Bombay High Court Diary


Justice Sandeep V. Marne of the Hon’ble Bombay High Court was hearing an appeal filed pertaining to the issue of liability of the promoters in joint venture real estate projects.

Facts of the case

[1]The Respondent No.2 had launched a project named “The Nest” in Andheri (West), Mumbai under the Slum Rehabilitation Scheme under the provisions of Regulation 33 (10) of the DCR, 1991. By a Joint Development Agreement dated 5th September 2012, the Respondent No.2 and the Appellant jointly agreed to develop the said Project. Both the parties segregated the constructed area among themselves for selling to the purchasers in the open market.

The Respondent No.1 booked a 3 BHK flat admeasuring 2,385 sq. ft in the said project for consideration amounting to Rs.2,65,35,000/- (Rupees two crores sixty five lakhs thirty five thousand only). The said Respondent made a part payment of the total consideration amount, following which the Respondent No.2 issued him a ‘Letter of Allotment’.

The project being incomplete on the date of the enforcement of RERA, the said project was registered by the Respondent No.2 as an ‘ongoing project’ under Section 3 of the Real Estate Regulation and Development Act, 2016 (for short, “RERA”) in which the Appellant was declared as a ‘Promoter (Investor)’.

The date of completion in the MahaRERA registration application was 31st March, 2019 but however the Respondent No.1 stated that the said date was revised to 31st March, 2020 without obtaining any authorization in that regards. The said Respondent No. 1 also claimed that the correct carpet area of the flat agreed to be purchased by him was not visible on the MahaRERA website.

The Respondent No.1 filed complaint with the MahaRERA under the provisions of Section 12 and 18 of the RERA and claimed refund of the amounts paid by him in addition to the interest and the compensation costs. The Respondent No.2 filed his submissions before the Authority and cited various difficulties such as non-vacation of the premises by the slum dwellers, delay in obtaining the necessary permissions/sanctions from the concerned authorities, the Covid pandemic etc. due to which he was unable to complete the project within the stipulated timeline.

The Respondent No.2 did not deny or dispute the booking of the flat by the Respondent but contented that only a certain amount was paid by the Respondent No.1 in cash who was merely an investor. He also stated that the area agreed in the allotment letter was only a saleable area and not carpet area.

The Appellant before the MahaRERA authority claimed that the said project was being developed under a ‘Joint Development Agreement’ and both the parties i.e. the Appellant and the Respondent No.2 had their own respective entitlements. The Appellant stated that the said flat came to the share of the Respondent No.2 who accordingly agreed to sell the same to the Respondent No.1 for consideration.

Placing reliance upon the fact that the letter of allotment was issued by Respondent No.2 and he alone accepted the entire payment from the complainant, the Respondent No.2 was alone liable and responsible to refund the amounts received by it. The MahaRERA passed an Order dated 24th September, 2021 holding both the Complainant as well as the promoters liable for the contravention of the provisions of Section 4 of the MOFA.

The MahaRERA rejected the Complainant’s prayer for refund and directed both the parties to execute and register an ‘Agreement for Sale’ within a certain timeline failing which the entire amount was directed to be refunded to the complainant.

Dissatisfied by the order passed by the MahaRERA, the complainant filed an appeal under the provisions of Section 43 of the RERA before the Appellate Tribunal.  The Appellate Tribunal partly allowed the complainants appeal by setting aside the MahaRERa’s order.

The Tribunal directed both the Respondent No.2 as well as the Appellant to refund the entire amount paid by the complainant along with interest at the rate of SBI’s Highest Marginal Cost of Lending Rate plus 2 (two) percent to the allottee along with awarding costs to the complainant. Disgruntled by the order passed by the Appellate Tribunal, the Appellant filed 2nd Appeal in the Hon’ble Bombay High Court.

Contentions raised by both the parties

The Appellant argued before the court that the order passed by the Appellate Tribunal was erroneous in law and the Appellant cannot be held liable for the refund of the amounts paid by the Complainant as the Complainant had not made the payment of any amounts to the Appellant. It was contended by him that according to Section 18 of the RERA, the refund can be directed to be paid only by those promoters who have received the amounts from the allottee.

He stated that the flat agreed to be purchased by the Complainant falls under the purview of entitlements of Respondent No.2 and due to which he alone issued the allotment letter and received the entire consideration amount from the Complainant. He relied upon the circular dated 4th December, 2017 issued by the MahaRERA and asserted that the liability of one promoter cannot be imposed upon the other promoter.

The  respondent No.1 argued  that the Appellant is  covered under the definition of the term ‘Promoter’ within the meaning of Section 2 (zk) of RERA and that in the application made to MahaRERA for registration of the said project, the name of the Appellant has reflected as a ‘Promoter.’ He further submitted that the explanation under the definition 2 (zk) made is clear and evident that all the Promoters are jointly liable under the act.

