated condition of the buildings, it became absolutely necessary to take steps to appoint another developer to develop the property of the society.

15. Learned counsel for the petitioner submits that the respondent has been facing financial problems and has committed gross delay in taking steps under the said development agreement which resulted in gross hardship to the members of the petitioner society. The respondent kept on requesting the petitioner for granting permission for various changes proposed to be made by the respondent and for extension of time to comply with the obligations of the respondent. He submits that though the petitioner had granted such indulgence, the respondent still could not show any progress.

16. Learned counsel submits that since this Court has not granted any stay on termination of the development agreement, the petitioner is entitled to appoint another developer for the purpose of carrying out redevelopment of the buildings. He submits that if the respondent ultimately succeeds before the learned arbitrator in proving that the termination effected by the petitioner was illegal and unlawful, the respondent can be compensated by awarding damages by the learned arbitrator. There is no question of granting any specific performance of such contract in favour of the respondent.

17. Learned counsel for the petitioner submits that pursuant to the liberty granted by this Court for seeking permission to appoint a new developer, the petitioner had invited tenders. 20 developers had collected the tender. 5 developers have submitted their tender. He submits that this Court thus be pleased to grant permission to the petitioner to proceed with awarding of the contract to a new developer and to proceed with the construction in the interest of justice. He also presses prayer (b) of the petition.

18. In support of this submission, learned counsel for the petitioner relied upon the following judgments :

(i) In the case of Maytas Infra Limited vs. Utility Energytech & Engineers Pvt. Ltd. & Ors. 2009 (4) Bom.C.R. 143
(ii)Order dated 25th July, 2013 in Notice of Motion No.595 of 2013 in Suit No.265 of 2013 in the case of M/s.Rushab Developers & Ors. vs. Mahavir Chhaya CHS Ltd. & Ors.
(iii) Judgment of this Court dated 29th November, 2013 in Arbitration Petition (Lodging) No.1999 of 2013 in the case of Chaurangi Builders & Developers Pvt. Ltd. vs. Maharashtra Airport Development Company Ltd.
(iv) Judgment of this Court delivered on 21st January, 2014 in Arbitration Petition No.600 of 2013 in the case of M/s.Heritage Lifestyle & Developers Ltd. vs. M/s.Cool Breeze Co-operative Housing Society Ltd. & Ors.
(v)Judgment of this Court delivered on 1st December, 2014 in Notice of Motion No.961 of 2013 in Suit No.262 of 2012 and other connected matters in the case of Vaidehi Akash Housing Pvt. Ltd. vs. New D.N. Nagar Co-operative Housing Society Union Ltd. & Ors

19. Learned counsel for the respondent on the other hand opposed this petition on the ground that the reliefs claimed in this petition for permission to appoint the new developer to develop the property of the petitioner and/or to deal with the said property cannot be granted under section 9 of the Arbitration Act, 1996. He submits that the respondent has already filed a statement of claim before the learned arbitrator and has prayed for grant of specific performance of the development agreement executed between the parties and also in the alternate for damages. He submits that if reliefs as claimed in the petition is granted, the prayer for specific performance of the development agreement claimed by the respondent would become infructuous. He submits that the arbitral proceedings are going on before the learned arbitrator and are at the evidence stage. In support of his submission that no relief under section 9 can be granted the effect of which would make the reliefs claimed by the respondent infructuous, learned counsel placed reliance on the judgment of the Supreme Court in the case of N. Srinivasa vs. Kuttukaran Machine Tools Limited, (2009) 5 SCC, 182 and in particular paragraphs 25 to 28.

20. Learned counsel for the respondent then submits that the respondent had modified the plan only once when the petitioner had agreed to accept lesser area. The respondent had forwarded all the requisite documents to the petitioner from time to time. He submits that the allegations of the petitioner that the submission of the plans by the respondent was in breach of the Development Control Rules is totally vague. Since the petitioner agreed to accept the lesser area than what was agreed under the development agreement, there was no breach committed by the respondent. He submits that since the members of the petitioner did not vacate their respective tenements, the respondent who had agreed to provide the bank guarantee in favour of the petitioner before vacating the flats by the members of the petitioner was not submitted by the respondent. There was thus no breach insofar as the submission of the bank guarantee is concerned.

21. Insofar as the payment of the hardship compensation is concerned, it is submitted that the respondent had already paid all the installments of such compensation to the members of the petitioner. He submits that the copy of the IOD obtained by the respondent had been already provided to the petitioner. Insofar as the issue of indemnity bond raised by the petitioner is concerned, it is submitted that the form of such indemnity bond was already provided in the agreement at page 52 and in any event no such issue was raised earlier by the petitioner.

22. Learned counsel for the respondent then submits that since the petitioner had by conduct granted extension of time to the respondent to comply with its all the obligations, the time was not an essence of the contract. In support of this submission, learned counsel placed reliance on the judgment of the Supreme Court in the case of M/s.Hind Construction Contractors .vs. State of Maharashtra, (1979) 2 SCC 70.

23. Learned counsel for the respondent submits that the learned arbitrator has power to consider the reliefs for specific performance claimed by the respondent. Since the said relief is already claimed in the arbitration proceedings, this Court cannot permit the petitioner to appoint another developer to carry out redevelopment and to create third party rights in respect of the properties in favour of a third party. He submits that the respondent has already spent huge amount in taking various steps under the said development agreement and if the petitioner is allowed to redevelop the said property through some other developer and to sell the property in question, the respondent would not be able to recover any amount from the petitioner or its members. He submits that no case is made out for grant of any interim measures as prayed by the petitioner.

24. In rejoinder, learned counsel for the petitioner submits that the Municipal Corporation of Greater Bombay had already rejected the application for IOD submitted by the respondent in the month of March, 2011. The respondent obtained an IOD much later and not in accordance with the provisions of the development agreement. The respondent had assured the petitioner to give the bank guarantee and load TDR before the members of the petitioner vacating the premises. He submits that the members of the petitioner were ready and willing to vacate their respective premises however, since the respondent did not comply with its various obligations, the stage of the members of the petitioner vacating their premises did not arise. He submits that though the petitioner agreed for various concessions requested by the respondent such as to load limited TDR, the respondent could not load even the limited TDR.

