The Supreme Court on Thursday, 23 July directed a Mumbai-based developer to execute a Permanent Alternate Accommodation Agreement (PAAA) and hand over possession of three flats to an occupant of a redeveloped cessed building within two months, ruling that the developer could not walk away from its contractual and statutory obligations after having already obtained vacant possession of the old premises for redevelopment.

Key Ruling and Bench Observations

A Bench of Justices J.B. Pardiwala and K. Vinod Chandran set aside a Bombay High Court judgment that had restrained the Maharashtra Housing and Area Development Authority (MHADA) from taking coercive action against the developer for failing to comply with its directions. The apex court revived MHADA's orders directing the developer to execute the PAAA, register it, and hand over possession of the promised premises to the appellants.

The court held that MHADA had acted squarely within the framework of the Maharashtra Housing and Area Development Act and applicable redevelopment regulations. 'The developer cannot casually, after all these years having obtained a consent, leading to vacation of premises and possession being handed over for the purpose of redevelopment, on the promise of allotment of premises as specified in the PAAA, turn around and challenge the very claim raised by the 1st appellant as an occupant,' the Bench stated.

Background of the Dispute

The case stems from the redevelopment of a cessed building in Mumbai, where occupants vacated their homes on the assurance of receiving permanent alternate accommodation in the reconstructed structure. The appellants sought enforcement of a PAAA executed in October 2019, under which they were promised three flats in the redeveloped project.

The developer, however, contended that the agreement was invalid and that the appellants were not entitled to the full area promised. It further argued that a reduction in permissible construction — owing to changes in the sanctioned building height — left insufficient floor space to honour the agreement.

Court Rejects Developer's Arguments

The Justice Pardiwala-led Bench rejected each of the developer's defences in turn. It held that the PAAA was not a mere private arrangement but one executed under a statutory redevelopment framework supervised by MHADA, and therefore carried binding statutory force.

On the developer's claim that internal partner disputes absolved it of its obligations, the court was unequivocal: 'The settlement of inter se disputes between the partners... cannot absolve the developer from his obligations as per the validly executed agreement based on which vacant possession of the premises was obtained, the old premises demolished and the new building constructed.'

The court also dismissed the argument that reduced utilisation of fungible Floor Space Index (FSI) justified withdrawal from the agreement. 'The mere fact that fungible area was not fully utilised cannot be a ground to allow the developer to resile from its agreement to redevelop and allot alternate premises to the occupants of the old building as agreed upon,' the judgment said.

Consequences of Non-Compliance

The Supreme Court ruled that if the developer fails to hand over the three apartments within the two-month deadline, the appellants will be entitled to recover damages equivalent to the monthly rental value of all three flats and may also seek additional compensation for the delay in delivery.

The court further described as 'misconceived and mala fide' a civil suit subsequently filed by the developer challenging the PAAA — notably after the developer had already given an undertaking before the High Court — and directed that the Bombay High Court should not proceed with that suit.

Costs and Final Orders

The appeal was allowed with costs of ₹50,000 each before the High Court and the Supreme Court, payable by the developer to the appellants. The ruling reinforces the principle that statutory redevelopment agreements cannot be unilaterally repudiated by developers once occupants have vacated and demolition has proceeded. The judgment is likely to have wider implications for cessed building redevelopment disputes across Maharashtra.