Redevelopment of aging buildings – be they urban cooperative housing societies or commercial complexes – is booming in India. These joint ventures promise modern amenities and higher space utilization, but they hide serious legal risks if society agreements are weak. Courts have seen cases where developers missed deadlines, altered plans without consent, or even tried to evict dissenting members based on majority resolutions. Common issues include developer defaults, lax consent processes, timeline slippages, ineffective exit clauses, committee mismanagement, and regulatory gaps like RERA compliance. Addressing legal issues in redevelopment projects requires bespoke, clear agreements.
- Developer default or insolvency: Builder fails to perform or goes bankrupt.
- Lack of full member consent: Minority owners object or were not properly consulted.
- Delayed possession: Construction overruns leave owners in limbo.
- Weak exit/dispute clauses: No clear termination rights or arbitration framework.
- Committee mismanagement: Societies’ own leaders mismanage funds or skip procedures.
- Gaps in RERA compliance: Redevelopment nuances fall outside RERA protection.
These pitfalls underscore why every redevelopment agreement must be drafted with care, foreseeing disputes and exit options up front.
Developer Defaults and Construction Delays
One of the biggest risks is a developer walking away from his obligations or running out of funds. In Goregaon Pearl CHSL v. Seema Parayekar (Bombay HC, 2017), for example, the builder took over eight years—far beyond the agreed 25 months—to finish a society’s project. He even changed the building plan and added extra floors without society approval.
The society invoked a bank guarantee and revoked the builder’s power of attorney to protect itself. This case highlights why a redevelopment agreement must include strong performance guarantees (like bank guarantees or escrowed funds) and clear termination rights on default. If a builder stalls, the society should be able to cancel the contract, claim refunds, or appoint a new contractor without getting entangled.
Financial remedies are also essential. Under RERA, allottees can withdraw and get refunds or claim interest if possession is delayed. In M/s. Fortune Infrastructure v. D’Lima, the Bombay High Court held that even if a deadline isn’t in the agreement, the builder must complete work within a reasonable time, and cannot indefinitely postpone delivery. Societies should mirror this in their DA: set strict timelines for milestones, allow interest or penalties on overdue possession, and give the society rights to re-enter the site or claim damages.
The recent Kher Nagar Sukhsadan Co-op. Housing Society Ltd v. State of Maharashtra (Bombay HC, 2024) reinforces that if a developer fails to perform (even due to insolvency), the society can lawfully terminate the agreement and hire a new builder. Such clauses protect against the endless delays that plague delayed possession in India.
Member Consent and Minority Rights
A second pitfall arises from how a society secures consent. In cooperative societies, redevelopment needs a formal general-body resolution. Even if a majority votes in favor, minority members still have rights. In a landmark 2009 case (Fardoon Apartment Co-op. Hsg. Soc. v. Acknur Constructions, Bombay HC), the court held that “even a single dissenting member…cannot be thrown out” by relying solely on a development agreement and majority vote.
Redevelopment must “safeguard the existence of the society” and not violate any member’s fundamental rights. In practice, this means the society should strive for nearly unanimous consent (many societies’ by-laws require 75% or more) and offer exit options to holdouts. The agreement should explicitly record the consent of each signatory, and the society must document that it has the statutory requisite (often 51% or more) of members approving the plan.
Without clear consent procedures, the project can be derailed by member objections. For example, if some owners did not sign the agreement or were misled, they may refuse to vacate or even file litigation. Society agreements should therefore include express clauses that no signatory can withdraw individual consent later, and that disputes among members be resolved internally or by specified mechanisms. In short, robust voting and consent clauses (and even a separate exit price formula for dissenters) can prevent society consent for redevelopment from becoming a legal quagmire.
Delayed Possession and Buyer Remedies
Delays in completing the project or handing over flats are a chronic issue. Both MOFA (Maharashtra Ownership Flats Act) and RERA provide statutory remedies. Under RERA, homebuyers can claim interest or compensation for late delivery and even withdraw and get refunds plus interest.
The Fortune Infrastructure case (above) made clear that builders cannot extend possession beyond a reasonable time. To enforce this, redevelopment agreements should incorporate clear possession dates (or deadlines tied to issuing occupancy certificates) and stipulate compensation if the developer misses them.
If RERA applies, society members (as allottees) gain its protections. However, if RERA is inapplicable (see below), societies must rely on MOFA’s default clauses. MOFA Section 3(2)(B), for instance, allows the society to rescind the agreement and seek refunds from the promoter if construction is unreasonably delayed.
In any case, the DA should provide that time is of the essence, set liquidated damages or alternative accommodations during delays, and allow society rescission on even minor defaults. These provisions ensure that developer disputes over delays can be settled by the remedies agreed in writing, rather than through protracted court battles.
Exit Rights and Dispute Resolution
A frequent blind spot is weak termination or arbitration clauses. Societies must be able to exit a deal or enforce performance if things go awry. The Goregaon Pearl society, for example, revoked the builder’s power of attorney and initiated arbitration under Section 9 of the Arbitration Act. Embedding such exit triggers in the agreement is crucial. A well-drafted DA will allow the society to terminate the contract, encash guarantees, and have the developer redress defects within a short cure period. Without these, the society may be left powerless if the builder refuses to cooperate.
Dispute-resolution clauses also demand attention. Many agreements mandate arbitration, but recent case law shows pitfalls. In Pali Hill Neptune Co-op. Hsg. Soc. v. Avenues Seasons Props. (Bombay HC, Dec. 2024), the court held that only signatories to the DA (the society itself and consenting members) can invoke the arbitration clause. Outsiders or dissenting owners cannot be forced into arbitration under that contract. This means societies should ensure that all potential claimants (including developers, society, and any member financing the project) are explicit parties to the dispute clause.