25. Learned counsel for the petitioner distinguished the judgment of the Supreme Court in the case of N. Srinivasa (supra) on the ground that the facts before the Supreme Court in the said judgment are totally different. In this case the petitioner has already terminated the development agreement. There is no stay granted by this Court in favour of the respondent and as against the petitioner from taking any steps pursuant to the said letter of termination. On the contrary, this Court has permitted the petitioner to invite tenders and to take further steps however, not to appoint a new developer until a suitable direction that behalf is sought from this Court. Even the respondent has been directed to maintain status-quo until further orders. He submits that the respondent has not challenged the ad-interim order passed by this Court directing the respondent to maintain status-quo and permitting the petitioner to initiate tendering process.

26. A perusal of the record indicates that the development agreement was executed between the parties on 12th January, 2011. It is not in dispute that prior to the date of termination of the development agreement, the respondent had not commenced the construction on the plots. The respondent had not furnished the bank guarantee and had not taken various steps required to be taken before the members of the petitioner could be asked to vacate their respective tenements. The status-quo order is granted by this Court against the respondent which is not challenged by the respondent. While disposing of Arbitration Petition (Lodging) No.1892 of 2014 which was filed by the respondent herein, this Court did not grant any stay of the termination effected by the petitioner. On the contrary, this Court granted liberty to the petitioner herein to move this Court and obtain permission from this Court if the petitioner was desirous of appointing a developer to develop the property of the society and/or to deal with the said property in any manner whatsoever. It was also clarified by the said order that the said direction would not preclude the society or its members to carry on sale/transfer of the flats in the society premises.

27. Insofar as the submission of learned counsel for the respondent that no relief as claimed in this petition under section 9 can be granted is concerned, in my view there is no merit in this submission of learned counsel for the respondent. The present petition is filed pursuant to the liberty granted by this Court on 23rd December, 2014 in arbitration petition filed by the respondent itself under section 9. The said order has not been impugned by the respondent. In my view, the reliefs claimed in this petition inter-alia praying for permission to appoint another developer is thus maintainable and can be considered under section 9 of the Arbitration Act.

28. A perusal of the record prima-facie indicates that the respondent has made various suggestions from time to time for various changes in the plan, including reduction in the area of the flats though the respondent had agreed to provide the flats of larger area. The IOD was obtained by the respondent after a period of more than two years and that also partial. The respondent itself had submitted feasibility report on 17th October, 2014 of the project claiming that the project was making loss of Rs.16.00 crores if the petitioner was offered 773 sq. ft. as agreed under the development agreement. It is not in dispute that the buildings of the petitioner are in dilapidated condition. The members of the petitioner society in my prima-facie view have lost confidence in the respondent. The members of the petitioner society have therefore, passed a unanimous resolution initially to recover the liquidated damages from the respondent and thereafter by terminating the development agreement after giving 30 days notice for rectification of projects.

29. In my prima-facie view the petitioner has good chances of succeeding in the arbitral proceedings. The respondent not having been able to obtain any relief from this Court in its favour in the petition filed under section 9 of the Arbitration Act of stay of the termination and of stay restraining the petitioner from inviting any fresh tenders for the appointment of the new developer, the petitioner has rightly applied for permission to appoint a new developer pursuant to the liberty granted by this Court. Even if the respondent succeeds in the arbitration proceedings and if it is held that the termination of the agreement was illegal, the respondent would be entitled to claim compensation. The judgment of the Supreme Court thus relied upon by learned counsel for the respondent in the case of N. Srinivasa (supra) does not apply to the facts of this case and would not assist the respondent.

30. Insofar as several other submissions made by the respondent about the respondent not having committed any breaches as canvassed by the petitioner is concerned, in my prima-facie view, there is no substance in any of those submissions made by the respondent. A perusal of the record prima-facie indicates that the respondent has committed various breaches on its part and committed gross delay. Though the letter of intent was issued in favour of the respondent by the petitioner, as far back as on 16th May, 2010, till the said agreement was terminated, no steps were taken by the respondent to get the respective flats of the petitioner vacated by complying with its part of obligation. In this situation, in my prima-facie view, the respondent even otherwise would not be entitled to seek specific performance in view of section 14 of the Specific Relief Act, 1963.

31. This Court has taken a consistent view, including in the judgments referred to and relied by Mr.Cama, learned counsel for the petitioner, that if a society has lost confidence in the developer, the society cannot be forced to continue the contract with such developer. I am respectfully bound by the judgments of this Court which are relied upon by Mr.Cama, learned counsel for the petitioner which squarely applies to the facts of this case.

32. In view of the fact that the buildings of the petitioner are in dilapidated condition, it would be in the interest of justice and the balance of convenience being in favour of the respondent, that before any untoward incident takes place, the petitioner be permitted to take steps to appoint another developer and to go ahead with the redevelopment of its properties. On the other hand, if the respondent succeeds in the arbitration proceedings, the respondent would be entitled to compensation. No prejudice thus would be caused to the respondent.

33. I, therefore, pass the following order :-

a) The arbitration petition is made absolute in terms of prayer clauses (a) and (b). The petitioner is permitted to appoint a new developer to develop the property of the petitioner and to deal with the said property as the petitioner desires.
b) The arbitration petition is disposed of in the aforesaid terms. There shall be no order as to costs.
(R.D. DHANUKA, J.)

 

Oral application of learned counsel for the respondent for stay of operation of this order is rejected. (R.D. DHANUKA, J.)

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2014 - MSCDRC DIRECTS BUILDER TO PAY RS 32 LACS UNDER DEFECT LIABILITY - MOFA 1963

BEFORE THE HON'BLE STATE CONSUMER DISPUTES REDRESSAL COMMISSION, MAHARASHTRA, MUMBAI

Consumer Complaint No. CC/07/70

ARUNODAYA CO-OPERATIVE HOUSING SOCIETY LTD.,

Office at Arunodaya Apartments Survey No.312,

Behind K.E.S. School, Manipada, Santacruz East,

Mumbai – 400 098............Complainant (s)

Versus

PATTATHU BROTHERS,

Pattathu House, 45-C, Kalina-Kurla Road,

Santacruz East, Mumbai–400 029............Opponent (s)

BEFORE :

HON'BLE MR. P.B. Joshi, PRESIDING MEMBER
HON'ABLE MR. Narendra Kawde MEMBER

PRESENT :

Advocate Mr.Vinod Sampat for the Complainant.
Advocate Mr.Uday Wavikar for the Opponent.

