Developer Cannot Resile from Redevelopment Agreement After Taking Possession, Supreme Court Holds
A Division Bench of the Supreme Court set aside a Bombay High Court order and directed Kalikund Developers to hand over three flats within two months to occupants of a cessed building under a statutory redevelopment scheme.
The Supreme Court has allowed an appeal by Mrs. Mahabanoo Contractor and another against M/s. Kalikund Developers, holding that a developer who obtained consent, vacated premises, demolished an old cessed building and constructed a new one cannot afterwards challenge the very agreement under which possession was surrendered. The Court, comprising Justice J. B. Pardiwala and Justice K. Vinod Chandran, set aside a Division Bench judgment of the Bombay High Court that had restrained the Maharashtra Housing and Area Development Authority (MHADA) from enforcing its orders against the developer. The Supreme Court directed execution of the Permanent Alternate Accommodation Agreement (PAAA) and handover of three flats within two months, failing which the appellants would be entitled to recover damages at the monthly rental value of the three flats.
The Dispute and Its Path to the Supreme Court
The appellants' case traces to a cessed building at 18/20, 20C, 20D, 20A, 20F, Wimbridge Compound, N.B. Marg, Grand Road (West), Mumbai, which had been declared unfit for human habitation. Kalikund Developers, as owner-developer, obtained a No Objection Certificate (NOC) from MHADA on 21 September 2010 to proceed with redevelopment under the Maharashtra Housing and Area Development Act, 1976 (MHAD Act) and Development Control Regulations for Greater Bombay, 1991 (DC Regulations).
The first appellant, Mrs. Mahabanoo Contractor, had been in joint occupation of Room No. 5 on the third floor of the old building together with one Ms. Gool Peshotan Unwalla, who was the named tenant. Ms. Unwalla died in 2012, leaving the appellants as her sole legal heirs. As far back as the developer's own public notice of 21 April 2010, both Ms. Unwalla and the first appellant were shown together — Ms. Unwalla in the “Name of the tenants” column and the first appellant in the “Occupants” column. The NOC issued by MHADA, as well as the revised NOC of 21 August 2012, reflected the same joint listing.
On 17 October 2019, the developer executed a PAAA with the first appellant conceding three flats aggregating 309.98 sq. mtrs. (approximately 3,336 sq. ft.) in the new building, inclusive of fungible Floor Space Index (FSI) area as permissible under the DC Regulations, along with three covered parking spaces. Possession of the old premises for the purpose of redevelopment was handed over by the first appellant to the developer on the same day. The developer, however, failed to deliver the new flats even after MHADA extended the time limit to 21 September 2023.
When the developer continued to refuse handover, MHADA passed orders on 28 May 2025 and 27 June 2025 directing execution of the PAAA and registration, followed by a Show Cause Notice on 10 July 2025 under Section 91A of the MHAD Act for non-compliance. The developer challenged all three instruments before the Bombay High Court.
A Division Bench of the High Court found non-application of mind by MHADA (the original proposal was for 34 floors but the building was restricted to 30 floors, reducing available FSI), held the PAAA to be a private arrangement not amenable to writ jurisdiction, and restrained MHADA from taking further coercive steps. It disposed of the writ petition on the basis of the developer's concession that two flats would be kept encumbrance-free pending a civil suit. There was, however, no civil suit in existence at that stage. The suit — CS No. 4579 of 2026 — was filed by the developer only on 6 February 2026, after the High Court's judgment, and its prayers sought to deny the appellants any allotment in the reconstructed building and to invalidate the PAAA in its entirety.
Why the Court Held the PAAA Was Not a Purely Private Arrangement
The Supreme Court's central finding was that the High Court was wrong to characterise the PAAA as a private arrangement beyond writ jurisdiction. Justice K. Vinod Chandran, who authored the judgment, reasoned that the PAAA was entered into under a statutory scheme regulated by the MHAD Act and the DC Regulations. MHADA holds overall supervisory and regulatory authority under that framework, and the NOC itself was granted on the express condition that all occupants of the old building would be accommodated in the redeveloped building with equal or specified carpet area. The developer's right to obtain an Occupation Certificate for its free-sale component was contingent on complete rehabilitation of all certified occupants. Enforcement of the PAAA therefore fell squarely within MHADA's statutory mandate.
