Bombay HC orders authorities to sell property of developers if they fail to pay tenants

The Bombay high court (HC) recently directed a developer and his sons to pay the rent amount, pending since 2019, to the tenants of a redevelopment project they had undertaken at Mazgaon

The Bombay high court (HC) recently directed a developer and his sons to pay the rent amount, pending since 2019, to the tenants of a redevelopment project they had undertaken at Mazgaon. They had failed to complete the project and had not paid the rent as well. The court also directed the developers to pay the amount in a time-bound manner, failing which the authority concerned can attach the personal properties of the developers and recover the pending rent and loan amount.

A division bench of justice SJ Kathawalla and justice SP Tavade, while hearing three writ petitions filed by tenants of Hirji Bhojraj Chawl at Mazgaon, was informed by advocates Aditya Pimpale and Kiran Jain that the tenants had entered into a redevelopment agreement with the developer prior to 2017 and had vacated the premises.

A division bench of justice SJ Kathawalla and justice SP Tavade, while hearing three writ petitions filed by tenants of Hirji Bhojraj Chawl at Mazgaon, was informed by advocates Aditya Pimpale and Kiran Jain that the tenants had entered into a redevelopment agreement with the developer prior to 2017 and had vacated the premises.

The developer had undertaken to pay them monthly rent till he handed over permanent accommodation to them on completion of the building and getting the completion certificate (CC).

The bench was informed that thereafter the chawl was demolished and a shell structure was constructed after which the work stopped. It was also submitted that while some of the tenants had received rent till August 2019 following court orders, it stopped thereafter. The bench was further informed that the developers had assured the court of paying the pending rent but on each occasion they had reneged as a result of which the tenants were left high and dry and were unable to pay for their rented accommodations, thus forcing them out.

The court was also informed that the developers had mortgaged the sale component and taken a loan of Rs30 crore from State Bank of India, but after paying the first instalment, stopped paying the bank and siphoned of the entire amount.

Pimpale and the advocates in the other petitions impressed upon the court that the developers had repeatedly failed to abide by the payment schedule they submitted to the court and as contempt petitions were filed against them, in November 2019 had asked the court to take over the project. However, the court had declined as the sale component was already mortgaged and whatever amount was recovered by selling the flats would go towards settling the loan as a result of which the project would remain incomplete.

The petitioners advocates then submitted that as per section 77 (a-1) and section 91A of The Maharashtra Housing and Area Development (Amendment Act), 2020 as the developers were not in a position to complete the project, the no-objection certificate (NOC) and intimation of disapproval (IOD) issued to the developers in 2014 should be cancelled and MHADA should be directed to take over the project and complete it.

On their part, the developers disputed the outstanding rent demanded by the tenants, but did not dispute the claim of non-payment and informed the court that due to financial constraints they were not able to pay rent. However, on being asked whether they were willing to give an undertaking to the court on making payment towards the pending rent in a time-bound manner or face the consequences that would follow, the developers refused to give such an undertaking.

After hearing the arguments and perusing previous orders the bench observed that as the advocate for the developers had sought some time by way of last chance to show their bonafides to pay the rent within stipulated time and complete the rehab building it was directing the developers to pay pending rent till July 2021 within four weeks and thereafter pay the rent before the 10th day of each month till the handover of the permanent alternate accommodation.

The court then observed that if the developers defaulted on the present order, the NOC dated October 21, 2014, and the IOD dated November 21, 2014, issued to them would forthwith stand cancelled and tenants could apply to the relevant authorities, including MHADA, to initiate process for acquiring the said land and building for the purposes of developing/completing the development of the said building under the MHADA Act, including the Amended Section 91A, if the same is brought into force.

The court further added that in case of default and cancellation of NOC and IOD the authorities “shall initiate such action as is permissible by law, including attaching the moveable and immoveable assets of the Respondent Nos. 5 to 8 (developer firm and father and two sons) to recover the outstanding amounts towards monthly compensation in lieu of temporary alternate accommodation and to have the subject Land and Building released from mortgage created in favour of State Bank of India.”

The court also restrained the developers from disposing of or creating third party rights of their movable and immovable assets and said that in the event of default they would be issued show cause notices as to why contempt of court proceedings should not be initiated against them and also restrained them from leaving the country.

The petitions have been posted for further hearing to August 31.