ORDER

Per Hon’ble Mr.Narendra Kawde - Member :

(1) Complainant is a Co - operative Housing society who has filed this consumer complaint against the Opponent builder developer alleging deficiency in service for not attending construction defects, non - compliance of statutory obligations under the provisions o f Maharashtra Ownership of Flats Act, 1963 (hereinafter referred to as “MOFA’ in short) to transfer right, title and interest by conveying the property.

(2) Complaint was admitted and at later stage Complainant moved an amendment application to implead the original Landlord as Opponent. Though amendment application was allowed by order dated 21 st December, 2011, the Complainant failed to carry out the amendment on the ground that some of the previous co - owners were not alive. Therefore, the c omplaint was processed and adjudicated in its original format.

(3) Members of the Complainant Society had entered into individual registered agreement to purchase the flats with the Opponent builder developers. They themselves formed the co - operative Society in the year 2004 since the Opponents have failed to form the Society of the flat buyers though requisite charges were collected. The possession of the last flats was delivered in the month of October, 2002 to some of the flat purchasers . Several defects were noticed after taking over the possession of the flats and also essential common services like defect in drainage system, leakage in terrace, fire fighting system, defective installation of lift, lift room on the terrace, non - supply of garden/play area, slanting compound wall, electrical cables/wires installation, paving and tiling, drainage covers, construction of gymnasium, rain water covers, etc. Having made persistent efforts with the Opponent builder developers, the builder dev elopers did not heed any response, therefore, the Complainant Society was compelled to undertake repair of defective works from various agencies and spent sumptuous amount on different items of repairs and installations of lifts etc. Since the Opponents a llegedly failed to redress the grievance of the Complainant Society, this consumer complaint has been filed alleging deficiency in service against the Opponent builder developers, claiming an amount of Rs.39,43,256.18 on account of reimbursement and compen sation in addition to the main prayer of seeking directions for execution of conveyance deed.

(4) We have heard Mr.Vinod Sampat, Ld.Counsel of the Complainant and Mr.U.B. Wavikar, Ld.Counsel for the Opponent at length. We have perused the re cord, documents relied upon by parties and pleadings.

(5) Admittedly the members of the Complainant Society have executed the registered sale deed for purchase of flat individually with Mr.Anthony Joseph Pattathu, the sole proprietor of the O pponent builder developer. Copy of registered agreement available on record pertains to the date 23 rd July, 2002. Standard terms and conditions as listed in the model agreement under the MOFA though not fully incorporated in the stipulations to the agreement, however, fact of forming of co - operative housing society by the Opponent builder developer, obtaining Completi on Certificate and Occupation certificate and execution of conveyance deed have been appropriately incorporated in the registered agreement to sale. However, the Ld.Counsel for the Complainant brought to our attention I.O.D. (Intention of Disapproval) iss ued by Brihanmumbai Municipal Corporation which relates to the date 24 th December, 1994. On the basis of said I.O.D. the Opponent proceeded to execute the agreement to sale. The last possession of the flat was delivered in the year 2000. After taking o ver the possession of the flats several construction defects were noticed by the members of the Complainant Society and more particularly, top floor of the ‘A’ wing, 7 th Floor, Flat No.2, 4, 13, 24, 25, 26, 29, 46, 50 and 54 reported internal leakages. Th e complaint letter was promptly sent to the Opponent builder developers but the Opponent builder developers failed to take any corrective steps. Defect in common utilities like drainage pipe, leakage in the terrace, exterior wall of the entire building, d efective fire fighting system, non - laying of the additional water pipeline, defective installation of the elevators and defective construction of lift room, slanting compound wall and other several defects in the electric cable/wires and meter box were not iced, Complainant diligently and continuously taken up the matter with the Opponent to redressal. However, the Opponent builder developers failed to attend the grievances of the Complainant. Among other communications a letter dated 27 th August, 2005 ext ensively brought to the notice of the Opponent builder developers.

(6) The various defects listed in the consumer complaint were discussed with the Opponent builder developers and the Opponent builder developers undertook by giving consent t o remove the those defects and the complainant rely on this communication which demonstrates consent of the Opponent to rectify all these defects pointed out in the said letter. Even though there was consent of the Opponent builder developers, no action w hatsoever was taken to redress the grievances of the Complainant. The Complainant approached the different agencies to carry out the various corrective works and in the process incurred huge expenditure on various items for rectification. Complainant pla ced on record several communications addressed to the Opponent builder developers. Opponent builder developers were directly liable for not attending several defects and deficiencies and vital works carried out under the provisions of note 7. Though the said stipulations are not incorporated in the model agreement but the stipulations in the model agreement come under MOFA Rules 1964 are binding which are in force. The period of defective liability is provided for three years from the date of possession of the flat. The members of the Complainants have started complaining, invited attention of the Opponent builder developers towards several defective works listed in the consumer complaint. Therefore, since the Complainants have discharged their obligati ons to bring to the notice of the Opponent builder developers immediately after possession the point of limitation in respect of grievances made on account of defective liabilities would not be applicable in this case.

(7) The Ld.Counsel of t he Opponent builder developers Mr.Uday Wavikar did not dispute the issue of executing conveyance deed. It was fairly maintained that the Opponent builder developers are willing and desiring to execute the conveyance deed. Draft of the conveyance deed was already supplied to the Complainants but there is no response whatsoever received from the Opponents. “ It is also admitted that the process of delivering the flat was completed in the year 2002” . Since the original Landlord has not been impleaded as a party to the complaint, for effective and proper adjudication the Opponent Builder Developers are in difficulty to execute the deed of conveyance on the basis of General Irrevocable Power of Attorney as the registering authorities are insisting on certain documents and consent of the original Landlord/owner as confirming party. It is admitted that completion certificate and occupation certificate obtained from the competent authorities have been deliv ered to the Complainants way back in December, 2002. While executing the agreement to sale the Opponent builder developers fairly disclosed all the details pertaining to the ownership of the land. One of the original Landlords is no more and complainants are aware of the status. Therefore, for proper and effective adjudication of the complaint, the original Landlord was a necessary party to the complaint. The status of the title of the land was elaborately discussed as mentioned in the agreement to sale with the Complainant and therefore, the Opponent builder developers have requested to implead the original Landlord as one of the Opponents to facilitate smooth execution of conveyance deed. With this point in mind the Complainants have moved amendment ap plication. Accordingly which was allowed by the state Commission. However, the Complainants have failed to carry out the amendment to implead original Landlord as party for the reasons best known to them. Failure of Complainant to obey the orders of the Commission created a deadlock to execute deed of conveyance.