Otherwise, members who didn’t sign can sue in court, bypassing the agreed arbitration forum. The arbitration clause should therefore expressly bind each member bound by the DA and allow the society to compel any dispute (with a signatory) into arbitration.
In sum, an effective dispute-resolution framework in a redevelopment agreement will: (a) identify all parties (society, developer, consenting members) as “party” to the arbitration clause; (b) allow the society or individual members to nominate arbitrators; and (c) include provisions for provisional remedies (like receiver or injunction) pending arbitration. Without these, society–developer disputes will likely end up in expensive, slow court suits.
Managing Committee Oversight and Transparency
Society managing committees carry a fiduciary duty to members, and mismanagement can sabotage even well-intentioned redevelopment. For instance, if committee members hide information, accept secret commissions from a developer, or fail to seek legal advice, the entire project can become voidable. To guard against this, agreements should mandate independent audits and require GC approval of each step.
The Maharashtra Co-operative Societies Act already allows members to impeach a committee via no-confidence motions, and recent changes even make fraud in co-op societies a criminal offense.
Societies should use these tools: hold the committee accountable, ensure minutes accurately record member votes, and keep financial dealings (like advances paid to the developer) in transparent escrow accounts. In practice, including due-diligence checklists and a lawyers’ review of every draft agreement can mitigate internal mismanagement.
Furthermore, if a managing committee plays a dual role (e.g., committee members signing as allottees), the agreement should expressly address potential conflicts. Clauses could require such members to appoint independent proxies for certain votes, or to abstain from decisions where they have a personal interest. Ultimately, proactive oversight – reflected in the agreement – prevents a “revolving door” where an errant committee forces unfavorable terms on the society.
RERA and Regulatory Compliance Gaps
Redevelopment often falls into a gray zone of regulation. RERA was designed to bring transparency and accountability, but it may not cover every aspect of redevelopment projects. Notably, MahaRERA has held that the rehabilitation component (e.g. alternate accommodation for existing tenants) does not fall under RERA’s purview. In one case, tenants of a cessed building seeking promised accommodations could not invoke RERA because they were not “allottees” of a registered project.
By contrast, RERA treats the free-sale component (new market-rate flats sold to outsiders) as a registered real estate project. Times of India has observed that RERA’s broad “promoter” definition now even includes co-op societies in redevelopment projects. Thus a housing society, as landowner-promoter, can be jointly liable under RERA alongside the builder.
The upshot is this: RERA compliance is mandatory for the portion of a redevelopment project involving sale of new flats, but society must seek relief under other laws (MHADA, MOFA, or local housing schemes) for the rehabilitation portion. Accordingly, redevelopment agreements should explicitly require the developer (and society, as co-promoter) to register the project with RERA and follow its rules on disclosures, escrow, and time schedules. Failure to do so can invalidate sale bookings or lead to fines.
Similarly, agreements should cite MOFA requirements (like obtaining a Commencement Certificate and registering the DA) and ensure that MOFA’s protections apply (e.g. Section 3’s termination rights if the developer defaults). By spelling out all applicable laws – RERA, MOFA, MHADA rules, municipal norms – the contract leaves no loophole for non-compliance.
Conclusion and Recommendations
Redevelopment projects hold great promise but are fraught with latent legal dangers. Experienced courts have warned that redevelopment must not trample member rights or bypass safeguards. The antidote is meticulous drafting and governance. Societies and developers should consider the following action points:
- Ensure valid consent: Obtain and record unanimous or super-majority resolutions; offer dissenters fair exit compensation.
- Secure deadlines and guarantees: Fix milestone dates in the agreement, with liquidated damages or interest for delays, and require the builder to provide bank guarantees or escrow for key obligations.
- Detail exit rights: Spell out circumstances (e.g. missed deadlines, insolvency) under which the society can terminate the DA and recover funds or re-tender the project.
- Strengthen dispute clauses: Make sure arbitration/mediation clauses bind all parties (society and members), and allow the society to compel arbitration or seek injunctive relief if the builder defaults.
- Mandate transparency: Have the managing committee involve legal and financial experts, adopt clean tendering, and keep society members fully informed on all contracts and accounts.
- Comply with RERA/MOFA: Treat the society as co-promoter under RERA (register the project if required) and obey MOFA’s norms (like no unilateral plan changes, proper commencement certificates).
- Keep documentation airtight: Include schedules of land, clear description of areas, carpet/saleable terms, and reference all statutory provisions to avoid ambiguity.
By embedding these safeguards, housing societies (and owners in commercial redevelopments) can transform projects from potential legal minefields into successful urban renewal. Strong, customized clauses in the redevelopment agreement will proactively address developer defaults, consent hurdles, delay penalties, arbitration disputes, and compliance gaps – ensuring that the promise of redevelopment is realized, not undone by litigation.
References:
- Real Estate (Regulation and Development) Act, 2016 (RERA).
- Maharashtra Ownership Flats Act, 1963 (MOFA).
- Bombay High Court – Goregaon Pearl CHSL v. Seema Mahadev Parayekar, Arbitration Petition (City Civil Court, Mumbai, 2017).
- Bombay High Court – Khimjibhai Patadia v. Municipal Corporation of Greater Mumbai, WP(L) No. 30632 of 2024.
- Bombay High Court – Kher Nagar Sukhsadan Co-operative Hsg. Soc. Ltd. v. State of Maharashtra, WP No. 3893 of 2024.
- Bombay High Court – Pali Hill Neptune Co-op. Hsg. Soc. Ltd v. Avenues Seasons Props. LLP, Dec. 2024.
- Bombay High Court – Fardoon Apt. Co-op. Hsg. Soc. v. Acknur Constructions Pvt. Ltd., Dec. 2009.