The Court analysed the definition of “occupier” under Section 2(25) of the MHAD Act, which extends beyond formal tenants to include persons liable to pay damages for use and occupation, rent-free tenants, and licensees in occupation. On this reading, even a person in physical possession without formal rent liability could be an “occupant” for the purposes of reallotment in a redevelopment project. Rule 33(7) of the DC Regulations, which governs reconstruction and redevelopment of cessed buildings, specifically refers to landlords and “occupiers” of a cessed building.
The Court then went through the sequence of contemporaneous documents: the 2010 public notice by the developer itself listing the first appellant as a joint occupant; the NOC and revised NOC from MHADA recording the same; the consent affidavit of 26 February 2009 showing the first appellant as an occupant; the certified list of tenants appended to the NOC identifying her in the occupants column; the amended approved plan of 30 June 2021; and the fact that possession for redevelopment was handed over by the first appellant — not by any third party — in 2019, the original tenant having died years earlier. Against that backdrop, the developer's claim that the first appellant was included in documents only by mistake was, in the Court's assessment, unsustainable.
On the developer's argument that the PAAA was executed by a partner who had since been expelled for alleged misdemeanours, the Court noted that the new management, after taking over in March-April 2024, neither wrote to MHADA disputing the PAAA nor communicated any denial of the first appellant's occupant status directly to her. The developer's advocate appeared before MHADA and raised only the narrow contention that the appellant had not produced documents establishing her relationship with Ms. Unwalla — not that the PAAA was forged or unauthorised.
The Consent Terms of 9 March 2024, by which the developer's partners had resolved their inter se dispute and purportedly declared agreements executed by the earlier partners non-binding, were specifically addressed. The Court held that a settlement of internal partnership disputes, reached without joining the beneficiary of the PAAA, could not extinguish the developer's obligations under an agreement on the strength of which vacant possession had already been obtained, the old building demolished, and the new one built.
The Anomaly in the PAAA and the Probate Issue
The developer had pointed out an apparent inconsistency in the PAAA: its recital mentioned a pending probate application at the time of execution in October 2019, whereas the testamentary petition was actually initiated only in February 2022. The Court found this anomaly did not vitiate the agreement. The first appellant's entitlement as a recognised occupant in her own right rested on a separate and independent statutory foundation, reflected in MHADA's own certified documents going back to 2009 and 2010. The probate, the Court said, was obtained by way of abundant caution after the developer defaulted in delivering the premises even following completion of construction. The probate was ultimately granted on 30 January 2024.
The Civil Suit Characterised as Misconceived and Mala Fide
The Court took particular note of the civil suit filed by Kalikund Developers on 6 February 2026. Before the High Court, the developer had given an undertaking that two flats would be kept encumbrance-free pending civil proceedings. Yet the prayers in CS No. 4579 of 2026 went far beyond protecting two flats: they sought to deny the appellants any allotment at all — whether as occupant or as legal heir of Ms. Unwalla — and to have the PAAA declared invalid and unenforceable in its entirety. The Court described the suit as “misconceived and mala fide” in the context of the undertaking given before the High Court, finding that it sought to resile from the very concession the developer had made. The High Court was accordingly directed not to proceed with Civil Suit No. 4579 of 2026.
Order
The Supreme Court set aside the impugned judgment of the Division Bench of the Bombay High Court and revived MHADA's order of 30 October 2025, finding it valid and sustainable. The first and second respondents were directed to execute the PAAA and hand over possession of the three flats in the new building within two months from 23 July 2026. In the event of non-compliance, the appellants would be entitled to recover damages from the first and second respondents computed at the monthly rental value of the three flats, and would further be entitled to sue for damages for the delay in delivery. The High Court was directed not to proceed with Civil Suit No. 4579 of 2026. The appeal was allowed with costs of Rs. 50,000 each before the High Court and the Supreme Court, payable by the first and second respondents to the appellants. All pending applications were disposed of.