(8) In so far as defects liabilities are concerned it was pointed out by the Ld.Counsel for the Opponent Builder Developers that the complaint to the extent of defect liabilities w ill hit by the provisions of limitations as the last possession was delivered in 2002 and the complaint has been filed in the year 2007 that too without application for condonation of delay. Further it was brought to our notice that the consumer complaint has been filed without adopting a proper resolution. Therefore, the consumer complaint suffers from infirmity.

(9) On going through various documents available in the compilation, we find that, though the agreement to sale elaborately stipu lates about title of the land wherein the Opponent has developed and constructed the building. Impleading the original Landlord as a party cannot be a pre - condition for adjudication of this complaint in as much as there is no privity of contract between t he flat buyers and the original landlord. Opponents have executed registered agreement to sale on the basis of Irrevocable Power of Attorney in their favour by the original Landlords. Therefore, we are not in conformity with the arguments advance by the Ld.Counsel of the Opponent Builder Developers in this behalf. Mere disclosure of title of the land does not absolve the Opponent builder developers from taking effective steps to execute deed of conveyance in favour of the Complainant Society as Section 2 (c) of MOFA covers builders and even sellers in the definition as “Promoter”. Opponents are builders and sellers. Opponents are promoters as defined under the provisions of MOFA. Moreover, as a promoters, Opponents are under obligation to execute deed o f conveyance to transfer right, title and interest in the land and building as provided under Section 11 of MOFA. Mere handing over draft of the deed of conveyance is not suffice and it is the bounden duty of the Opponent to take up the issue of deed of c onveyance to the logical conclusion. As provided under the provisions of MOFA rights, title and interest in the land and building is required to be transferred by execution of conveyance immediately after formation of the co - operative society under sectio n 10 of the MOFA. We do not find the Opponents have taken adequate steps to discharge the statutory obligation. Since the privity of contract exists between the flat purchasers and the Opponent, Complainant Society need not be directed/compelled to appro ach the original landlords with whom complaints are totally unconcerned. It is the Opponent as a promoter to take such effective steps to discharge statutory obligation for conveyance of the property and building. On going through the record, the Opponen ts have not demonstrated to take effective action except by sending a draft of deed of conveyance.

(10) Complainants have discharged their obligations by paying agreed cost of the flats and also outgoings of the property even though the proper ty is not transferred by the Opponent by executing deed of conveyance. In such a situation it is the responsibility of the Opponent to pay all outgoing charges to the various authorities as provided under Section 6 of MOFA. However, though the right, tit le and interest in the land and building have not been transferred, yet the Complainant society continued to pay charges on account of outgoings just to avoid attachment of the property in default. On perusal of the record, admitted position is that delivery of flat possession was completed in 2002. Complainants have put forth their grievances for the short comings listed in the complaint in the year 2003 by letter dated 06.08.2003 itself and the Op ponents were well within knowledge and consented to take measures to remove all the short comings/lacunas pointed out by the Complainant and attested the signature on the letter dated 27 th August, 2005, which is part of the compilation. The Complainant so ciety by inviting plans and estimates for below listed various incomplete/defective works, went ahead to take corrective measures by carrying out the remedial changes:

Sr.NoParticulars Amount(Rs.)

1.

Expenses incurred for repairs to leaking drainage pipes in “A” and “B” Wing of Arunodaya Apartments (Ex.”A”)

:

1,36,201=00

2.

Estimated cost of repair to the exterior walls of the building (Exhibit “D”

:

9,20,000=00

3.

Expenses incurred for rect ifying leakages in tanks on the terrace (Exhibit “E” Colly.)

:

85,000=00

4.

Expenses incurred for obtaining tanker water from 1.11.2003 to 26.12.2003 in the absence of additional water pipeline (Exhibit “F” Colly.)

:

16,800=00

5.

Expenses incurred for laying of additional water pipeline (Exhibit “F” Colly.)

:

1,38,500=00

6.

Expenses incurred for installing safety doors to lifts (Exhibit “J” Colly.)

:

46,642=00

7.

Expenses for replastering the walls of the lift rooms on the terrace (Exhibit “K” Colly.)

:

19,505=00

8.

Expenses incurred for laying of garden lawn in the compound of the Complainant Society (Exhibit “L”)

:

1,15,079=00

9.

Estimated cost of repai r to compound wall on southern side of the Complainant’s property (Exhibit “M”)

:

3,25,000=00

10.

Expenses incurred for carrying out work of rectification of Electrical cables/wire and meter box, of the Complainant.

:

66,780=00

11.

Expenses incurred for fixing metal covers for drainage manholes in compound (Exhibit”O”).

:

58,775=00

12.

Expenses incurred for installing compound lights of the Complainant Society (Exhibit - “P”).

:

27,172=00

13.

Copy of letter dated August 27, 2 005 addressed by the Complainant Society to the Opposite Party for the construction.

:

3,00,000=00

14.

Expenses incurred for fixing Plexiglas rain covers along with entire height of staircases (Exhibit “R”).

:

87,500=00

15.

Portion of land admeasuring 120 sq.ft. or thereabouts of land belonging to the Complainant Society, the current market value of such portion being estimated at Rs.6,00,000=00

:

6,00,000=00

Since there was no positive response to attend all the defective works pointed out, the Complainant proceeded further to complete these works by inviting plans and estimates from various petty contractors and incurred expenditure on these items which is supported by documentary evidence i.e. receipts of payments made to the various contractors.

(11) Execution of agreement entails obligation on the builder to deliver promised and defect free possession of the flat along with the common amenities. This cannot be a point of dispute especially when the Complainants have paid the entire amount as per the agreement. The defects were pointed out well within time i.e. within a period of two years whereas model agreement stipulates period of three years from the date of taking over possession. Therefore, the prayer for rectification of amenities will not hit by either section 24 of the Consumer Protection Act or under the provisions of model agreement to sale.