Issue involved in the case

The Bombay High Court admitted the Appeal by framing 2 (two) Substantial Questions of Law.

(i) Whether a Promoter who has not received any consideration from an allottee can be made liable for giving refund along with interest under Section 18 of the Real Estate (Regulation and Development) Act, 2016?

(ii) Whether on account of non-decision of point about the liability of the Appellant to refund the amount by the MahaRERA Appellate Tribunal, an order of remand is warranted?

Observations of the Hon’ble Bombay High Court

The Hon’ble Bombay High court observed that for determining the liability of the Appellant to refund the amounts paid for the purchase of the real estate project, it would be pivotal to ascertain whether the Appellant falls under the ambit of the definition of the term ‘Promoter’.

The court took into consideration the definition of the term Promoter and derived that even a person who is merely an investor in the project accompanied with the Promoter and who is entitled to gain benefits out of the project would also be included under the definition of the term ‘Promoter.’

The Court also further observed that while registering the said project under Section 3 of the RERA, the name of the Appellant was included in the list of Promoters and so the court firmly stated that the appellant was not vested with any power or authority to escape from the fact that he is a promoter in respect of the said project.

The court also stated that a person who does not actually construct or causes to be constructed a building but only participates in the joint venture and sells the flats to the customers/allottees, does become a promoter. The court concluded that undoubtedly both the appellant as well as the Respondent No.2 are promoters and are jointly liable in respect of the responsibilities under the RERA as well as the Rules and Regulations made thereunder.

The court was of the opinion that merely because of the fact that flat agreed to be purchased by Respondent No.1 fell under the scope of the shares of the Respondent No.2 would not excuse and/or give a right to the appellant to escape from the responsibilities and liabilities under the RERA as well as the Rules and Regulations made thereunder. The court stated that RERA does not divide or confine/limit the liabilities of different promoters in different areas.

The liability is joint for all the purposes under the Act, Rules and Regulations. It also maintained its view that the Circular dated 4th December, 2017 relied by the Appellant also made it clear that even those entities who are entitled to share in the revenue generated from the sale of the flats are jointly responsible/liable for the obligations explicitly specified under the Act.

The court remarked that before registering a project the landowners/investors have to decide if they are willing to continue as a Joint Venture or not. If they are desirous of continuing with the Joint Venture after RERA coming into force, they must accept the responsibility of the promoter and if they want to escape and/or avoid the responsibility as a promoter then in that case the only remedy available to them is to make an exit from the joint venture before the project is registered. After the acceptance of the joint liability, it cannot be later be stated that the joint venture exists solely for sharing the profits and not for sharing of the liabilities.

The court observed that by continuing the joint venture with the respondent No.2 during the time of the registration of the project, the appellant has by default accepted all the liabilities of the promoter under the act and he cannot take a make an exit from the liability just be pleading before the court that the payments were made only to the Respondent No.2. It also observed that the absence of privity of contract with 1 (one) Complainant does not absolve him in respect of the liabilities under RERA.

Judgment passed by the Hon’ble Bombay High Court

The Hon’ble Bombay High Court held that under Section 18 (1) (b), the liability to return the amounts received from the flat purchaser is on the promoter and since the appellant is covered under the definition of the term ‘Promoter’, he is also jointly liable and responsible to refund the amount along with other promoter, being Respondent No.2.

It also concluded by stating that a Promoter who has not received any consideration from an allottee is also equally liable to refund the amount paid by the allottee along with interest thereon under Section 18 of the RERA.

Analysis of the judgment passed by the Hon’ble Bombay High Court

The promoters in joint venture real estate projects cannot make a back door exit in terms of compliance of obligations in the Agreements entered into with the flat purchasers/allottees on the ground that they do not have privity of contract with the flat purchaser/allottee. The judgment protects the flat purchasers/allottees by ensuring that the promoters demonstrate full compliance with their obligations in terms of the Agreement entered into with the flat purchasers/allottees and the same are not convoluted in any manner.

The judgment will make the flat purchasers/allottees gain confidence in such joint venture real estate projects. With the Bombay High Court endorsing the definition of Promoter to include ‘Investors’ in the project,  henceforth all the Promoters of a project undertaken by joint venture will be under statutory compulsion to discharge all obligations and responsibilities towards the flat purchaser/allottee as recorded in the Agreement in its entirety and will not be able to abandon it as it does not give any leeway to them to escape from the same,  failing which they would be held accountable for such non – compliance in the eyes of law.

[1] Wadhwa Group Housing Private Ltd. v/s Mr. Vijay Choksi and SSS Escatics Pvt. Ltd.

The article is authored by  Nirali Yash Desai. She is a real estate lawyer working with Damji Shamji Shah Group, Mumbai  (in-house legal department).