(12) In view of above observations, Complainant Society discharged burden of proving deficiency in service against the Opponent beyond reasonable doubts as Opponents failed to discharge statutory obligation and also to provide defect free possession of the flats and common amenities. Complainants are entitled for reimbursement of the actual expenditure incurred supported by receipts for removing construction defects and securing common amenities in order and obtain right, title interest in the land and building. However, following payments are not supported by receipts, therefore, Complainant Society cannot claim reimbursement thereof :

Sr.NoParticulars Amount(Rs.)

1.

Rectification of Electrical cables/wire and meter box.

:

66,780=00

2.

Construction Work

:

3,00,000=00

3.

Cost of land of 120 sq.ft.

:

6,00,000=00

We hold accordingly and pass the following order:

ORDER

(i) Complaint is partly allowed.

(ii) The Opponents builder developers are directed to execute deed of conveyance, to transfer right, title and interest in the building and land to the Complainant Society within a period of four months from the date of this order, failing which Rs.1,000/- will be payable to the Complainant Society per day till compliance of the order.

(iii) The Opponent Builder developers are directed to reimburse amount of Rs. 19,76,174/- as listed below with interest @9% per annum from the date of filing of this consumer complaint i.e. from 04.05.2007 till realization within a period of 60 days, failing which rate of interest will be enhanced to 12% per annum till realization.

Sr.NoParticulars Amount(Rs.)

1.

Expenses incurred for repairs to leaking drainage pipes in “A” and “B” Wing of Arunodaya Apartments (Ex.”A” to the complaint)

:

1,36,201=00

2.

Estimated cost of repair to the exterior walls of the building (Exhibit “D” to the complaint)

:

9,20,000=00

3.

Expenses incurred for rectifying leakages in tanks on the terrace (Exhibit “E” Colly. to the complaint)

:

85,000=00

4.

Expenses incurred for obtaining tanker water from 1.11.2003 to 26.12.2003 in the absence of additional water pipeline (Exhibit “F” Colly. to the complaint)

:

16,800=00

5.

Expenses incurred for laying of additional water pipeline (Exhibit “F” Colly.)

:

1,38,500=00

6.

Expenses incurred for installing safety doors to lifts (Exhibit “J” Colly. to the complaint)

:

46,642=00

7.

Expenses for replastering the walls of the lift rooms on the terrace (Exhibit “K” Colly. to the complaint)

:

19,505=00

8.

Expenses incurred for laying of garden lawn in the compound of the Complainant Society (Exhibit “L” to the complaint)

:

1,15,079=00

9.

Estimated cost of repair to compound wall on southern side of the Complainant’s property (Exhibit “M” to the complaint)

:

3,25,000=00

10.

Expenses incurred for fixing metal covers for drainage manholes in compound (Exhibit”O”).

:

58,775=00

11.

Expenses incurred for installing compound lights of the Complainant Society (Exhibit-“P” to the complaint).

:

27,172=00

12.

Expenses incurred for fixing Plexiglas rain covers along with entire height of staircases (Exhibit “R” to the complaint).

:

87,500=00

  TOTAL

:

19,76,174=00

(iii) Non-compliance of the order will attract action u/section 27(2) of the Consumer Protection Act, 1986 against the Opponent builder developer and the Complainants are at liberty to bring to the notice of this Commission, non-compliance, if any.

(iv) Opponent to bear their own costs and pay an amount of Rs.25,000/- as costs to the Complainant.

(v) Rest of the claims of Complainant stand rejected which are not specifically granted.

Pronounced on 13th August, 2014

[HON'ABLE MR. P.B. Joshi]
Presiding Judicial Member

[HON'ABLE MR. Narendera Kawde]
Member

ep

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CONTRADICTORY JUDGMENTS OF BOMBAY HIGH COURT IN CASE OF MINORITY OPPOSING REDEVELOPMENT : DOES THE JUSTICE PREVAIL?

 

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COURT RELIEF FOR 3 MEMBERS OF KHAR HSG SOCIETY

 

Mumbai: June 19, 2010

In what comes as a relief to the handful of dissenting members of a Co-Operative Housing Society in Khar, the Bombay High Court refused to grant any interim relief to a Builder who wanted to have them evicted so that he could go ahead with redevelopment work on the building. A Division Bench headed by Justice F I Rebello admitted an appeal filed by M/s Acknur Constructions Pvt Limited against a December 2009 judgement of a Single Judge that held that even a single dissenting member of a Society cannot be thrown out by a Builder based on a mere Development Agreement executed with the society and a majority of the flat owners though agreeing for redevelopment of the building.

The Appeal Bench wondered in open court whether the said Builder had the locus standi to seek eviction of the members who were in minority and opposed to the redevelopment project. The Appeal Bench ruled that if anyone, it was the Society who had to file an application for eviction of dissenting member, the Judges remarked while denying the appointment of a Court Receiver over the prime property in Khar (W). But the Builder’s lawyer pointed out that a Division Bench headed by the Chief Justice of the Bombay High Court had held that a Builder did have the right to seek removal of the dissenting minority flat owners.

The judgment, which is under challenge by the Builder, had held that any redevelopment activity should not compromise the rights of members and must safeguard the existence of the Society. The 2009 judgment passed by Justice S C Dharmadhikari had also stated that Builder had no higher right than the Society and that the Builder is a mere contractor. While observing that any relief granted now would mean disposal of the plea, the High Court expedited the matter and granted liberty to the Builder to apply for an early date for the final hearing.

The case involves the Builder M/s Acknur Constructions Pvt Limited and Fardoon Apartment Co-operative Housing Society. The Builder, Deepak Rao, was seeking eviction of the owners of two shops and one flat as they were stalling the redevelopment work agreed to by the Society last January in a General Body Meeting.

Of the 12 members in the 39 years old four storey building, three opposed the redevelopment on the grounds that it was neither in their interest nor that of the Society.

AUTHOR’S COMMENTS : As per the law, the Builders cannot initiate process of evicting the dissenting members under the shelter of the Development Agreement as this Agreement never establishes privity of contract with any individual dissenting member/s and hence for getting peaceful possession of the Society’s property, it is the Society who shall take appropriate action against the dissenting member/s as the doctrine of privity in the common law of contract provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the Parties to it. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages i.e. the Society and the Builders.

HIGH COURT ORDERS 21 SOCIETY RESIDENTS OPPOSING REDEVELOPMENT TO VACATE FLATS IN 60 DAYS

 

Mumbai : March 12, 2015

The Bombay High Court has ordered 21 flat owners of a Housing Society in Oshiwara to vacate their apartments within 60 days to make way for the redevelopment of the building. Justice S C Gupte said that if the families refusing to vacate within the stipulated time, a Court Receiver would be appointed to take possession of the flats and even seek police assistance if needed.

The Court was hearing an application filed by M/s Supreme Mega Constructions which had been appointed by Symphony Co-operative Housing Society in Oshiwara to carry out redevelopment of its property. The Court rejected the plea of the 21 residents who had refused to move out, citing some shoddy clauses in the Development Agreement.

"The Balance of Convenience is in favour of the Developer as the Society and its overwhelming majority of members who want the building to be reconstructed," said the judge. The High Court pointed out that the Builder had spent substantial sums to start the project. It had paid Rs 1.00 crore towards Conveyance of the Land and existing building, Rs 50 lakhs to the Society towards Security Deposit and over Rs.5.31 crore to the Society’s members towards various compensations and spent various sums for preparing and having the plans of the new building approved. It was argued that the opposing flat owners do not oppose the redevelopment, but merely have reservations about certain clauses of the Development Agreement and the Permanent Alternative Accommodation Agreements, added the Court.

Symphony Co-operative Housing Society is spread over 2,997 Square Metres and its 68 residents own the 72 flats and 19 garages in the building. Society members had agreed to redevelop its property and appointed the Developers in 2011. Around 64 members signed and approved the Development Agreement. The Developers moved the High Court after the 21 members refused to vacate. The opposing residents disputed that the agreements had been approved in the Special General Meeting and produced video recordings claiming that the records of the meeting were fabricated. They alleged that the Development Agreement was not in accordance with the conditions of the Tender Document and that conditions had been violated. However, ignoring the challenger’s plea, the Judge ruled that merely on the basis of a purported video CD of the proceedings of Special General Meeting and the recorded minutes of the meeting which the society stands by, cannot be disregarded at this interim stage.

AUTHOR’S COMMENTS : Generally, the various drafts of redevelopment documents including the Development Agreement are sent by the Developers to the Society. These Drafts after methodically vetted, scanned and scrutinized theoretically by us and the gray areas/pitfalls and shortfalls are exposed and a detailed written report is given to our Client Society apprising them the areas of alerts and awareness and advise them that before its execution, the Society must impress upon the Developers to modify and improve all the legal documents of redevelopment in corporate interest and safety of the Society to achieve the desired results.

The Housing Societies must study, understand and try to forestall the weaknesses under Financial/Legal and Technical areas to be termed in Development Agreement benefiting the members as many of these areas are conveniently ignored/not documented by the Developers in the Development Agreement and we impress upon the Housing Societies to emphasize upon and compel the Developers to add those ignored conditions in Development Agreement in the corporate interest of the Society to protect their hard earned homes.

Please click on the link given below to understand the importance of vetting and scrutinizing of various legal documents related to the redevelopment.

http://redevelopmentofhousingsociety.com/index.php/article-showcase/redevelopment-matters/importance-of-scrutiny-and-vetting-of-redevelopment-documents

We also recommend going through the following videos.

The Author is addressing the Seminar on Redevelopment sponsored by MSWA and Interview by M/s Legal Pundits on Fungible FSI:

https://www.youtube.com/watch?v=rIHEh23aqtE https://www.youtube.com/watch?v=Za8enLqsi7w

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HOUSING SOCIETY CAN NOT BE FORCED TO GIVE DEVELOPMENT RIGHTS TO A DEVELOPER

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL
JURISDICTION
WRIT PETITION (L) NO. 10 OF 2010
Justice S. J. Kathawalla

Petitioners
1. Sushila Digamber Naik, R/at Room No.34/1860
2. Kailas Narsaiya Adep, R/at Room No.34/1843
3. Nilofar Shaikh, R/at Room No.34/1845
4. Sarojini Mahabal Shetty, R/at Room No.34/1853
5. Mahendra kathrani, R/at Room No.34/1857
6. Sunil Digamber Naik, R/at Room No.34/1859
7. Eslinda Michael Serao, R/at Room No.34/1875
8. K.C. Govindan, R/at Room No.34/1838
9. Asha Rajendra Jain, ] R/at Room No.34/1858
10. Mangala Pansare,] R/at Room No.34/1830
11. Hansa Bansidhar Bharucha, R/at Room No.34/1833
12. Natha R. Kadam, R/at Room No.34/1846
13. Henry S. Fernandes, R/at Room No.34/1856
14. Manorama Manohar Rane, R/at Room No.34/1863
15. Gopal S. Amin, R/at Room No.34/1866
16. Smitha Jayaram, ] R/at Room No.34/1867
17. Pramod Kirdat Patil, ] R/at Room No.34/1829
18. Salim Khan, R/at Room No.34/1842
19. Shantaram S. Shetty, R/at Room No.34/1840,
All at Kher Nagar Ganeshkrupa Co-operative Housing Society Ltd, Bandra (East), Mumbai-400 051

Versus

Respondents.....
1. Maharashtra Housing & Area Development Authority, Registered Office at Griha Nirman Bhavan, Kala Nagar, Bandra (East), Mumbai-400 02
2. Mumbai Housing & Area Development Board, Registered Office at Griha Nirman Bhavan, Kala Nagar, Bandra (East), Mumbai-400 051
3. Executive Engineer, Bandra Division, Mumbai Board, Office at Griha Nirman Bhavan, Kala Nagar, Bandra (East), Mumbai-400 051
4. Kher Nagar Ganeshkrupa Co-operative Housing Society Ltd., Building No.34, Khernagar, Bandra (East), Mumbai-400 051
5. M/s. A.A. Estate Pvt. Ltd, Registered Office at 3rd floor, RNA House, Fort, Mumbai-400 023
Mr. Kishor Tembe, a/w. Amol K. Tembe, for Petitioners
Mr. G.W. Mattos, AGP, for Respondent Nos. 1 to 3
Mr. P.K. Dhakephalkar, Senior Advocate, i/b. Ashwin Ankhad & Associates, for Respondent No.5.

CORAM: S.J.KATHAWALLA, JUSTICE
RESERVED ON: 22ND JANUARY 2010
PRONOUNCED ON: 4TH FEBRUARY 2010
JUDGMENT

Heard counsel for the parties.

2. Rule made returnable forthwith by consent. Mr. H. Mattos, learned AGP for respondent nos. 1 to 3 waives service. Mr. P.K. Dhakephalkar, Senior Advocate, waives service on behalf of respondent no.5.

3. By this writ petition, the petitioner nos. 1 to 19 have impugned the order passed by the respondent no.3 - Executive Engineer, Bandra Division, Mumbai Board, giving 48 hours to petitioner nos. 1 to 19 (non-cooperative members) to evict the tenements in their use, occupation and possession as mentioned against their names, failing which they be summarily evicted under Section 95A of the Maharashtra Housing and Area Development Act, 1976 (MHADA Act).

4. Respondent No.4 Kher Nagar Ganeshkrupa Co-operative Housing Society Limited is a registered Co-operative Housing Society and is the licensee of the respondent no.1 Maharashtra Housing and Area Development Authority (MHADA) in respect of its lands and is the owner of the building no.34, Kher Nagar, Bandra (East), Mumbai-400 051. The petitioners are the 19 out of 54 members of respondent no.4 society holding their respective flats.

5. In the year 2003, the members of respondent no.4 society decided to redevelop its property. 45 out of 54 members of respondent no.4 (including petitioner nos. 10 to 19) issued consent letters in support of the redevelopment project. However, petitioner nos. 1 to 9 had not signed the consent letters. 83% of the total members of respondent no.4 society therefore, supported the redevelopment project. Thereupon, the respondent no.4 applied to respondent no.1 (MHADA) for its No Objection Certificate. On 9th January 2004, respondent no.1 (MHADA) issued its No Objection Certificate for redevelopment to respondent no.4. On 19th June 2004, the Authorities under the Bombay Municipal Corporation Act issued an IOD to respondent no.4 society. In the year 2007, 34 members of the society vacated their tenements and shifted to the temporary alternative accommodation allotted to them. However, the petitioners who had since the year 2004 started opposing the redevelopment of the society's property through respondent no.5 (the Developer) refused to vacate their tenements.

6. In the year 2007, respondent no.5 i.e. the Developer filed in the City Civil Court, Mumbai S.C. Suit Lodging No.2697 of 2007 against the petitioners for a permanent injunction restraining the petitioners from obstructing, interfering with the performance of obligations under the development agreement dated 17th June 2003 and for interim orders seeking appointment of Receiver in respect of the premises of the petitioners with power to take possession thereof and to deliver the same to the respondent no.5 for demolition. Respondent no.5 applied for interim orders which were granted by an order dated 1st September 2007. The petitioners preferred an appeal before this Court from the said order dated 1st September 2007. At the ad-interim stage, this Court stayed the order passed by the City Civil Court dated 1st September 2007 and the said appeal is pending in this Court till date. Thereafter, respondent nos. 10 to 18 who had already given their individual written consent in the year 2003, after more than four years, executed declarations withdrawing their consent for the redevelopment project.

7. Thereafter, show cause notices dated 10th August 2009 were issued by respondent no.3 to the petitioners under Section 95A of the MHADA Act. The petitioners opposed the show cause notice by their Advocate's letters dated 13th August 2009 and 2nd September 2009. The petitioners also filed in this Court Writ Petition No.1802 of 2009 challenging the show cause notices all dated 10th August 2009 which petition is pending. Between September 2009 and December 2009, respondent no.3 proceeded with the hearing of the show cause notices and by the impugned order dated 29th December 2009; respondent no.3 called upon the petitioners to vacate their premises within 48 hours failing which summary eviction of the petitioners under Section 95A of the MHADA Act is ordered. The said order dated 29th December 2009 is impugned in the present petition.

8. The learned Advocate appearing for the petitioners submitted that the petitioners are impugning the order dated 29th December 2009 passed by respondent no.3 under Section 95A of the MHADA Act, only on the following two grounds:-
(a) That the Mumbai Housing Area Development Board has no jurisdiction to pass an order under Section 95A of the Maharashtra Housing and Area Development Act, 1976.
(b) That the redevelopment scheme is not supported by 70% of the members of the respondent no.4 society.

9. As regards the first issue pertaining to the alleged lack of jurisdiction, the learned Advocate appearing for the petitioners submitted that the provisions of Section 95A are contained in Chapter VIII of the Maharashtra Housing and Area Development Act, 1976 and consequently, respondent no.2 and/or respondent no.3 being an Officer of respondent no.2 would have no jurisdiction to take any action under Section 95A of the MHADA Act and that the Mumbai Building Repairs and Reconstruction Board is alone empowered under Section 75 of the MHADA Act to exercise the powers and perform duties and to take action under Chapter VIII of the MHADA.

10. The learned Advocate appearing for respondent nos. 1 to 3 submitted that the Mumbai Building Repairs and Reconstruction Board is empowered to deal with all cessed private buildings in the island city of Mumbai inter-alia to which the provisions of DCR 33(7) applies. The Mumbai Housing and Area Development Board i.e. respondent no.2 is concerned with the MHADA layouts in the island city of Mumbai and in Mumbai Suburbs. Though the provisions of Section 95A of the MHADA Act are found in Chapter VIII of the MHADA Act, the Development Control Regulations for Greater Mumbai, 1991 came to be amended by the Government by a notification dated 6th December 2008. By virtue thereof, the Provisions of Section 95A of the MHADA Act were mutatis-mutandis made applicable to the provisions of DCR 33(5).

11. The learned Advocate appearing for respondent nos. 1 to 3 further submitted that for MHADA layouts in the island city of Mumbai as well as in the suburbs redevelopment is undertaken under DCR 33(5) to which Section 95A of the MHADA Act is made applicable. The heading of DCR 33(5) reads thus:

"(5) Development/Redevelopment of Housing Schemes of Maharashtra Housing and Area Development Authority"

It is therefore, submitted that the provisions of DCR 33(5) are applicable to a MHADA layout. Admittedly, the building in question is situated in a MHADA layout at Bandra (East), Mumbai, i.e. Mumbai suburbs. An application for approval of the Kher Nagar layout was forwarded to the Municipal Corporation of Greater Mumbai by the Senior Architect and Planner-I, Mumbai Housing and Area Development Board on 24th October 2000. Clause 2 of the said application for approval in terms states that the colony known as Kher Nagar colony is entitled to have 20% additional FSI as per DCR 33(5). The layout approval was granted by MCGM on 21st June 2001. The said layout was approved by the MCGM under DCR 33(5).

12. The learned Advocate appearing for respondent nos. 1 to 3, has further submitted that in pursuance to an application dated 28th July 2003 made on behalf of respondent no.4 society to respondent no.2 (MHADA) for redevelopment, an offer letter dated 13th October 2003 was issued by MHADA, clause 16 of which reads thus:

"All the terms and conditions mentioned in the letter of MCGM's layout approval letter no. CE/72/BPWS/AH dated 21.06.2001 are applicable to your society."

It is submitted that the said layout as aforesaid was approved by MCGM under the said Regulations. Thereafter, a No Objection Certificate for redevelopment was issued by respondent no.2 on 9th January 2004. It is submitted that it is therefore, ipso-facto clear that the redevelopment of respondent no.4 society was undertaken under DCR 33(5) upon NOC from respondent no.2 (MHADA) and thus, as per the said amended provision of DCR 33(5), the respondent nos. 2 and 3 are empowered to invoke the provisions of Section 95A of the MHADA Act, 1976 and the respondent nos. 2 and 3 have rightly exercised the jurisdiction under Section 95A of the MHADA Act. The learned Advocate appearing for respondent nos. 1, 2 and 3 has submitted that this Court vide its order dated 29th August 2009 has held that MHADA is vested with statutory powers under 33(5) (7) of the D.C. Regulations, 1991 to issue notice to persons who failed to vacate the existing tenements.

13. In my view, the submissions made on behalf of respondent nos. 1 to 3 are correct in its entirety. Though the Provisions of Section 95A of the MHADA Act are found in Chapter VIII of the MHADA Act, the Development Control Regulations, 1991 came to be amended by the Government by a notification dated 6th December 2008. Regulation 33(5) (7) is reproduced hereunder:

"(5) Development/Redevelopment of Housing Schemes of Maharashtra Housing and Area Development Authority:

(1)............................ (2)............................
(3)............................ (4)............................
(5)............................ (6)............................
(7)………………………

In any Redevelopment scheme where the Co-operative Housing Society/Developer appointed by the Co-operative Housing Society has obtained No Objection Certificate from the MHADA/Mumbai Board thereby sanctioning additional balance FSI with a consent of 70% of its members and where such NOC holder has made provision for alternative accommodation in the proposed building (including transit accommodation) then it shall be obligatory for all the occupiers/members to participate in the Redevelopment Scheme and vacate the existing tenement for the purpose of redevelopment. In case of failure to vacate the existing tenements, the provisions of Section 95A of the MHADA Act mutatis mutandis shall apply for the purpose of getting the tenements vacated from the non co-operative members."

14. As submitted by respondent nos. 1 to 3, admittedly, the H building in question is situate in MHADA layout at Bandra (East) and therefore, it is clear that the provisions of DCR 33(5) are applicable to a MHADA layout. The application for approval of Kher Nagar layout made by the Senior Architect and Planner-I, MHADA, dated 24th October 2000 states that the colony known as Kher Nagar Colony is entitled to have 20% additional FSI as per DCR 33(5). The application for approval was made under DCR 33(5) and the layout which was approved by the MCGM on 21st June 2001 was also under DCR 33(5). As submitted by respondent nos. 1 to 3 clause 16 of the offer letter dated 13th October 2003 issued by MHADA and the approval of the layout of the MCGM under the said Regulations and a No Objection Certificate for redevelopment issued thereafter by the respondent no.2 on 9th January 2004 ipso-facto shows that the redevelopment of respondent no.4 society was undertaken under DCR 33(5). Thus as per the said amended provisions of DCR 33(5), respondent nos. 2 and 3 are empowered to invoke the provisions of Section 95A of the MHADA Act and the petitioners are not correct in their submission that respondent nos. 2 and 3 had no jurisdiction to pass the impugned order under Section 95A of the MHADA Act.

15. The next contention of the petitioners is that 70% of the members of respondent no.4 society did not support the redevelopment scheme. A Special General Body Meeting was convened by respondent no.4 society on 29th March 2003 for taking up the property for redevelopment, wherein the Special General Body of respondent no.4 society decided to take steps for redevelopment of the property. Thereafter, in pursuance to the said decision of respondent no.4 society on or about 17th June 2003, a development agreement was entered into, wherein respondent no.4 appointed respondent no.5 as its Developer. The said agreement has been signed by 45 members out of the 54 members of respondent no.4 society, as witness thereto. On the same day, a declaration too was signed by 45 out of 54 members in favour of the respondent no.5. Thus, 83% of the members granted their consent for the said redevelopment. The said declaration in terms states that the petitioners and other members of the society who are signatories to the said declaration, agree and undertake to duly perform the obligations cast upon them under the said agreement entered into by respondent no.4 with respondent no.5, as more particularly stated in paragraph 6 thereof. Petitioner nos. 10 to 19 has signed the said agreement as well as the declaration. The petitioners have not challenged the resolution for redevelopment passed by the society or the agreement with the Developer in any Court. The petitioners have also not initiated any proceedings seeking cancellation/ withdrawal of the consent given by the petitioner nos. 10 to 19 as far back as in the year 2003. If such withdrawals are taken cognizance of, the object of redevelopment of old and dilapidated buildings will never be achieved and will also encourage some of the members of societies to use it as a weapon to blackmail the Developers. The belated withdrawal of consent by some members is, therefore, is consequential. The said aspect has been elaborately dealt with by the respondent no.3 in the impugned order dated 29th December 2009 and as such, the contention of the petitioners that in view of the subsequent withdrawal of consent, the said redevelopment scheme does not have the consent of 70%, is devoid of merits and is rejected.

16. Under the circumstances, the contentions raised by the petitioners on both the above issues are untenable and baseless and are rejected. Consequently, the rule is discharged and the writ petition is dismissed with costs.

17. The learned Advocate appearing for the petitioners seeks a stay on eviction of the petitioners for a period of two weeks from today. The same is granted, subject to the petitioners filing an undertaking on or before 9th February 2010 that in the meantime, they shall not part with possession and/or create any third party rights in respect of the tenements in their possession. If the petitioners fail to file the said undertaking as directed, the stay on eviction shall stand vacated without reference to this Court.

(JUSTICE: S.J.KATHAWALLA)

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